Download Ownership and its Impact on Coping with Financial Crisis

Asia Pacific Journal of Management, 21, 49–74, 2004
c 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Ownership and its Impact on Coping
with Financial Crisis: Differences in State-,
Mixed-, and Privately-Owned Enterprises
in Thailand
HUGH M. O’NEILL
Hugh [email protected]
DENNIS A. RONDINELLI
dennis [email protected]
The Kenan-Flagler Business School, The University of North Carolina at Chapel Hill, Campus Box 3490,
McColl Building, Chapel Hill, NC 27599-3490, USA
TIBORDEE WATTANAKUL
Tibordee [email protected]
State Enterprise Policy Office, Ministry of Finance, Royal Thai Government, Bangkok, Thailand
Abstract. Corporate turnarounds have been studied widely in Western contexts, but few empirical studies detail turnaround experience in non-western countries, especially those undergoing or recovering from financial
crisis. An assumption in recent privatization policies has been that change in ownership triggers a form of performance reversal or turnaround. Here, we compare firms with three different forms of ownership two years after
the financial crisis in Thailand. This study assesses the impact of ownership differences on the level of corporate
entrepreneurship, human resource management practices, and worker effort among state-, mixed- and privatelyowned enterprises in Thailand. The results suggest cautious optimism about changes in ownership as a potential
means for triggering organizational changes that lead to increased productivity for threatened economies. Mixed
ownership may be an effective substitute for private ownership or, alternately, an effective transitional form of
restructuring state enterprises in preparation for private ownership.
Keywords: privatization, corporate entrepreneurship, corporate turnaround
Introduction
The 1990s may justifiably be remembered as a period when emerging market countries
in Asia underwent serious and sometimes unanticipated financial and economic crisis. International organizations such as the World Bank and the International Monetary Fund
prescribed privatization as a means of transforming centrally managed and state-dominated
economies into viable market systems and as a means by which countries in crisis could
regain economic stability. The use of privatization as an instrument of economic and organizational reform spread rapidly through Europe and Asia. (Ramamurti, 1992; Rondinelli
and Yurkiewicz, 1996). One observer described privatization as the opening of the floodgate (Ramamurti, 1992) that, like many faddish strategies, may have diffused the process too widely (Abrahamson, 1996; O’Neill, Pouder and Buccholtz, 1998). One result
of the spread of privatization was the increased influence of international money flows
on Asian economies and increased turbulence in domestic markets. Asian miracles
50
O’NEILL, RONDINELLI AND WATTANAKUL
became Asian nightmares almost overnight, for example, as the Thai Baht collapsed in
1997.
In this study, we compare three different types of firms in the postcrisis period in
Thailand. Our interest is in finding whether privatized firms are more or less crisis responsive than state-owned firms or firms under mixed ownership. An implicit assumption
in IMF policies promoting privatization has been that privatized firms are more adaptable and crisis responsive than state-owned enterprises. While there is some support for
that assumption, the support is equivocal. Anderson et al. (1997) reviewed data on 6,000
privatized firms in Central and Eastern Europe and found that between 1992 and 1995
their average labor productivity grew by 7.3 percent while state owned firms had on average −0.2 percent growth. Yet, Arens and Brouthers (2001) found that privatized firms
are not more adaptable than state-owned firms in Romania. Meggison and Netter (2001)
note that most studies of privatized firms—but not all studies—show an improvement
in performance. In reviewing the research, Meggison and Netter (2001) also note that
few studies identify the specific firm level behaviors that account for the improved
performance.
What is a “crisis responsive” firm? We use literature about organization decline, corporate
turnaround, and corporate transformation to describe the characteristics of adaptable, or
crisis responsive, firms. We argue that crisis responsive firms will have high levels of
corporate entrepreneurship, effective human resource policies, and high levels of work
effort. We demonstrate that firms under privatized forms of ownership are more crisis
responsive than state-owned enterprises.
We focus on the differences between state-owned enterprises (SOEs), mixed-ownership
enterprises (MEs) in which both government and private investors hold shares, and private
enterprises (PEs), in an attempt to understand the impact of crisis on these different forms
in Thailand. Thailand offers a good venue for the study because the economy has been
under pressure since late 1996 (Rondinelli and Priebjrivat, 2000). In mid-1997, financial
panic caused severe capital outflows from Thailand, and a free fall in currency and stock
markets. The International Monetary Fund pressured the Thai government to restructure
the country’s economy after the financial crisis and, in response, the government committed
Thailand to a Master Plan for State Enterprise Sector Reform. The master plan provided
guidelines for increasing private sector participation in sectors previously under government
control, privatizing SOEs, and establishing regulatory and institutional reforms that would
improve the efficiency of the market. The master plan included an action program for the
reform and privatization of 59 SOEs primarily in the energy, telecommunications, water,
and transportation sectors.
We present the study in four sections. First, we discuss the potential differences expected in the response of state and private enterprises to crisis. Second, we describe a
study that investigates whether those differences actually exist among firms with different forms of ownership in Thailand, a country with many years of experience with a
mixed economy. Third, we present the statistical results of the study. Fourth, we consider
the implications of the study for privatization and turnaround strategies in Thailand and
elsewhere, and we discuss the application of corporate turnaround theories in this Asian
context.
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
51
Literature review and research hypotheses
In theory, organizations are goal-directed, boundary-maintaining, activity systems (Aldrich,
1979). At this level of abstraction, SOEs and PEs share similar functions. Yet these two
forms of organization are quite different in their specific goals, boundary issues, and activity
systems, and one would also expect differences among them in strategic and operational
behaviors.
The nature and characteristics of government, mixed-ownership, and privately-held
enterprises
Organizational theory points out many differences between government-owned enterprises
and private firms that can affect their ability to respond to crisis and turn around their
performance. SOEs and PEs differ, for example, in the clarity of their goal structure. SOEs
are directly embedded in government, and as a result, their goals are strongly influenced by
political objectives (Moore, 1992). Because many political groups influence government
organizations, their goals are diverse and frequently inconsistent. While the SOE seeks to
satisfice on a number of ambiguous goals, a private firm clearly seeks to maximize profits.
To be sure, SOEs face financial constraints and PEs must frequently balance other goals
against profit maximization, but profits clearly have a super-ordinate role in private firms,
especially in those that are publicly traded. Economic theory claims that market forces lead
to the removal of non-profitable managers and the dissolution of non-profitable firms. The
sources of discipline faced by SOE managers are more diffuse (when they operate at all)
and, as a result, their goal structures differ from managers of private firms.
SOEs and PEs also differ in boundary-maintaining systems. The organizational boundary
of private entities is quite clear, whereas for SOEs it can be quite vague. Cyert and March
(1998) argued that both business and government enterprises are complex decision-making
organizations, but they differ in the character of their relations with external control groups,
leading to differences in the process by which they make decisions. Rainey (1989) suggested
that public managers often face more constraints (rules and procedures), external political
contacts, and interruptions compared to business managers.
Finally, SOEs and PEs have different activity systems, that is, sets of interdependent
role behaviors and routines. Aldrich (1999) defined routines as the rules, procedures, and
strategies around which organizations are constructed and through which they operate.
SOEs are empowered through the law and (theoretically) are held accountable to the state
for administering the law in pursuing their goal of public service. As part of government,
state enterprises have different roles than private firms in a market economy. Compared
to business organizations, SOEs have more extensive procedures and more formal specifications and controls designed to insure public accountability. The strategic behavior of
SOEs is strongly influenced by constraints specific to their form. These constraints include
goal conflict engendered by differing and shifting coalitions controlling the government
and lack of strategic flexibility due to the limited domains and charters, politics, and bureaucratization. Property rights theorists note the differences in behavior of managers of
SOEs and PEs stemming from ownership differences (Alchian and Demsetz, 1973). The
52
O’NEILL, RONDINELLI AND WATTANAKUL
non-transferability of ownership inhibits capitalization of SOEs and reduces the owners’
(i.e., the government’s) incentives to monitor managerial behavior in SOEs.
SOEs and private firms represent points on a continuum, with mixed enterprises at a
mid-point between the two anchors. MEs include various combinations of government and
private joint equity participation (Boardman, Eckel and Vining, 1986). The term “mixedenterprise” specifically excludes wholly state-owned enterprises, joint ventures between two
government-owned firms, and contractual joint ventures in which the private partner does not
have equity. MEs enable the government to maintain control at less cost than is required for
complete ownership. As a result, MEs are less embedded in government and can avoid some
of the costly accountability procedures and other governmental restrictions and controls
found in SOEs. The ME potentially offers a cost-minimizing method for government to
satisfy both profitability objectives and social goals. In a ME, private shareholders monitor
profit making and efficiency and the government monitors social goal achievement.
Our interest is in undestanding how well SOEs, MEs and PEs respond to crisis. One school
of thought holds that organizations are basically inert (DiMaggio and Powell, 1983; Hannan
and Freeman, 1984; Staw, Sandelands and Dutton, 1981). A second school of thought is
more optimistic about organizational adaptability. Proponents of this second school argue
that firms are capable of strategy change and organizational learning (Barker and Duhaime,
1997; Beer and Nohria, 2000; Hambrick and Schecter, 1983; Kelley and Amburgey, 1991;
Miles, 1997). Change capable organizations exhibit high levels of corporate entrepreneurship (Stopford and Baden-Fuller, 1994), effective human resource management practices
(Pfeffer, 1998) and effective worker effort (O’Neill and Lenn, 1995). Given the differences
among SOEs, MEs, and PEs, one way to assess the adaptability of different ownership forms
is to observe and compare their level of corporate entrepreneurship, their human resource
practices, and the level of worker effort.
Organizational responses to crisis may be multi-facted across time. For example, in early
stages of a crisis, the response is often a reactive one, lacking comprehensive analysis of
the cause of the response. In this early stage, the response generally includes increased
rates of centralization, rigid forms of behavior, and scapegoating (Cameron, Whetten and
Kim, 1987). The organization’s focus, at this stage, is on cutting costs and working harder
(Barker and Duhaime, 1997; Hofer, 1980). These initial recovery efforts are a necessary, but
insufficient response to the crisis. Effective long term recovery may require more variety in
response, and a new strategy (Robbins and Pearce, 1992; Barker and Duhaime, 1997). As
March (1990) notes, processes refining exploitation (that is, cost cutting) are likely to be
effective in the short run but destructive in the long run.
High levels of worker effort are necessary at both stages of the response to crisis. Effective response, in the long term, also requires high levels of effective human resource
practices and high levels of corporate entrepreneurship. The effective human resource practices facilitate the firm’s transition through the varied cost cutting programs. These human
resource practices lessen the likelihood of firm members becoming excessively rigid, as
predicted by theories of inertia (Staw, Sandelands and Dutton, 1981). In turn, high levels
of corporate entrepreneurship foster the creation of new strategies. In sum, the presence
of human resource practices and corporate entrepreneurial behavior help firms respond to
environmental jolts and discontinuous change (Meyer, Brooks and Goes, 1990).
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
53
Corporate entrepreneurial behavior
One measure of an organization’s adapatability and responsiveness to external crisis is
its ability to create new resources through corporate entrepreneurial behavior. Corporate
entrepreneurship is a dimension of strategic posture represented by a firm’s risk-taking
propensity; that is, its tendency to act in competitively aggressive, proactive ways and its
reliance on frequent and extensive product innovation (Covin and Slevin, 1991). Corporations practice entrepreneurship by entering new markets or by developing new goods and
services for established markets (Lumpkin and Dess, 1996). Autonomy, innovativeness,
risk-taking, proactiveness, and competitive aggressiveness are present when a firm enters
new markets.
Private firms can be expected to be entrepreneurial because three primary requisites of
entrepreneurship are freedom to put ideas into effect, freedom to enjoy the fruits of success
or the penalties of failure, and freedom from intervention by the government to encourage
or frustrate an enterprise (Livesay, 1982). Private firms generally have fewer restrictions
on behavior and afford their managers more freedom than SOEs to innovate and obtain
rewards for innovation (World Bank, 1995). Therefore, we expect PEs to have higher levels
of corporate entrepreneurship than SOEs.
Another reason to expect higher levels of corporate entrepreneurship in PEs is the influence of property rights (Alchian and Demetz, 1973). Owners can act to replace managers
if a private firm’s value declines. This influences managers to anticipate the future value
of their current decisions and, more importantly, to consider the difference between the
present and future values of those decisions. At the point that the future value of current
decisions is presumed to be less than the current value of those decisions, the managers are
prompted to search for new alternatives based on their fear of the owners’ negative reaction
if returns decline. Theoretically, at least, the fear of job loss will induce PE managers to
search for new markets and new ways to maintain profits. This search is the essence of
corporate entrepreneurship. Similar pressures are either not found, or are less pervasive, in
SOEs.
March (1991) notes that firms can develop two styles of learning: exploration and exploitation. Exploration is a search for new alternatives, while exploitation is learning to
engage in historical alternatives more skillfully. Under pressures of job loss, especially in
the early crisis stages, it is possible that, propelled by fear of job loss, the managers will
try to exploit previous skills. The tendency to do this lessens the learning ability of organizations in turbulent environments. In the presence of turbulence, learning is better served
by exploration and the creation of options. The owners of PE will monitor the progress of
learning, and act more quicky to replace the managers who do not exhibit adaptive behaviors. March (1991) shows that turnover increases the ability of organizations to respond to
turbulence.
In addition to the motivation provided by fear of loss, PE managers are frequently motivated by opportunity for gain. The opportunity for gain exists because the interests of the
manager and the owner are aligned through specific payment systems, which include salary
at risk and options for ownership. In contrast, payment systems in SOEs are frequently
based on civil service rules, which traditionally limit the amount of pay at risk (if any)
54
O’NEILL, RONDINELLI AND WATTANAKUL
to levels much lower than that found in PEs. SOEs generally maintain similar pay levels
across similar ranks in different units of the organization, with less regard to the strategic
importance or recent performance of those units. In addition, there are no options for ownership in SOEs, so it is more difficult to reward risk-taking behavior. Indeed, risk-taking in
SOEs may be punished rather than rewarded (Downs, 1967). Risk-taking is an important
component of corporate entrepreneurship and, therefore, given their advantage in aligning
owner and manager incentives, PEs should have higher levels of corporate entrepreneurship
than SOEs.
Knowledge of the environment and opportunities for change may be more important than
incentives in encouraging change in organizations (Kanter, 1983). Once again, private firms
should have advantages over SOEs. The PE competes for resources within a defined group
of suppliers, competitors, funders, and customers. By comparison, the SOE’s competitors
for resources are more diffuse—a wide variety of government agencies and political interest
groups—and more difficult to monitor. To the extent that the environment provides clues
about opportunities to change, it must be scanned and monitored. The PEs’ environment
may be easier to scan because relationships with suppliers, funders and the like are more
direct.
In sum then, the PE appears more suited to the requirements of corporate entrepreneurship than SOEs. However, not all PEs display higher levels of corporate entrepreneurship.
Consider, for example, Schumpeter’s (1934) description of entrepreneurship as “creative destruction,” a term that contains a potential attraction-aversion paradox. Most rational actors
might be attracted to creative behavior, while at the same time avoiding destructive behavior. Cyert and March (1992) argue that organizations tend to evince norms of rationality.
It would appear, then, that the balance between the two forces depends on the risk profiles
of decision makers in organizations. Risk-averse decision makers would avoid destructive
behavior, while risk-neutral or risk-seeking individuals would be more inclined to engage
in it. Comparing PEs and SOEs with respect to levels of corporate entrepreneurship, then,
requires estimating the risk profiles of managers in private firms. Compared to incentives
and environmental influences discussed earlier, predictions based on risk profiles are more
equivocal.
Schumpeter’s definition can be applied to either individuals starting new businesses
or to corporations starting new ventures. But once established, all organizations develop
some degree of inertia that favors past activities over new ventures. In reality, corporate
entrepreneurship may be more an anamoly than a norm even for PEs (Burgelman, 1988;
Kanter, 1983).
Other processes also contribute to the conservatism of PEs. Stinchcombe (1965) described
the early stages of an organization’s existence as one of “imprinting.” The individuals who
form an organization seek solutions to problems. As the organization succeeds and grows,
the tasks become sub-divided and differentiated, and firm members become more and more
specialized in unique and highly differentiated tasks. Knowledge about the tasks is passed
across cohorts or generations of workers, and as the organization grows and ages, the
routines of the organization gain an institutional character.
The forces described by Stinchombe contribute to a high level of inertia in all organizations (DiMaggio and Powell, 1983; Hannan and Freeman, 1984). Hannan and Freeman
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
55
define organizational inertia as a rate of change less than that occuring in the environment.
To the extent that inertia exists, organizational forms will change slower than the environments around them, and eventually be supplanted by other forms. This process suggests
that higher levels of entrepreneurship can be expected in newer organizations than in older
ones, and that the incidence of corporate entrepreneurial behavior is a function of the corporation’s age. Older PEs, then, may not have higher levels of corporate entrepreneurship
than younger SOEs.
The evidence about the presence of inertia in organizations is mixed (Kelly and Amburgy,
1992). Two different streams of work suggest that forces do produce what appear to be inertial reactions in organizations. Meyer and Zucker (1989) describe “permanently failing
organizations”—marginally profitable or marginally successful organizations that persist
despite low levels of performance. These organizations “yield benefits that motivate investment in and maintenance of them, but these benefits often accrue to those who are in one
way or another dependent on organizations rather than to those who legally own or control
them” (1989: 45). This concept explains why SOEs survive for so long even as loss-makers.
Where dependent actors have power, organizations persist even in the presence of poor performance. But the same concept also explains inertia in private firms. We argued earlier that
poor performance would cause managers to search for new opportunities in private firms.
That suggestion implicitly presumed that these managers served the interests of the owners,
and had power over the organization. Each assumption can be questioned. For example,
agency theory studies of implementation (Guth and MacMillan, 1986; Jensen and Meckling,
1976) contain many illustrations of misalignment between manager and owner interests.
Studies of technological change also support the inertial perspective. Cooper and Schendel
(1976) found that, frequently, technological change fails to attract the interest of industries
most directly influenced by those changes. Christensen (1997) describes how innovators,
once successful, will find that marginal returns to investments in their successful products will surpass the returns to investments in potential substitute products. The substitute
products, in turn, are then developed by new entrants. These new entrants become well
established and may eventually surpass the incumbents. The Christensen thesis suggests
that the ability of managers to anticipate the success of new products is flawed. This ability, though, is at the foundation of predictions that private firms would be inherently more
entrepreneurial then SOEs.
Clearly, then, the relationship between ownership or governance (PE versus SOE) and
corporate entrepreneurship is not absolute. Private firms sometimes exhibit inertial forces
that may be stronger than incentives for entrepreneurship. Similarly, it is possible to identify
conditions that might lead to higher than expected levels of entrepreneurship in SOEs. Indeed, Kornai (1992) points out that SOE managers in communist and socialist countries often
displayed a great deal of entrepreneurship in bartering, negotiating, and evading rules in order to meet state planning targets. Similarly, Kale and Mulherin (1997) found that formerly
private state-owned firms maintain their historic patterns of behavior. However, notwithstanding the forces for conservatism in PEs, the incentives for corporate entrepreneurship
and the observed rate of corporate entrepreneurship should be higher in private firms. In
turn, the inertial institutional forces and the constraints of nested networks and rules should
be higher in SOEs. Therefore,
56
O’NEILL, RONDINELLI AND WATTANAKUL
Hypothesis 1. PEs have higher levels of corporate entrepreneurship than SOEs.
MEs have less government controls and managerial constraints than SOEs but are not as
flexible as private firms. The freedom in MEs can create an entrepreneurial climate. Compared to SOEs, MEs seek to attain more profits and place less emphasis on political considerations, allowing them to develop more innovative and proactive strategies. Therefore:
Hypothesis 2. MEs have higher levels of corporate entrepreneurship than SOEs.
Hypothesis 3. PEs have higher levels of corporate entrepreneurship than MEs.
Human resource management practices effectiveness
Strategic contingency theory suggests the importance of role positions—the roles that individuals fill in an organization should be defined by its strategy (Gupta and Govindarajan,
1984). The importance of role positions should determine the quality of the incumbent,
the salary structure, and the incentive system. Therefore, one measure of effective human
resource administration is the ability of an organization to match its human capital needs
to its strategy. Clear strategic direction should facilitate this task and ambiguities in strategic direction should complicate it. Given the differences in the clarity of strategy between
SOEs and private firms, the latter should be more effective in assessing their human capital
needs. Human resource management practices, in turn, influence the competitive posture
of organizations (Pffefer, 1998) through their effects on the human capital (Huselid, 1995;
Huselid and Jackson, 1997).
As noted earlier, Pfeffer (1998) identified seven HRM practices of successful organizations: employment security, selective hiring, self-managed teams, incentive pay, extensive
training, extensive information sharing, and reduced status barriers. Each of these practices
can be an important source of competitive success (Schuler and MacMillan, 1984; Schuler,
1992; Pfeffer, 1994, 1998). To the extent that an ownership form is consistently more effective at one or more of these roles, that form should then have an enduring performance
advantage. PEs may have an advantage over SOEs in several of these areas.
Human resources are generally managed in SOEs through government civil service systems. These systems foster high levels of formalization and standardization, which reflect
strong norms for equitable treatment. Those norms find expression in programs like standardized testing, standardized pay rates for specific jobs, and system-wide rules for promotion and removal. This institutionally-driven standardization limits the flexibility that SOE
managers can employ in responding to the specific needs of their organizations. Changes
in personnel rules or policies tend to cover all government agencies rather than specific
SOEs. As a result, an SOE has limited ability to reward unique roles or unique performers. Also, SOE managers have limited incentives to use technology to make labor more
productive because managers will not share in the gain derived from reducing the number
of workers. They may even suffer some loss of prestige or rank (and pay) as a unit gets
smaller or incur criticism from political leaders or politically influential labor unions fearful
of unemployment. Put differently, rational behavior is defined in terms of the rules imposed
by the civil service rather than by the strategic needs of the SOE. Because the rules of the
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
57
civil service system must fit a large number of different types of units, the chances of misfit
with any single unit are high. In addition, single units are limited in their responsiveness to
changes that are not perceived by a large number of other units.
In contrast, human resource management (HRM) practices in business firms are more
malleable than those found in SOEs, and can be more easily matched to the demands of
business. The CEO of the private firm is the prime determinant (within the limits of law
and past contracts) of HRM, with no oversight by a civil service department and no need
to match programs to those found in other organizations. The CEO and the management
team have some chance to share in any gains that accrue from good HRM practices. Gainsharing opportunities encourage the adoption of labor-saving or labor- substituting devices.
Importantly, managers in these firms have some freedom to share these gains with workers,
further improving the chances for successful change.
The differences between SOEs and PEs give advantages to the latter on five of the seven
HRM practices identified by Pfeffer. First, PEs are more capable of providing selective
hiring, as they are less bound by civil service and political constraints and can quickly
respond to specific market needs. Second, PEs are sufficiently flexible to engage in the
definition of specific assignments and reward structures necessary for self-managed teams.
Third, PEs can use incentive pay more easily. Fourth, PEs can re-assign workers more
frequently as they substitute labor-saving technology, and provide technological training
for workers. Fifth, PEs driven by the chance to gain from information-induced changes, are
more motivated to engage in information sharing about required changes.
A firm’s level of human resource effectiveness is one predictor of how the firm will respond to crisis. HRM practices influence firm member behaviors around such crisis related
issues as downsizing (McKinley, Zhao and Rust, 2000), survivor guilt, restriction of information (Cameron, Whetten and Kim, 1987), and employee learning (Sutton and D’Aunno,
1992). An organization engaged in effective human resource management will have well
formed protections around the issues that create ineffective responses to decline. For example, norms of security would decrease the possibility of excessive downsizing, while
norms around hiring and incentive pay would assure some form of performance link in the
selection of downsized personnel.
For two of Pfeffer’s HRM practices, SOE’s may have some advantage. Given the norms
of equity and the employment goals of government, protected (and subsidized) SOEs may
offer more employment security. In addition, given their focus on stand ardization in selection, reward, and promotion routines, SOEs may be more capable of reducing status barriers
than PEs.
Given the overall pattern of HRM advantages, PEs should have more effective HRM
systems than SOEs. As in the case of corporate entrepreneurship, we expect that the
use of mixed forms of ownership will facilitate the use of better HRM practices for the
ME, although it may still be bound by some of the ties associated with state ownership.
Therefore:
Hypothesis 4. PEs have more effective HRM practices than SOEs.
Hypothesis 5. MEs have more effective HRM practices than SOEs.
Hypothesis 6. PEs have more effective HRM practices than MEs.
58
O’NEILL, RONDINELLI AND WATTANAKUL
Work effort
Motivation is defined as the psychological process that energizes, directs and sustains behavior (Mitchell, 1982; Perry and Porter, 1982). With respect to work-related behaviors,
motivated employees work harder. The issue of work effort is related to crisis response because crisis can induce rigidity (Staw, Sundelands and Dutton, 1981) and withdrawal from
work related efforts (O’Neill and Lenn, 1995). If one organizational form has an advantage
over another with respect to its ability to influence worker motivations, then that form should
evince higher levels of work effort, and more consistent work effort in response to crisis.
In order to understand differences in work effort between SOEs and other forms, we will
review two basic models of motivation.
Evans (1986) described four factors that have an influence on motivation: feedback on
performance, the design of jobs, organizational norms, and group norms. An organization
manipulates these factors to increase the level of motivation, and hence work effort. And if
an organization faces constraints in its efforts to employ these factors, its level of motivation
and work effort should be lower than that found in other forms.
SOE’s, when compared to MEs or PEs, may have difficulties in providing feedback on
performance. The difficulties arise from the ambiguities that exist in the goal structure of
these governmental organizations and to the fact that many SOEs were required to employ as
many workers as possible to keep unemployment rates low in centrally planned economies.
To the extent that there are different goals to pursue and the need to maintain surplus
employees, work efforts can become fractionated. To the extent that the goals pursued
represent political or social goals, rather than those deemed strategic for the SOE, important
work efforts are diluted. In addition, it is possible that the social goals and preferred SOE
goals are incompatible. A government owner, for example, may insist on a goal of increased
employment when a more effective strategy for the SOE would be to maintain stable levels
or to shed surplus workers.
Similarly, when compared to PEs, SOEs may have less freedom to design jobs. As noted
earlier, SOEs generally submit to civil service regulations, which define the conditions of
work, and through those definitions, influence the design of jobs. Continuing the same
theme, SOE’s compared to PEs have less direct control over organization and group norms.
The norms are influenced, at least in part, by the political and social goals of the governing
body and historically, in many countries, were fixed by strong and politically-influential
workers unions. Wages were set at low levels and supplemented by expensive social welfare
benefit payments over which SOEs had little or no control. Employees knew that they would
receive a standardized pay increase and could not easily be fired, no matter how much or
how little they worked.
In an approach similar to Evan’s work on motivation, Porter, Hackman and Lawler
(1974) identified four categories of motivational variables: individual characteristics, job
characteristics, work environment characteristics, and external environment characteristics.
To the extent that an organization can manage the fit across these sets of characteristics,
that organization should enjoy increased levels of motivation and hence, increased levels
of work. Once again, compared to private firms SOEs may be at a disadvantage because
they face more constraints in hiring, job design, and the design of the work environment.
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
59
Moreover, SOEs are generally buffered from the external environment and constrained in
their ability to manage their external environments strategically.
In reaching conclusions similar to ours, Perry and Porter (1982) argued that the difficulties of setting goals in government organizations appear substantial. The difficulties arise
because government organizations have more exposure to external government influences
and lack job clarity. As a result, Perry and Porter (1982) noted that government managers
have difficulties in designating performance standards and evaluating performance.
Therefore:
Hypothesis 7. PEs have higher work efforts than SOEs.
Hypothesis 8. MEs have higher work efforts than SOEs.
Hypothesis 9. PEs have higher work efforts than MEs.
The importance of the three variables may differ based on the stage or type of crisis, with
higher levels of work effort ranking first in importance in early stages and in less dramatic
crisis. For long-term discontinuous changes the three forms of response are necessary for
adaptation (March, 1990; Meyer, Brooks and Goes, 1990). The financial crisis in Thailand
did introduce discontinuous change, as evidenced by the dissolution of large numbers of
financial firms, the high rates of corporate bankruptcy, the creation of a new stock market,
and the adoption of new rules for investment monitoring.
Research methods
To test the hypotheses we surveyed 469 employees in 28 Thai firms, including 9 PEs,
11 SOEs, and 8 MEs. The survey was administered in mid-1999, well after the collapse of
the Thai Baht and the subsequent financial crisis. Table 1 describes the surveyed firms. The
sample includes a mix of industrial and service firms. We did not expect industry induced
variance in the dependent variables, as previous studies of strategic turnarounds have found
similarities in the ways industrial and service firms approach major attempts to reverse
performance. The literature on turnaround studies has been reviewed elsewhere (Barker
and Duhaime, 1997; Robbins and Pearce, 1992). The firms are a representative sample
of large Thai firms, drawn from industries subject to the forces of privatization. As such,
these firms share similarities with firms privatized in other countries (Ramamurti, 1992;
Rondinelli, 1998).
The characteristics of the respondents are summarized in Table 2. Respondents had a
mean work experience of 8.54 years. Of 700 questionnaires distributed, 469 were returned
and usable, yielding a response rate of 67 percent. We used Thai language questionnaires
and applied a double translation approach to reduce interpretation errors. Scoring keys and
questionnaire details and format are found at Appendix 1.
Measures
Three measures of internal organizational indicators of adaptiveness were used in the study:
corporate entrepreneurship, human resources management, and worker motivation.
Banking
Banking
Mass media
UBC
GS Bank
Telecommunication
TT&T
GH Bank
Banking
Thai Military Bank
Banking
Banking
Thai Farmer Bank
EXIM Bank
Telecommunication
Telecom Asia
Energy
Petroleum
EXXON
EGAT
Petroleum
Caltex
Telecommunication
Petroleum
BP
CAT
Banking
Industry
Bangkok Bank
Company
Financial services
Financial services
Financial services
Electricity
Post and telephone services.
3
1
2
9
3
10
87
Cable TV
19
11
7
8
11
3
9
9
Male
12
13
12
3
13
76
9
6
6
7
14
11
8
6
9
Female
No. of Informants
Sub total
Telephone services
Financial services
Financial services
Telephone services
Oil
Oil
Lubricant
Financial services
Product and service
Summary of informants of participating companies in Thailand.
Government
Private
Type
Table 1.
5.5
4.6
4.1
17.3
14.1
6.3
6.5
8.8
6.9
6.2
8.6
4.1
4.4
8.5
Averaged working
experience with
the current
firm (years)
Most respondents from
research department.
4 respondents from
managerial positions.
3 respondents from
managerial positions.
Most are accountants
7 respondents from
managerial positions.
Most respondents from
credit department.
4 respondents from
managerial positions.
50% of respondents from
purchasing department.
3 respondents from
managerial positions.
5 respondents from
managerial positions.
Remarks
60
O’NEILL, RONDINELLI AND WATTANAKUL
Mixed
Water
Energy
Banking
Transportation
Finance
Finance
East Water
EGCO
SCB
Thai Airways
SIFC
SISC
TOT
Hotel
Telecommunication
PWA
Bangkok
International Hotel
Water
PTT
Petroleum
Petroleum
MWA
Bangchak
Banking
Water
Krung Thai Bank
Banking
IFCT
46
188
Grand total
3
6
9
2
9
8
2
55
7
8
15
4
5
0
5
Sub total
Financial services
Financial services
Air flight
Financial services
Electricity
Water
Accommodation
Sub total
Oil
Telephone services
Water
Oil and Gas
Water
Financial services
Financial services
281
76
12
7
10
10
6
9
13
129
9
10
13
13
15
15
10
8.0
9.0
9.8
4.3
6.1
3.1
5.4
5.7
13.5
14.2
9.7
20.4
10.9
5.5
10 of them are managers.
Most respondents from
finance department.
Most respondents from
credit department.
5 of them are managers.
50% from marketing
department.
12 respondents from
managerial positions.
Most respondents
hold master’s degree.
13 respondents from
managerial positions.
Most respondents from
credit department.
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
61
62
Table 2.
O’NEILL, RONDINELLI AND WATTANAKUL
Results of confirmatory factor analysis.
Item
Innovativeness
Your firm has marketed many
new products or services within two years.
Factor 1
Factor 2
Factor 3
Factor 4
0.52
Your firm has changed its products or
services dramatically.
0.76
Your firm’s top managers favor a strong
emphasis on R&D and technological leadership.
0.70
Your firm is very often the first business
to introduce new products/services,
administrative techniques, operating
technologies, etc.
0.77
Proactiveness
Your firm typically adopts a very
competitive posture in dealing with competitors.
0.71
Your firm’s top managers have a strong
proclivity for high-risk projects with
chances of very high returns.
0.56
Your firm’s top managers believe that
bold and wide-ranging acts are necessary
to achieve the firm’s objectives due to
the nature of the environment.
0.61
Your firm typically adopts a bold and
aggressive posture in order to maximize
the probability of exploiting potential
opportunities when confronted with
decision-making situations involving uncertainty.
0.51
Human Resource Management Effectiveness
Your firm’s employee participation and
empowerment are very effective.
0.75
Your firm’s employee and manager
communications are very effective.
0.74
Your firm’s employee training is very
effective.
0.66
Your firm’s performance appraisal is
very effective.
0.80
Your firm’s compensation is very suitable.
0.63
Motivation
Your firm’s people often do some extra jobs
which are not really required of them.
0.54
Your firm’s people keep working harder
than the other competitors.
0.78
Your firm’s people keep working for the
whole day without time concerns.
0.82
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
63
The levels of corporate entrepreneurship used for each ownership type were items developed by Knight (1997). The scale (ENTRESCALE) assesses two factors: (1) innovativeness, comprising four items, is defined as the extent to which an organization pursues
creative or novel solutions to challenges, including the development of products and services and new administrative techniques; and (2) proactiveness, a four-item scale, measuring the extent to which an organization acts in anticipation of future problems, needs
or changes. The alpha coefficients for the scales were 0.78 (innovativeness) and 0.69
(proactiveness).
The effectiveness of human resource management practices was measured with a fiveitem scale. These five items were based on Pfeffer’s (1998) and Shuler’s (1994) descriptions
of effective human resource management practices. The alpha coefficient for the HRM scale
was 0.84.
The study used three items to assess the level of worker effort: (1) extent to which workers
took on jobs not formally mandated by their job descriptions; (2) perception of how hard
employees work compared to those in competitor organizations; and (3) willingness of
employees to work throughout the day without concern for formal time requirements. For
the work effort scale, the alpha coefficient was 0.75.
Analysis
A confirmatory factor analysis (CFA) was performed for the 16 items measuring innovativeness-proactiveness, HRM effectiveness, and work motivation. Overall, results of this analysis indicated that the four-factor structure was a good fit to the data (RMSEA = 0.05, CFI =
0.958, GFI = 0.94, AGFI = 0.92, and RMSR = 0.04). All 16 item loadings are significant
at the 0.05 level (see Table 2).
The hypotheses were tested using standard regression analysis. We used dummy coding for categorizing the three kinds of organizations (state-owned, privately-owned, and
mixed-ownership). We performed two sets of regression analysis: one adopting the mixedownership group as the reference and the other using state-owned enterprises as the reference. In the first regression, represented by models 1 to 4 on Table 5, privately held
businesses and state-owned enterprises are compared to mixed-ownership companies. In
the second regression, models 5 to 8, privately held and mixed-ownership organizations are
compared to state-owned enterprises. In effect, then, the form of ownership is used to predict
the level of innovativeness, proactiveness, human resource management effectiveness, and
work effort existing in these enterprises.
Results
The descriptive statistics and correlations are reported in Table 3. All correlations between
any two dependent variables are significant. Table 4 reports means of all four dependent
measures across three types of organizations and Table 5 presents the results of standard
regression analysis. Recall that Hypothesis 1 suggests that private firms’ corporate entrepreneurship is higher than that of SOEs. Significant positive signs of business-dummy
64
O’NEILL, RONDINELLI AND WATTANAKUL
Table 3.
Descriptive statistic and correlations.
Variable
Mean
s.d.
1. Innovativeness
16.76
5.05
2. Proactiveness
14.49
4.64
0.66∗∗
9.89
5.73
0.62∗∗
0.58∗∗
12.69
3.69
0.52∗∗
0.48∗∗
5. Private dummy
0.35
0.48
0.08
0.10∗
6. SOE dummy
0.39
0.49
−0.08
7. ME dummy
0.26
0.44
0.02
3. HRM effectiveness
4. Motivation
∗p
1
2
3
4
5
6
0.47∗∗
−0.03
0.23∗∗
−0.04
−0.02
−0.31∗∗
−0.59∗∗
−0.02
0.07
0.09
−0.43∗∗
−0.48∗∗
< .05; ∗∗ p < .01.
Table 4.
Means of all four dependent variables.
Type
PEs
Mean
Number
Std. Deviation
SOEs
MEs
Innovativeness
Proactiveness
HRM effectiveness
Work effort
17.33
15.10
19.70
13.85
163
162
162
163
4.92
4.37
5.86
3.31
16.13
14.05
19.63
11.24
Number
179
177
178
177
Std. Deviation
5.33
5.08
5.60
3.76
12.50
Mean
16.80
14.42
20.18
Number
Mean
89
90
90
90
Std. Deviation
4.43
4.18
5.02
3.21
variable’s regression coefficients in model 5 and 6 support this hypothesis. Specifically, the
mean level of innovative (17.33 vs. 16.13) and proactive behavior (15.10 versus 14.05) is
higher for PEs than for SOEs.
Hypothesis 2 predicts that ME’s corporate entrepreneurship is higher than that of government organizations. Results show that the mixed-dummy variable’s regression coefficients
in model 5 and 6 are not significant. Consequently, Hypothesis 2 was not supported; however, positive signs of both regression coefficients are consistent with the proposed direction
in Hypothesis 2.
Hypothesis 3 states that private firms’ corporate entrepreneurship is higher than that of
MEs. The private firm dummy variable’s regression coefficients in models 1 and 2 are not
significant. Thus, the results were not consistent with Hypothesis 3. However, the positive
signs of these two regression coefficients present do position the MEs between the PEs
and the SOEs, as expected. For each of the measures “innovativeness” and “proactiveness,”
SOE’s have the lowest levels, and MEs fall in the middle. This pattern of results is consistent
with the idea that changes in private ownership are associated with increases in these
entrepreneurial activities.
65
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
Table 5.
Results of standard regression analysis.
Dependent variables
Independent variables
1. MEs as the reference
Innovativeness
F-ratio β
Proactiveness
F-ratio β
HRM effectiveness
F-ratio β
Work effort
F-ratio β
Model 1
Model 2
Model 3
Model 4
2.55
2.26
1.06
25.41∗∗
16.93∗∗
14.34∗∗
20.54∗∗
13.23∗∗
R-Square
Constant
.10
0.40
0.76
−0.84
0.62
−0.81
−0.29
−0.91
−1.99∗∗
Model 5
Model 6
Model 7
Model 8
2.55
2.26
1.06
25.41∗∗
16.13∗∗
14.05∗∗
19.64∗∗
11.24∗∗
Private dummy
1.21∗
1.05∗
0.06
2.60∗∗
ME dummy
0.81
0.29
0.91
1.99∗∗
Private dummy
SOE dummy
2. SOEs as the reference
R-Square
Constant
∗p
.10
< .05.
< .01.
∗∗ p
Hypothesis 4 suggests that private firms’ HRM effectiveness is higher than that of SOEs.
As seen in model 7, the private firm’s regression coefficient is not significant. It is close
to zero. The PEs do not differ from the SOEs in terms of HRM effectiveness. Similarly,
the ME’s regression coefficient in model 7 is not significant. Consequently, Hypothesis 5,
stating that ME’s HRM effectiveness is higher than that of government organizations is not
supported. Hypothesis 6 states that private firms’ HRM effectiveness is higher than that of
MEs. The private’s regression coefficient in model 3 is not significant. Thus, the results
were not consistent with Hypothesis 3. Also, the negative sign of this regression coefficient
is inconsistent with the hypothesized direction.
Hypothesis 7 suggests that private firms’ work effort is higher than that of SOE’s. In model
8, a highly significant positive sign of the private firm dummy variable’s regression coefficients provides strong support for this hypothesis. The ME dummy variable’s regression
coefficient in model 8 is also highly significant and positive. Consequently, Hypothesis 8,
stating that ME’s work-effort levels are higher than SOE work level efforts, was strongly
supported. Hypothesis 9 predicts that work motivation levels in private firms are higher than
in MEs. The relevant regression coefficient in model 4 is not significant. Thus, the results
were not consistent with Hypothesis 9. However, a positive sign of this regression coefficient is consistent with the hypothesized pattern. Once again, as in the case of corporate
entrepreneurship levels, the PEs ranked first and the SOEs last in work effort levels. The
MEs fell between the two extremes. This pattern is consistent with the idea that changing
ownership form from state-owned to private is associated with significant changes in work
effort levels in firms.
66
O’NEILL, RONDINELLI AND WATTANAKUL
Discussion and conclusions
Taken together, our findings support three conclusions about the impact of ownership structure on predictions of organizational adaptability and crisis response. In turn, these conclusions offer insight into some of the challenges involved in building more adaptable
organizations in economies populated with current and former SOEs. As in all cases of
empirical study, any discussion of the results needs to be tempered by an understanding of
the limitations of the study.
Conclusions of the study
First, this study of organizations with different ownership structures in Thailand shows
there are significant differences between privately-held enterprises and state-owned enterprises. These differences occurred in each measure of corporate entrepreneurial behavior
(innovativeness and proactiveness) and in the measures of work efforts. For instance, the
innovativeness and proactiveness of Telecom Asia Company and Bangkok Bank, both of
which are PEs, are significantly higher than those of SOE’s such as the Provincial Waterworks Authority (PWA) and the Communication Authority of Thailand (CAT).
Second, there are no significant differences between privately-held businesses and those
of mixed ownership. The mixed ownership firms do have significantly higher levels of work
effort than state-owned enterprises. As an illustration, the mixed enterprise firms Bangchak
Petroleum and Thai Airways have higher work effort than the state-owned Communication
Authority of Thailand (CAT) and the Telephone Organization of Thailand (TOT). With
respect to the measures of corporate entrepreneurship, the mixed ownership enterprises
place “in the middle.” Although they are not significantly higher than the state-owned
enterprises in their levels of assessed entrepreneurial behavior, they are not significantly
lower than the privately held firms in their scores on entrepreneurial behavior. Third, the
three ownership forms do not differ with respect their levels of HRM effectiveness.
The results concerning corporate entrepreneurship suggest cautious optimism about the
potential role of privatization in transforming economies and the advantage privatized firms
might have in responding to crisis. The results show that PEs indeed have higher levels of
corporate entrepreneurship in a country that has long had a mixed economy and that is in
the process of further macro-economic reform. Therefore, the expectation that privatizing
SOEs can increase their level of corporate entrepreneurship does make sense. Our study—
perhaps one of only a few empirical investigations in this area—is a direct test of this basic
assumption, and the results are encouraging. With this data, we can not predict which of the
three variables are more influential in helping an organization respond to crisis. We suspect
that the relative importance of work effort and corporate entrepreneurship may vary in the
short and long term, while human resource practices may have equal levels of importance
in both the short and long term.
At the organizational level the issue of evolution is also important. How does the stateowned enterprise evolve into a more entrepreneurial form? We suspect that the change
occurs through the replacement of top management, and through changes in incentives that
come with ownership and governance changes. There have been few studies that directly
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
67
assess the role of management during turnaround. In an early work, Hofer (1980) did
note that strategic turnaround would require the replacement of top management. Walsh’s
(1988) work on management turnover following acquisitions is one indicator that changes
in control would lead to replacement of management. In a studies on privatization in the
mature economies, Craggy and Dyck (1999) and Wolfrom (1998) found that compensation
levels and pay-performance sensitivity influenced levels of productivity. Changes in these
incentives likely influence the level of entrepreneurial behavior.
While at the macro level the organization changes could be perceived as evolutionary
changes, the managers undergoing replacement may see them differently. It is possible that
the changes could take place without displacing large numbers of managers. This could
occur if the SOEs already had effective management and some entrepreneurial traditions,
or if incumbent managers are able to learn to new routines quickly. Our results do offer
some evidence that the former condition is possible (because there was variance in the
entrepreneurship scores across SOEs), but can offer no evidence about the later issue. The
important implication here is that not all privatizations are the same. The path to increased
entrepreneurship will vary based on the SOE’s past experience and how the privatization is
carried out. Outright sale of an SOE to private investors, for example, is likely to bring greater
change in entrepreneurship than employee-management buyouts, which tend to protect
the jobs of existing managers (Nellis, 1999). Given the potential damage to incumbent
management, it is possible that expected increases in entrepreneurship occur only after
some period of turbulence within the firm.
One interesting observation in our findings is that the SOEs did vary in their levels of corporate entrepreneurship, and some SOE’s could have had higher levels of entrepreneurship
than some private firms. For example, Petroleum Authority of Thailand (PPT) scored relatively high on the corporate entrepreneurship measures. Apparently, factors other than ownership contribute to the level of entrepreneurship. Also, the requirements for entrepreneurship may differ by industry sector. These points further support the idea that some SOEs
would be crisis responsive.
Mixed-ownership is an intriguing issue for two reasons. First, the pattern in the results
could infer that important organizational and behavioral changes occur as an evolutionary
process from state ownership to mixed ownership to private ownership. The cross-sectional
nature of the study cannot definitively support the idea of evolutionary stages. Most of
the mixed enterprises have existed in that form for only a relatively short period of time.
Some are still controlled by the government. However, to the extent that the “stage” of
mixed ownership facilitates learning and adjustment in the SOE, the costs of displaced and
disaffected personnel may be lower.
Second, even if the notion of evolutionary stages is fanciful, the results lend support to
the possibility that mixed ownership may be a reasonable substitute for full privatization
for a short period of time until the SOE can adjust to private ownership. In particular,
in those situations where neither the market nor government alone could provide sufficient capital to transform SOEs, mixed ownership may be the best solution. In a study
of mixed ownership of former SOEs, Tain (2000) found that mixed ownership forms do
not perform as well as private firms. Our results imply that mixed ownership firms do
outperform SOEs on work effort, and appear to be moving closer to the performance of
68
O’NEILL, RONDINELLI AND WATTANAKUL
privately held firms. Consistent with the theme developed earlier, this observation implies that there is no single answer to economic transformation. Effective privatization
strategies can take different shapes and forms in different countries and under different
conditions.
Our findings that human resource management practices are not significantly different
across the ownership structures may be a bit surprising in that we expected changes in human
resource practices with higher levels of entrepreneurship and work effort. The lack of support
for this hypothesis could be traced to two causes. First, in a relatively small and culturally
homogeneous country like Thailand, HRM practices are often highly standardized and
vary little across firms. The practices have an institutional and cultural component (Lawler,
Atmiyanada and Zaidi, 1992). Second, our assessment of the HRM practices (training,
performance appraisal, compensation, etc.) may not capture how specific practices may be
used to achieve different goals in each type of organization. As noted earlier, the level of
compensation and the proportions of pay at risk may be a key determinant (Cragg and Dyck,
1999; Wolfrom, 1998) of post-privatization performance. Our measures of HRM did not
capture these specific forms of difference.
The study has four important limitations. First, it is a small sample study in a single
country. The economic conditions in Thailand and Southeast Asia are quite different from
those elsewhere, and patterns observed in one country or region may not hold for others.
In particular, the tradition of private enterprise in Thailand may have led to some crossfertilization of management practices between SOEs and PEs even before the government
began pursuing privatization. The second limitation is based on the nature of the sample.
While every effort was made to avoid respondent bias, and to obtain reliable respondents,
the possibility of some forms of bias still remains. The third limitation deals with the cross
sectional nature of the study, which makes it difficult to be certain about temporal dynamics. We infer here that the level of corporate entrepreneurship and work effort makes
the privatized firm more adaptable. That inference requires direct testing in a time series
study. We should see a higher rate of survival and growth within the PEs if our inferences are true. Finally, it is possible that different industries will vary in their response to
privatization.
Western research on turnaround strategies has prompted a debate as to whether firms
can engage in strategic (major changes in strategy) rather than operating turnarounds (cost
cutting). Barker and Duhaime (1997) find strategic turnarounds are possible, while Robbins
and Pearce (1992) find evidence only for retrenchment-based strategies. Our results support
Barker and Duhaime (1992). Western-based research implies that top management must be
changed for turnaround to succeed. Our findings are ambiguous in this regard, and imply that
further work is necessary. Finally, research on organizations in Western countries suggests
a form of rigidity and dysfunctional behavior in managers at the time of decline (Cameron,
Whetten and Kim, 1987). We expected systemic variance in HR practices, and would
have used that variance as indirect evidence of the dysfunctional behaviors. More direct
measures are necessary to confirm or disconfirm the management behaviors at the time of
decline.
Clearly, more research on this topic is needed. More detailed analysis is required to confirm the specific changes that occur in firms facing crisis, and on how to fine-tune turnaround
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
69
research into finely grained prescriptions for making all forms of firms: PEs, MEs and SOEs,
more adaptive. More controlled research on these issues will hold important implications
for theory and practice. Our exploratory findings in Thai enterprises indicate significant
adaptive differences between SOEs and PEs. Change in ownership—even mixed ownership in which the government retains a controlling share—can be an effective instrument
for gradually transforming state enterprises into more innovative, responsive, and proactive
firms.
Appendix: Questionnaire
Scoring key
Innovativeness
1. Your firm has marketed very many new products or services within two years.
4. Your firm has changed in products or services dramatically.
7. Your firm’s top managers favor a strong emphasis on R&D and technological
leadership.
11. Your firm is very often the first business to introduce new products/services, administrative techniques, operating technologies, etc.
Proactiveness
2. Your firm typically adopts a very competitive posture in dealing with competitors.
5. Your firm’s top managers have a strong proclivity for high-risk projects with chances
of very high returns.
8. Your firm’s top managers believe that bold and wide-ranging acts are necessary to
achieve the firm’s objectives due to the nature of the environment.
12. Your firm typically adopts a bold and aggressive posture in order to maximize the
probability of exploiting potential opportunities when confronted with decision-making
situations involving uncertainty.
Human Resource Management Effectiveness
3.
6.
9.
13.
15.
Your firm’s employee participation and empowerment are very effective.
Your firm’s employee and manager communications are very effective.
Your firm’s employee training is very effective.
Your firm’s performance appraisal is very effective.
Your firm’s compensation is very suitable.
Motivation
10. Your firm’s people often do some extra jobs which are not really required of them.
14. Your firm’s people keep working harder than the other competitors.
16. Your firm’s people keep working for the whole day without their time concerns.
70
O’NEILL, RONDINELLI AND WATTANAKUL
Questionnaire
All your responses to the following questions are strictly confidential.
Company Name:
Personal Information:
Title
Career field (e.g. marketing)
Working years in this current company
Age
Education Degree
Sex
Male
Female
The purpose of this questionnaire is to study organizational behaviors and attitudes of management practices. Please read each of the following statements
carefully and circle the number that most represents your opinions. All items
are measured on 7-point agree-disagree scale. It will only take you about 10–15
minutes to finish the questionnaire. Thank you for your cooperation.
Strongly
disagree
1. Your firm has marketed very many
new products or services within two
years.
2. Your firm typically adopts a very
competitive posture in dealing with
competitors.
3. Your firm’s employee participation
and empowerment are very
effective.
4. Your firm has changed in products or
services dramatically.
5. Your firm’s top managers have a
strong proclivity for high-risk projects
with chances of very high returns.
6. Your firm’s employee and manager
communications are very
effective.
7. Your firm’s top managers favor a
strong emphasis on R&D and
technological leadership.
8. Your firm’s top managers believe that
bold and wide-ranging acts are
necessary to achieve the firm’s
objectives due to the nature of the
business environment.
9. Your firm’s employee training is very
effective.
Strongly
agree
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
71
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
10. Your firm’s people often do some extra
jobs which are not really required of
them.
11. Your firm is very often the first business
to introduce new products/services,
administrative techniques, operating
technologies, etc.
12. Your firm typically adopts a bold and
aggressive posture in order to maximize
the probability of exploiting potential
opportunities when confronted with
decision-making situations involving
uncertainty.
13. Your firm’s performance appraisal is
very effective.
14. Your firm’s people keep working harder
than the other competitors.
15. Your firm’s compensation is very
suitable.
16. Your firm’s people keep working for the
whole day without their time concerns.
17. Other comments on management
practices that in your opinion are the key
determinants of your firm’s performance:
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
References
E. Abrahamson, “Management fashion,” Academy of Management Review, pp. 586–612, 1996.
A.A. Alchian and H. Demsetz, “The property rights paradigm,” Journal of Economic History, pp. 16–27, 1973.
H.E. Aldrich, Organization and Environments, Prentice-Hall, Englewood Cliffs, NJ, 1979.
H.E. Aldrich, Organizations Evolving. Sage Publications, 1999.
R. Anderson, S. Djanmkov, G. Pohl, and S. Claessons, Privatization and Restructuring in Central and Eastern
Europe. World Bank: Washington, DC, 1997.
P. Arens and K. Brouthers, “Key stakeholder theory and state-owned enterprise versus private firms,” Management
International Review, pp. 377–394, 2001.
V.L. Barker and I.M. Duhaime, “Strategic change in the turnaround process,” Strategic Management Journal,
pp. 13–38, 1997.
M. Beer and N. Nohria, “Cracking the code of change,” Harvard Business Review. May/June, pp. 135–141, 2000.
A. Boardman, C. Eckel, and A. Vining, “The advantages and disadvantages of mixed enterprises,” Research in
International Business and International Relations, pp. 221–244, 1986.
R.A. Burgelman, “Strategy making as a social learning process: The case of internal corporate venturing,” Interfaces, pp. 74–85, 1988.
K.S. Cameron, D.A. Whetten, and M.U. Kim, “Organizational dysfunctions of Decline,” Academy of Management
Journal, pp. 126–138, 1987.
C.M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business
School Press: Boston, 1997.
A.C. Cooper and W.C. Dunkelberg, “Entrepreneurship and paths to business ownership,” Strategic Management
Journal, vol. 7, no. 1, pp. 53–68, 1986.
72
O’NEILL, RONDINELLI AND WATTANAKUL
A.C. Cooper and D.E. Schendel, “Strategic responses to technological threat,” Business Horizons, pp. 61–69,
1976.
J.G. Covin and D.P. Slevin, “A conceptual model of entrepreneurship as firm behavior,” Entrepreneurship Theory
and Practice, pp. 7–25, 1991.
M.I. Cragg and I.J.A. Dyck, “Management control and privatization in the United Kingdom,” Rand Journal of
Economics, pp. 475–497, 1999.
M. Cyert Richard and J.G. March, The Behavioral Theory of The Firm, 2nd edition. Blackwell Publishers, 1992.
P.D. DiMaggio and W.W. Powell, “The iron cage revisited: Institutional isomorphism and collective rationality in
organizational fields,” American Sociological Review, pp. 147–160, 1983.
A. Downs, Inside Bureaucracy. Little, Brown and Company: Boston, 1967.
M.G. Evans, “Organizational Behavior: The Central Role of Motivation,” Journal of Management, pp. 203–222,
1986.
A. Gupta and V. Govindarajan, “Business unit strategy, managerial characteristics and business unit effectiveness
at strategy implementation,” Academy of Management Journal, pp. 695–714, 1984.
W.D. Guth and I.C. MacMillan, “Strategy implementation versus middle management self-interest,” Strategic
Management Journal, pp. 313–327, 1986.
D.C. Hambrick and S. Schecter, “Turnaround strategies in mature industrial-product business units,” Academy of
Management Journal, pp. 231–248, 1983.
M.T. Hannan and J. Freeman, “Structural inertia and organizational change,” American Sociological Review,
pp. 149–164, 1984.
C. Hofer, “Turnaround Strategies,” Journal of Business Strategy, pp. 19–31, 1980.
M.A. Huselid, “The impact of human resource management practices on turnover, productivity, and corporate
financial performance,” Academy of Management Journal, pp. 635–672, 1995.
M.A. Huselid and S.E. Jackson, “Technical and strategic human resource management effectiveness as determinants of firm performance,” Academic of Management Journal, pp. 171–188, 1997.
M.C. Jensen and Meckling, “Theory of the firm: Managerial behavior, agency costs and ownership structure,”
Journal of Financial Economics, pp. 305–360, 1976.
S.R. Kale and J.H. Mulherin, “The government as a shareholder: The case from the United States,” Journal of
Law and Economics, pp. 1–22, 1997.
R.M. Kanter, The Dance of Change. New York: Simon and Schuster, 1983.
D. Kelly and T.L. Amburgey, “Organizational inertia and momentum: A dynamic model of strategy,” Academy of
Management Journal, pp. 591–612, 1991.
G. Knight, “Cross-cultural reliability and validity of a scale to measure firm entrepreneurial orientation,” Journal
of Business Venturing, pp. 213–225, 1997.
J. Kornai, The Socialist System: The Political Economy of Communism. Princeton University Press: Princeton, NJ,
1992.
J. Lawler, Y. Atmiyanada, and M. Zaidi, “Human resource management practices in multinational and local firms
in Thailand,” Journal of Southeast Asia Business, vol. 8, no. 1, pp. 16–40, 1992.
H. Livesay, “Entrepreneurial history,” in C. Kent, D. Sexton, and K. Vesper, (eds.): The Encyclopedia of Entrepreneurship. Prentice Hall: New York, NY, 1982.
G.T. Lumpkin and G.G. Dess, “Clarifying the entrepreneurial orientation construct and linking it to performance,”
Academy of Management Review, pp. 135–172, 1996.
J.G. March, “Exploration and exploitation in organizational learning,” Organizational Science, pp. 71–87, 1991.
W. McKinley, J. Zhao, and K.G. Rust, “A socio-cognitive interpretation of organizational downsizing,” Academy
of Management Review, pp. 227–243, 2000.
W. Megginson and J. Netter, “Privatisation and growth in world equity markets,” Privatisation Yearbook International 1999. Thomson Financial Services: London, pp. 5–6, 1999.
W. Meggison and J. Netter, “From state to market: A survey of empirical studies on privatization,” Journal of
Economic Literature, pp. 321–389, 2001.
A.D. Meyer, G.R. Brooks, and J.R. Goes, “Environmental jolts and industry revolutions: Organizational responses
to discontinuous change,” Strategic Management Journal (Special Issue: Summer), pp. 93–110, 1990.
M.W. Meyer and L.G. Zucker, Permanently Failing Organizations. Sage Publications: Newbury Park, CA.
1989.
OWNERSHIP AND ITS IMPACT ON COPING WITH FINANCIAL CRISIS
73
R.M. Miles, Leading Corporate Transformation: A Blueprint For Business Renewal. Jossey-Bass: San Francisco,
1997.
T.R. Mitchell, “Motivation: New Directions for theory, research, and practice,” Academy of Management Review,
pp. 80–88, 1982.
J. Moore, “British privatization: Taking capitalism to the people,” Harvard Business Review, (Jan.-Feb.): pp. 115–
124, 1992.
J.R. Nellis, Time to Rethink Privatization in Transitional Economies? International Finance Corporation:
Washington, DC, 1999.
H.M. O’Neill and D.J. Lenn, “Voices of survivors: Words that downsizing CEOs should hear,” Academy of
Management Executive, pp. 23–34, 1995.
H.M. O’Neill, R.W. Pouder, and A.K. Buccholtz, “Patterns in the difffusion of strategies across organizations:
Insights from the innovation literature,” Academy of Management Review, pp. 98–114, 1998.
J.L. Perry and L.W. Porter, “Factors affecting the context for motivation in public organizations,” Academy of
Management Review, pp. 89–98, 1982.
J. Pfeffer, Competitive Advantage Through People. Harvard Business School Press, 1994.
J. Pfeffer, “Seven practices of successful organizations,” California Management Review, vol. 40, pp. 96–124,
1998.
J. Pfeffer, The Human Equation: Building Profits by Putting People First. Harvard Business School Press, 1998.
C.C. Pinder, Work Motivation in Organizational Behavior. Prentice Hall, 1997.
L.W. Porter, E.E. Lawler, and J.R. Hackman, Behavior in Organizations. McGraw Hill: New York, 1974.
J.B. Quinn, “Managing innovation: Controlled chaos,” Harvard Business Review, May/June, 1985.
H.G. Rainey, “Public management: Recent research on the political context and managerial roles, structures, and
behaviors,” Journal of Management, pp. 229–250, 1989.
R. Ramamurti, “Why are developing countries privatizing?” Journal of International Business Studies, pp. 225–
249, 1992.
D.K. Robbins and J.A. Pearce II., “Turnaround: Retrenchment and recovery,” Strategic Management Journal,
pp. 287–309, 1992.
D.A. Rondinelli, “Capacity building in emerging market economies: The second wave of reform,” Business & the
Contemporary World, vol. VI, no. 3, pp. 153–167, 1994.
D.A. Rondinelli, “Privatization, governance, and public management: The challenges ahead,” Business & the
Contemporary World, vol. 10, no. 2, pp. 149–170, 1998.
D.A. Rondinelli and M. Iacono, “Strategic Management of privatization: A framework for planning and implementation,” Public Administration and Development, vol. 16, pp. 247–263, 1996.
D.A. Rondinelli and V. Priebjrivat, “Assessing privatization opportunities in emerging markets: The Dynamics of
change in Thailand,” Thunderbird International Business Review, vol. 14, pp. 623–650, 2000.
D.A. Rondinellii and Yurkiewicz, “Privatization and economic restructuring in Poland: An assessment of transition
policies,” American Journal of Economics and Sociology, vol. 55, pp. 145–160, 1996.
R.S. Schuler, “Strategic human resource management: Linking people with the needs of the business,” Organizational Dynamics, pp. 18–32, 1992.
R.S. Schuler and I.C. MacMillan, “Gaining competitive advantage through human resource practices,” Human
Resource Management, pp. 241–255, 1984.
J.A. Schumpeter, (originally published in 1934). The Theory of Economic Development. Cambridge, MA: Harvard
University Press, Introduction and pp. 56–156, 1983.
B.M. Staw, L.E. Sandelands, and J.E. Dutton, “Threat-rigidity effects in organizational behavior: A multilevel
analysis,” Administrative Science Quarterly, pp. 501–524, 1981.
A.S. Stinchcombe, “Social structure and organization,” in G.M. James (ed.), Handbook of Organizations. Rand
McNally: Chicago, pp. 153–193, 1965.
J.M. Stopford and C.W. Baden-Fuller, “Creating corporate entrepreneurship,” Strategic Management Journal,
vol. 15, pp. 521–536, 1994.
R.I. Sutton and T. D’Aunno, “Decreasing organizational size: To untangle or not to untangle? Building a model of
work force reduction that is grounded in pertinent theory and data: Reply to McKinley,” Academy of Management
Review, vol. 112, 1992.
J.G. Thompson, Organizations in Action. Harcourt, Brace & World: New York, 1967.
74
O’NEILL, RONDINELLI AND WATTANAKUL
G.L. Tian, “State shareholding and corporate performance: A study of a unique Chinese data set,” Working paper,
London Business School, 2000.
D. Ulrich, “Measuring human resources: An overview of practice and a prescription for results,” Human Resource
Management, pp. 303–320, 1997.
J. Walsh, “Management turnover following mergers and acquisitions,” Strategic Management Journal, pp. 173–
183, 1988.
C.D. Wolfrom, “Increases in executive pay following privatization,” Journal of Economics and Management
Strategy, pp. 327–361, 1998.
World Bank, Bureaucrats in Business, World Bank: Washington, DC, 1995.