Behavioral-financial-analysis-The-impact-of-restaurant-management-attitudes-on-corporate-financial-statements

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Behavioral Financial Analysis: The Impost of Restaurant Management Attitudes on Corporate Financial Statements By Fred Neal Landry Bachelor of Science, 1965 Master of Business Administration, 1987 Master of Science in Business Administration, 1989 Dissertation Submitted In Partial FntfDlnient of the Requirements for the Doctor of Philosophy Degree The G raduate School The Union Institute Cincinatti, Ohio August 1997 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

UMI Number: 9809078 Copyright 1998 by Landry, Fred Neal All rights reserved. UMI Microform 9809078 Copyright 1997, by UMI Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. UMI 300 North Zeeb Road Ann Arbor, MI 48103 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

DEDICATION In loving memory of my father, Fred A. Landry, who was my best friend and gave me the encouragement to always reach for the stars and the desire to make this educational journey. To my mother, Helen, and my two sisters, Suzanne and Michelle, who suffered with me during the loss of my father and were my strength during my own medical problems. They refused to allow this educational journey to come to a close until this dissertation was complete. They have become my new best friends. To my two children, Deidri and Kayla, who always bring a smile to my heart, a moment ofjoy to my life, and a slight tear to my eye. i Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

ACKNOWLEDGEMENTS It has been my experience that research is accomplished because many individuals are willing to share knowledge, share technical skills, and critically review the work from idea conception through all of the many phases of development and completion. Geneva Eileen Tulga Among those who aie to be applauded for their patience are: ‘Doctoral Committee Members, for the crucial review, guidance, encouragement, and timely responses to all of my requests. ‘Doctoral Committee Consultants and Evaluators, who were willing to participate in this educational journey. They provided new insight and critical reviews of many of my study areas from inception to completion. ‘Wiley College Administrators and Board Members, who provided me with both encouragement and internship opportunities, allowing my internships to become teal teaming laboratories. ‘Wiley College Faculty Members, who willing shared their thoughts and reflections with me concerning my program and the Union process. ‘Wiley College and Panola College Students, who worked with me diligently in the completion of both social action projects and free enterprise economic projects, which were the foundations for most of my study efforts. Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

ABSTRACT DissertationTitle: 'Behavioral Financial Analysis: The Impact of Restaurant Management Attitudes on Corporate Financial Statements;\" Bed Neal Landry, Ph. D., 1997 The Union Institute, Cincinnati, Ohio This study explored the hypothesis that restaurant managers' attitudes do reflect conditionsfound on thefinancial statements o fa firm. It applied statistical information based upon the results of three restaurant management cultural surveys focusing on the areas of organizational relationships, support, information, and operations conducted in 1985, 1986, and 1987, and statistical information based upon fourteen key Business Ratios' developed from the targeted businesses' financial statements from 1985, 1986, and 1987. Twenty-eight restaurant management exit interviews containing twelve questions, fifteen senior management open-ended interviews focusing on two major questions and one hundred twenty-eight management observations performed from 1985 to 1987 were used to validate the findings of the restaurant management surveys. The fourteen Key Business Ratios of SIC 5812 eating establishments included six solvency ratios, five efficiency ratios, and three profitability ratios. The analysis of this data established industry norms (means) for 1985, 1986, and 1987. The established norms were then Reproduced w ith perm ission o f the copyright owner. Further reproduction prohibited w ithout permission.

I I compared to the fourteen Key Business Ratios of the target company. The human subjects were employees of the target company and held one of the five restaurant management positions. These positions included restaurant manager, first assistant manager, second assistant manager, shift manager, and restaurant trainer — found at each ofthe twenty-one restaurants under review within the Southern, region of the target company. The Kruskal-Wallis K test was used to determine separately whether the 1985, 1986, and 1987 key financial ratios of the target company and the 1985, 1986, and 1987 restaurant management cultural survey mean scores came from the same or equal populations. The Marm-Whitncy U test was used to compare the means of two independent samples: key business ratios and restaurant management cultural surveys mean scores. The results of the study established the potential that statistical data from both sources were related under certain conditions and could be successfully compared. Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

TABLE OF CONTENTS Page Section j. Dedication ii Acknowledgements ffi Abstract vii List of Tables 1 Introduction 4 4 Chapter I: Description of the Problem. 5 A. Purpose of the Study 9 B. The Problem C. History and Background 13 16 Chapter IL Literature Review 22 A. Homan Capital 24 B. Human Resource Management 26 C Human Relations 28 D. Human Resource Accounting 31 E. Responsibility Accounting F. Conclusion 34 34 Chapter UL Methodology 35 A. Topical Review Method 37 B. Definition and Specification of Variables C Restaurant Mangers Surveys 42 D. Duns Analytical Services: Industry Norms and 44 Key Business Ratios 45 E. Statistical Analysis 47 F. Kruskal-Wallis Test for K 48 G. Mann-Whitney CJTest SO H. Limitations of the Study I. Summary 52 54 Chapter IV. Results of the Study 57 A. Restaurant Management Cultural Surveys 58 B. Exit Interviews 58 G Senior Restaurant Management Interviews D. Observations V R eproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

E. Financial Statements 60 F. Kruslcal-Wallis Tests 65 G. Key Business Ratios 65 H. Mmm-Whitney U Test 72 Chapter V. Smnmaiy, Conclusions, and Recommendations 75 A. Summary of the Study 75 1. Statement of the Problem 75 2. Purpose of the Study 77 3. Procedures 77 4. Findings 78 B. Conclusions 78 C Discussion 83 D. Future Research 85 B. Chapter Summary 87 Bibliography 89 A. Published Bools 89 B. Journal Articles 91 G Text Contributions 92 D. Reports 93 E. Unpublished Works and Occasional Papas 94 Glossary 95 Acronym List 101 Appendix A la Appendix A-l: Restaurant Management Survey Farms 2a Appendix A-2: Restaurant Management SurveyScore Sheets 6a Appendix B lb Table 1: Restaurant Management Cultural Survey Means „ Scores 2b Table 2: Range Chart for Selected FinancialRatios 4b Table 3: Ratio Value Table (Target Company) 6b Appendix C lc 2c Table 1: Exit Interviews Table 2: Senior Restaurant Management Open-Ended 6c Interviews vi Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

LIST OF TABLES Table Kruskal-Wallis K Test Page Table 3-1: 46 Table 3-2: Maim-Whftney U Test 48 Table 4-1: Restaurant Management Observations (128) 59 Table 4-2: Typical Balance Sheets 62 Table 4-3: Typical Income Statements 64 Table 4-4: Kruskal-Wallis Test for Cultural Survey Scores 66 Table 4-5: Kruskal-Wallis Test for Key Business Ratios 67 Table 4-6: Mann-Whitney U Test 73 Appendix A-l: Restaurant Management Survey Forms 2a Appendix A-■2: Restaurant Management Survey Score Sheets 6a Appendix B, Table I: Management Cultural Survey Mean Scores 2b Appendix B, Table 2: Range Chart for Selected Financial Ratios 4b Appendix B, Table 3: Ratio Value Table (Target Company) 6b Appendix C, Table 1: Exit Interviews (28) 2c Appendix C, Table 2: Management Open-Ended Interviews (15) 6c Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Bureaucracy b > form of social organization that Isolates people from any real human interaction while chaining them to the half-empty categories of organizational roles, rules, and language. If people simply lived, interacted with others as whole persons, engaged in common projects, they could learn the skills of self-assertion and communication that these categories attempt to capture. Kathy Ferguson INTRODUCTION Over the years the researcher has found that top corporate managers understand that their most important responsibility is supervising the human capital; Le, human resource investment of an organization. They understand *****if ftfa iimum capital is properly, die goals ofdie organization will be m et Therefore, they have found that effective management of human resources is central to the overall human capital investment of the organization and that the successful manager is not only liable for guiding the human resources of an organization but also must be able to manage all other assets. This means that a successful manager must spend the amount of time necessary to property guide his/her finraan res ources. Most innovations have emerged from visionary managers, who have the courage and the broad vision to carry their ideas all the way from conception to final achievement. They have developed die aJrfWsto utilize their employees and build effective project teams, to locate technical, financial, and other resources, and to have a dear and ever-changing view of what consumers want and how to supply these needs. l i ;i Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

These managers see their employees as individuals and satisfactorily place them in jobs according to their skills. They support them when they perform as required and criticize constructively when individual employees need to improve work performance. Such managers provide adequate training and appraisal and are concerned about employee safety and weU'being. They are fair and reasonable in all relationships with employees while providing an example of acceptable behavior on the job. By utilizing these management techniques, they help control human capital costs within the organization while arfrfiitrfi«ng a value for its human capital investment. Successful managers work with their human resources in an attempt to do a superior job. They refuse to write off human resources as unmanageable. If they did so, low productivity, absenteeism, and turnover would prevail. Managers must display a positive posture and a commitment to the organization. They are expected to be honest and fair in all their relationships. Ultimately, managers must use their knowledge, experience, and common sense in dealing with human resources and in solving work-related problems. Employees, in turn, must be able to accept the jurisdiction for and the responsibility to conclude assigned work. They must have both the physical ability and mental desire to perform the work. Managers must be willing to involve employees in designing their work to the extent they wish to be involved. The quality of management not only reflects how closely the actual organizriional results compare with the performance of the human resources, but if the management of the human capital asset is succesrihl. While management must be a fundamental feature of the 2 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

I I entire human capital program, the process of supervising and directing human resources cannot take place without a consistent human resource management program, a Human capital investment program, a human resource accounting program, and a behavioral financial analysis system. Colfacring, analyzing, and reporting relevant human capital concerns and assessing their relationships with the financial performance of an organization is the critical function of behavioral financial analysis. Of all the programs, this system provides a coherent, integrated picture of human capital and should be most useful to higher management in reviewing business performance. The primary purpose of this dissertation was to use behavioral financial analysis as a statistical tool in enmprhig corporate financial statrmmts with cultural surveys of restaurant 3 R eproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

Discoveries and inventions are not terminals; they are fresh starting points from which one can climb to new knowledge. Willis R. Whitney DISSERTATION TITLE: Behavioral Financial Analytic The Impact of Restaurant Management Attitudes on Corporate Financial Statements; ChapterI: Description of tiie Problem A. PURPOSE OF THE STUDY The primary pniposc ofthis dissertation is to introduce the use of behaviaral financial analysis as a statistical tool when flnmpating ftnt«rfai statement (balance sheets and income statements) with restaurant management coltnral surveys. Organizational leaders and acrmnmirtB are coocemed with the problem of how human capital resources available to a finn shoold be valued and accounted for. Should they be included on the balance sheet? Should they be viewed as expenses or assets? Should employees' attitudes and beliefs be considered when making a financial detision? Shoold employee beliefs and attitudes be reflected in the ammal report? These are all, to same extent, management to which there are historically and theoretically no sound solutions (Hebert 1970: 4 -6 and Flamhoitz 1985: 30 - 85). Early Mwwmias, such as Smith, Petty, Say, Senior, Lists, Van Thanen, Roscher, Walras, and Fischer, recognized that labor has an economic value, and this value aided in the development of the *«« « \" « theory of i wpfai (ViVw 1968 and Landreth and Colander 1994). Over the years, the technical literature of human resource management and human resource accounting has visibly increased the management student's fa«gh» into how 4 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

I human capital should be valued. However, many of these works have not been directed toward top business leaders, and, until the late 1980's and early 1990's, these works had no visible influence on the way top business managers actually valued human capital. This study was intended to introduce top bosiness managers to the hypotheses that restaurant managers'attitudes do reflect conditionsfound on thefinancialstatements o fa business, fit so doing, this research merged hnman resource management concepts, fanman capital theories, and hnman resource accounting strategies into a socioeconomic model (stakeholder model) rfwitng with behavioral financial analysis. B. THE PROBLEM A dominant problem facing American bosiness leaders is an understanding that managers must direct their human capital investments and their hnman resources within the organization so that they can consistently provide both quality products and quality services to their customers. The mistreatment or improper training ofjust one employee coukl result in 'ripple effects' throughout the work-force affecting both quality products and quality services. Kmust be emphasized that most hnman resource management relationships (supexvisor- worker relationships) '.~are not isolated, one-on-one interactions' (Timm and Peterson 1993: 13). This belief most begin with top management and flow downward throughout the whole organization. The \"bottom line' demands the type of management system that can help the business operation meet this hnman resources management challenge. This dissertation defines this management system as a Total Quality Management (TQM) program which is 'the coordination of efforts directed at improving customer 5 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

satisfaction, increasing employee participation and empowerment, forming and strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement* (Pride, Hughes, and Kapor 1993: 160), while valuing the human capital of the firm. This TQM program woukl enable managers, supervisors; and employees to enhance the profitability and productivity of a business operation by developing strategic plans (Newman, Logan, and Hegarty 1989: 292 - 323), which, must include components for strategic management, solving problems, and developing performance standards (Yukl 1989). Strategic planning is defined as *a comprehensive process that includes setting goals, developing plans, and related activities' (Mentzberg 1987: 66 - 75). While strategic planning could be a generic activity in which all organizations engage, no two organizations perform it the same way. Strategic planning must be strategically managed from the outset (Griffin 1990: 160 - 162). Strategic management 'is a comprehensive and on-going management process aimed at formulating and implementing effective strategies that promote a superior alignment between the organization and its environment and the achievement of strategic goals' (Griffin 1990: 193). This well-conceived strategy consists of eight basic areas (Griffin 1990: 193 and Lewis, Goodman, and Fandt 1995: 582 - 585): 1. A strategy specifies the scope (or range) of the markets in which the organization will compete. 2. A strategy includes an outline of the organization's projected resource deployment, how will it utilize all of its resources (including human resources) across various areas. Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

3. A stntegy specifies the distinctive competence the organization has relative to its competitors. 4. A stntegy specifies the synergy expected to result from, decisioos about scope, resource deployment, and distinctive competence. 5. A stntegy establishes customer-driven standards. 6. A strategy has a management andlabor commitment. 7. A strategy is an organization and coordination of effort 8. A strategy has employee participation through quality circles m l y A i propose A problem-solving process m at be that enables managers and employees to worktogether as teams in solving most work-related problems. These problem-solving teams should be made up of managers, supervisors, and employees, meeting together on a regular basis to identify and solve problems (Merchant 1989: 264 - 279). Performance standards must be developed to ensure the constant delivery of qualify products and services to the consumer. The most important elements of these performance ♦ standards are not only top managements' ability to develop qualify standards, but its ability to and manage performance standards after they are perfected (Pfeffer 1978 and Sherman and Bohhmder 1992: 276 - 278). Since the 1970's, *..intense international competition has forced U. S. organizations to enhance quality, as well as productivity, to regain their competitive advantage* (Sherman and Bohlander 1992: 57). \"Quality* became an ambiguous concept to American business with many top managers believing that qualify applied only to products and services with \"high 7 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

price tags.' Quality was often, a subjective evaluation of tbe products or services provided throughout an industry where few sarveys showed that the idea of quality could apply to every business, regardless of products, services, or business size (Rowland and Feiris 1982: 2 >23). To achieve quality hi organisations, managers needed to '1) understand the various decisions they will face, and 2) understand the varioos tools, techniques, and approaches that can.help them, to make these decisions* (Lewis, Goodman, and Fandt 1995: 361). v Quality became performance based and objectively quantifiable in the 1980's when some organizations began to develop standards by obtaining consensus among managers* supervisors, and employees on the required levels of performance, m l managing these standards by monitoring performance and faatefag upon 100% conformity to standards (Yuki 1989 and Lewis, Goodman, and Fandt 1995: 561 - 593). When quality programs were not '.^property developed, effectively communicated, and consistently managed, productivity suffers because individuals within the organization spend most of their time reacting to crises and putting out fires* (Hebert 1970: 33). In the past several years TQM programs have built upon the early foundations of developing, implementing, and \"w>agfag performance standards. Consensus performance standards for operations have been recognized by some businesses as effective ways to resolve product and service problems in America today while increasing the profitability, productivity, and performance of individual business operations. Today, consensus performance standards are the basis for some of the strongest TQM programs in our society with one of the most important aspects being the development of a consensus on how jobs should be performed (Heyne 1991 and Hebert 1970: 28). Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Job performance have been, communicated through management development and employee skills training programs. The moat important aspect of communicating standards was top management's commitment to developing and training people in the organization (Dalzeil 1987). M an ag in g fitn rfrrW m **nt w ig n rin g rrtn fn m fty tn th * e w w H w a l s ta n rfu fa tfm wigh TQM programs. (Oemge and Nefmerskjrch; 1994) \"The most important aspect of managing standards is following op performance evaluations with, specific coaching and re-training. This practice ensures that staff employees and administrators throughout the organization consistently deliver uniformly high quality services* (Hebert 1970: 7). This, in tom, lays the foundations far a Hnman Resource Accounting program (HRA). Management surveys had to be conducted before any of the components of the TQM program could be successfully implemented. When the surveys were property constructed and administered, their results provided an informative picture of important operational features of an organization. Specifically, the surveys should '.-measure perceptions and attitudes (for example, sarisfiMtifln and supervisory style).-* (Griffin 1990: 405). The results of the surveys should then be commnnicated to everyone involved. C. HISTORY AND BACKGROUND OF THE PROBLEM: From 1984 through 1987, the Researcher worked for XXX (see pps. 49-50), the second largest franchisee of a major restaurant corporation, as a restaurant manager. The Researcher's primary jobs were that of relief manager, shift manager, and restaurant training manager. AHthree positions required the researcher to work throughout the Southern region 9 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

of XXX. During this period of time, the researcher conducted three rcstanrant manager's surveys, each, covering the areas of relationships, support, comrmmicarions, and operations. These surveys, coupled with die researcher's observations of Ob pwtidpants, regional management, comnmer services, product quality, and working conditions, led to the belief that the Southernregion of XXX was s region in crisis with the following key problems: 1. XXXhad a large employee turnover problem. 2. XXX had an excessive inventory turnover. 3. ftior to 1984, the company had made a management decision to produce its two most profitable products below franchise' 4. Restaurant Managers were not allowed to take an active role on any agreed-upon standards. 5. Bosiness was in a down-torn, which had caused the regional management staff to move into anantocatic management style. 6. Equipment and property maintenance was on the decline. 7. For the sake ofjob security, some managers were manipulating store income and inventory figures. 8. Consomer service and product quality was at a low leveL 9. XXX was not preparing their restaurant managers for change. 10. XXX failed to develop a consensus TQM program. 11. XXX did not allow employee problem-solving teams. 12. XXX would not allow restaurant managers the autonomy necessary 10 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

I for the units to function properly. 13. Some managers md hourly employees were working off the dock forjob security reasons. 14. There were very few employee benefits. 15. Both new hooriy employees and new managers were poorly trained. 16. Some rnstanranf managers, with, regional management knowledge, were stealing inventory from suppliers to help make their restaurant and region appear to be performing well. 17. ftobkms within the region were hidden from top corporate officials. The problems created by the regional (inrfnrffng district) management's negative leadership style had a high hnman cost. To get work done, they encumbered managers and employees with penalties such as loss ofjob/severe reprimands in tikepresence of others, unattractive work schedules, and time off without pay. They managed with the false beliefthat they could frighten employees into productivity. They were autocratic bosses who were never leaders. Under this negative leadership style, restaurant managers were spending too much time covering up problems and protecting themselves at the expense of quality. Useless, and often false, documentation led to the writing of needless memoranda, keeping of unnecessary statistics, and many questionable files. This documentation was to be used as evidence to support Claims of non-responsibility for the problems. Most of this nrntocessaty effort was incited by fear instilled into the restaurant managers by the regional management ll Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Regional management took foil responsibility for all isnccemrs bat «wm of the responsibility for fdlares. Prostration, low morale, and conflict developed easily. While restanrant managers began to work long hours, they lost their ability to be creative and their desire for quality service. Interviews with fifteen, older restanrant managen indicated that most of these conditions existed from. 1980 through 1987. ,. 12 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Chapter II: Literature Review Though your balance-sheet's a model of what balance sheets should be» 'typed and ruled with great precision in a type all can see; Though the grouping of the assets is commendable and dear, And die details which are given more than usually appear; Though investments have been valued at the sale price of the day, And die auditor* certificate shows everything QJL; One aaaet is omitted—and its worth I want to know, The asset b the value of the persons who run the show. Sir Matthew Webster Jenkins As the poem suggests, accounting systems and financial statements were important. But, the true value of the organization was found in the value of its employees (a Human Capital asset); and, in the management of this asset, the true value of the top managers who 'run the show* was found. Currently, Human Capital (HC) investments, Human Resource Management (HRM), and Human Resource Accounting (HRA) have been experiencing a transition to a macro orientation. Changing views and perspectives on the fields were perhaps more obvious with respect to the practice of HRA, where arguments have been made on behalf of its increased importance to the overall effectiveness of the firm. What seemed to be less apparent are the challenges that the field faces with respect to theory and research (Flamholtz 1986: ix - xix). Historically, scientific inquiry in HRA has been decidedly micro-oriented, tending to adopt a psychological or sociological perspective and proceeding at the individual level of analysis. While suggestions have been made that adopting an organizational level perspective might help to advance theory and research in HRA, there seemed to have been no real attempts to provide a critical evaluation and integration of such work (Seigel and 13 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Raxnanauskas-Marconi 1989:1 - 54). Hus research, incorporated a macro-perspective view, which was necessary to establish statistical linkages. A historical overview of HRM, HRA, and HC was helpful in positioning Behavioral Financial Analysis (BFA) as a natural extension of the HRM, HRA, and HC fields. While the majority of historical reviews of the fields of Hnman Capital (HQ, Human Resource Management (HRM), and Homan Resource Accounting (HRA) began in the early 1770's (HQ, 1900's (HRM), and 1950's (HRA), all had roots traced back to the 1600's. Lawrence (1985a: 349 - 367) suggested that the craft system of hnman resource management dominated industrial life in the United States for over 200 years. Under the craft system, the production of goods and services wis performed by workers in small workshops. The work was scheduled on a customized and carried out by single teams composed of a master craftsman, journeymen, and apprentices. The master craftsman usually tan the shop with the help of a few journeymen and apprentices. The roles that each played were well understood and legitimized by both law and tradition (Lawrence 1985a: 349 - 367). With respect to wages and bouts, both apprentices andjourneyman were treated fairly. With employee turnover being low and layoffs and strikes being infrequent, power was relatively balanced between employees and employers. HRMs principal concerns, at first, were the value of the work which was based on the value of the craftsman and the quality of the product produced. This focus gradually changed with die emergence of technologies and the development of new organizational structures such as corporations, partnerships, merchant banks, etc. (Pride, Hughes, & Kapoor 1993: 295 - 296 and McEachcm 1994: 80). 14 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

A seoond system of organized labor that flourished during this time period was a result of the Industrial Revolution (Roland and Ferris 1982: 2 - 23). During the Industrial Revolution, production became less of a craft and more mechanized. As machines and factory methods increased production, work settings became more structurally organized by hierarchy of authority and division of labor, resulting in longer hours and lower pa (Dalzell 1987 and McEachem 1994: 80). As the Industrial Revolution began and new technologies were introduced, new concerns about investment capital vs. human capital began. While the investment in technologies increased production, the conditions of people did not improve, but at least the foundations were built for possible improvement became industry was generating a surplus - capital of knowledge and goods that directly provided workers increased wages, shorter hours, and more work satisfaction, hi the budding industrial environment, Robert Owen, a young Welsh factory owner in the early 1800's, was the first to emphasise the human needs of the employees. He refused to employ young children. He taught his workers temperance and cleanliness and improved their working conditions. Because of this, Robert Owen has been called the real father of modem organizational behavior and personnel administration (Podmore 1906: 2-25). Andrew Ure incorporated the rehumanization of the factory in his The Philosophy o f Manufactures (1835). He recognized the mechanical and commercial aspects of manufacturing, but he also added a third element, which was \"The human factor.' He explained how this factor was recognized by providing workers with hot tea, medical treatment, ventilation, and sickness payments. The opinions of Owen and Ure were accepted 15 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

slowly or not at all, and, in later practice, they often degenerated into a paternalistic, do-good approach, rather than a geanine recognition, of the importance of people at work (Davis 1977: 8-19). Daring this time period, no formal HC programs, HRMdepartments, or HRA programs existed. The day-to-day relations with employees were left to the foreman. To handle the clerical aspects associated with calculating hoots worked and pay, a factory timekeeper might be hired, bat normally only in large organizations (Eilbirt 1959: 345-364). A. HUMANCAPITAL (EEC) Homan Capital was first defined as households. Households were defined as the supplier of labor making die sole choice of where and whento work (in the 1776 publication of Adam Smith's Wealth o fNations). Smith, held that the wealth,or income of a nation depends upon the productivity of the household or labor and die proportion of laborers who ate usefully productively employed. The larger the share of die labor force involved in producing tangible real goods, the greater the wealth of the nation. Because he predicted that the economy would instinctively attain full employment of its resources, he investigated only those factors that fWgyipir1* the capability of the nation to produce goods and services (Spiegel 1971). The Circular Flow of Income model of Smith's Laissez-Faire Economy presented the belief that the personal distribution of income depends on the prices and quantities of sold by labor. Labor is the only factor of production owned by most households, so household income generally depends upon wage rate and the number of hours worked. The quantities of 16 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

labor, capital, and land that individuals bring to the market determines the distribution of income (Amacher and Ulrich 1995: 39-44). David Ricardo developed a labor cost theory of value based on the belief that the value of a commodity, or the quantity of any other commodity for which it wffl be exchanged, depends on die relative quantity of labor which is essential for its production, and not on the greater or less compensation which is paid for that labor. Ricardo's theory introducedthe use of clock hours, or time, as a measure ofthe quantity of labor by the amount of time involved in producing a good (St. Clair 19S7: 4-29). John Stuart Mill introduced the humanism\"of social reform into economics. His humanistic ideology was more concerned with the EC concepts of individual improvement and self-fulfillment. What was significant was that he brought to economics the ability to contribute visibly to both political science and philosophy (Cohen 1961). Mill's distress with social reform led him to emphasise the opposition between the laws of production and the laws governing the distribution of personal income. His monetary theory allowed for the likelihood of a psychological theory of business cycles (Ashley 1909: 12-23). The EC concepts of Karl Marx contended that the worker contributed according to ability but consumed according to need. He regarded HC as perfectible but viewed the worker as being exploited by capitalism. Marx believed that all commodities contained the one element of labor (HQ in certain measurable quantities (Marx 1904). Marx regarded HC (labor) as a common element defined by the amount of labor time necessary to produce commodities thus governing the relative prices of each product (Marx and Engels 1955). Marx could be seen as a maverick economic humanist. 17 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Alfred Marshall, building o il the works of Smith, Mill, and Ricardo, brought strong humanitarian feelings about improving the quality of life to the field. Ee viewed economics as an investigation of mankind in the traditional business of life. Ee reviewed that compartment of the individual and social action, which is most closely with the attainment and wife the use of fee material Hminrt<wa of well being (Viner 1941 and Whitaker 1977). Thnrstein Veblen focused his work on the ability to understand fee economy as a whole by proceeding from an opening analysis of its factors (land, labor, and capital), the firm, and the household He envisioned the whole as being different from the sum of the parts, and that economics should start at the point where fee economy, culture, and society came together (Dowd 1958: 9-16). His belief that ...\"man is not simply a bundle of desires but rather a coherent structure of propensities and habits which seeks realization and expression in an unfolding society../ made him the intellectual father of the branch of American heterodoxy often called institutionalism. Veblen theorized that \"...we cannot understand what we call the economy buy isolating the economic behavior of the Human race from its other activities.\" He felt that it was a blending wife all of the social sciences (Darfinan 1934: 19-32). John Hobson believed feat economics was a science \"...which still takes money as its standard of value, regards man as a means of money, and which is incapable of facing the deep and complex human problems which compose the Social Question\" (Hutchison 1953: 2-11). He believed feat \"...the substitution of direct social control for the private profit seeking motive in the normal processes of our industries is essential to any 18 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

sound scheme of social reconstruction: (Hobson 1914: 293). While many of Veblea's and Hobson's ideas were rejected by *****economic thinkers of the time, their focus on the human condition helped lay the groundwork of some early HC concepts. Additionally, in a review of the history of the development of the economic theory of human capital, Kiker indicated that other eariy economists who had recogntad that human capital existed included Petty, Senior, Say, Von Tinmen, Lists, Fischer, Roscfaer, and Walras (Kiker 1968: 481-499). The two methods, micro and macro, suggested by these early economists to measure the amounts of human capital were built around die concepts of cost-of-production and capitalized-eammgs procedures (Lekachman 1999). John Commons argued that the essentials of capitalism could remain intact, but changes in the working rules of the economic order were needed to remove the obvious faults of a Icassezfedre economy. These economic views influenced social legislation in the following areas: regulation of public utilities, industrial safety laws, workman's compensation, child labor laws, m tnfm m n wage laws for women, health and accident tnm ranca, a n d nriem plnym gnt en m p w iaH m law s, all prim ary H C concepts. Commons' reforms significantly influenced the institutional structure of American capitalism and the foundations of HC concepts (Commons 1934). As capitalism matured into a viable economic system, businesses discovered that to achieve and maintain superior economic performance, they had to be prepared to respond to current socio-political settings. A modem firm carefully defined its surroundings and adjusted its business strategy, its corporate culture, and its management structure and style to meet the demands rnipnmrf by these (physical, task, and societal) surroundings. Additionally, the 19 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

I human, condition within the firm. could not be allowed to become secondary to the needs of large businesses and HC concepts could not become stagnated (Kravetz 1988). John Kenneth Galbraith's analysis of the American economy has been more concerned with explaining its present operation than with speculating about its future course: 'O n the whole, I am less interested in telling where the industrial system is going ft— in providing materials for consideration of where it has arrived* (Galbraith 1967: 324). Galbraith argued that countervailing power has replaced competition as the regulatory mechanism ofthe economy. He believed that, like competition, power is a self-generating regulatory unit with power arising at one point in the economy producing corporate power, which led to the growth of large corporations and the development and growth of powerful labor unions within the same industries (Galbraith 1952: 116*120). Galbraith concluded that producers created the desire for their products and '...wants are increasingly created by the process by which they are satisfied (the dependence effect)-.' and that '-.one cannot defend production as satisfying wants if that production creates wants' (Galbraith 1938: 133-158). Keynesian Macroeconomic Theory was designed to identify the cause of employment. Keynes believed that employment was caused by the following: 1) the level of employment is directly related to the level of production; 2) in a market economy, planned spending on the output of the business sector will determine the level of production; 3) the level of employment in a market economy depends on the level of planned spending in the economy; and, 4) household spending is based on any increase in income and this can cause increased employment by increasing the demand far goods or services (Keynes 1936). Nobel laureates Milton Friedman and Paul A. Samuelson represented different 20 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

viewpoints with respect to economic policy. Samnelson saw an important role for government fa * modern industrial society developing policies which,would help improve the human condition (Samnelson 1955). Friedman advocated a laissez-faire economic policy fa which he combined a strong \"...belieffa individual rights and liberty and fa die effectiveness of the market fa protecting those rights.\" Moreover, he saw \"...economics as an engine of analysis for addressing problems and as something that should not be allowed to become an abstract mathematical consideration devoid of context and direct relation to real world problems' (Landreth and Colander 1994: 434). Theodore Shultz, also a Nobel laureate fa economics, stated that \"...laborers have become capitalists not from a diffusion of the ownership of corporation stocks as folklore would have it, bat from the acquisition of knowledge and skills that have economic value' (Shultz 1961: 3). This human capitalapproach, was derived from general economic theory that centered on the belief that, like all resources, people possessed value because they are capable of rendering future services (Fisher 1927). The foundations of HC were also found throughout the review of the two broad areas of economics: macroeconomics and microeconomics. The economic theory of human capital, found fa both areas of economics, was based upon die concept that people possess sfcnis, experience, and knowledge that are a form of capital. Microeconomics offered theories focusing on the economic problems ofthe individual, the firm, and industry. \"It inquires into what motivates the individual to spend or to save. It applies the principle of supply and demand, investigates how the price for a product is determined, studies bow individuals decide where to work\" (Mastrianna and Hailstones 1995: 21 11 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

7), and assessed the conditions of the work environment. Macroeconomics dealt with,the \"...aggregates of economics* \"Ending total production, total employment, and general price levels. It analyzed the problems of the economy as a whole.\" Additionally, macroeconomics suggested ways and means of obtaining a high level of employment. It formulated ideas on monetary and fiscal policy that were designed to stabilize die economy. Finally, macroeconomics was concerned with the effects of interest rates and taxes on.the economy, which reflected upon die human condition and the success or failure of the household (Mastrianna and Hailstones 1995: 7). a HUMAN RESOURCE MANAGEMENT (HRM) While only limited agreement concerning the field of HRM existed before 1900, there was considerable agreement about the influences on the fields in the early 1900's. The two innovations that had a substantial influence on the field during this time frame were scientific management and welfare practices, which focused an improving the quality of life for employees (Eilbiit 19S9, French 1986, and Rowland and Ferris 1982) and instituted the foundations for HRM. The main focus of scientific management was that waste represented costs. These costs included out-of-pocket expenses as well as hidden costs such as poor methods of management (Efibht 1959: 345-364). To control these costs, time and motion studies and job analyses were performed. Attention was also given to codifyingjob requirements, includingjob descriptions, and formalized job training (Hersey and Blanchard 1993: 160-206 and Davis 1977: 462-466). The individuals behind these changes have been identified as Frederick Taylor and 22 i ;i Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Frank and Lillian Gflbreth (French 1986). By using techniques by scientists in the laboratory, these individuals showed that efficiency in the workplace could be increased (Taylor 1911 and Gflbreth 1914: 22-46). Because Taylor's accounts of his experiments with Schmidt showed applications of howjob design, selection, training, and performance reward systems can be used on humanresources, the HRM functions have been attributed to the influence of scientific management (Mahoney and Decbop 1986: 223-241). Even white scientific management compensated workers for following orders and working hard, welfare practices emphasized increasing employees' overall quality of life. Welfare practices could be considered early versions of modem benefits packages. But, during the early 1900's, they were philanthropic endeavors (Baton, Davis-Black, and Biely 1986: 248-273). Employee benefits made available using various practices (employee welfare) varied. Some businesses offered financial assistance for home purchases, home improvements, and education, while others offered facilities such as recreational areas and libraries. Some even provided medical care (Albro 1922: 17-22 and Eilbirt 1939: 346-364). To manage all of these welfare programs, companies began to employ staffpeople called welfare secretaries (French 1986). These positions evolved into modem personnel administrators (Eilbirt 1939: 346-364). Lawrence suggested that the events of the early 1900's occurred as a result of the improvements in communication, facilities and transportation, causing the movement of the field of HRM from the craft system to a market system, an economy in which the three basic questions ate answered through the market by relying on self-interested behavior and 23 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

incentives. This new market system, which, still valued technologies more than human resources, consisted of large factories which employed both unskilled and skilled workers who used powerful machines in jobs requiring few skills. Workers were rewarded based upon the market value of the work (HQ they performed. Because of the supply of labor, employers were in control of organizations. To strengthen their position, workers were forced to band together and unionize. Intense conflicts between labor and management became commonplace (Lawrence 1985a: 349-376).' Events in the early 1900’s also helped establish the industrial-psychology era, a transition from a technical view of management to a humanistic view (Rowland and Ferris 1982: 2-33). This new focus moved toward the individual and was less concerned about the job. Personnel practices which encouraged long-term employment were adopted (Baron, Davis-BIake, and Bielby 1986: 249-273). One of the leading examples ofencouraging this type of practice was the work done by Hugo Munsterberg in 1913 in selecting telephone operators and streetcar operators. Eventually other HRM policies such as promotions, firings; centralized hiring, keeping turnover records, introducingjob ladders, and salary classifications were established. Additionally, training began to be viewed as the remedy for correcting the improper job- person match. It became possible to tram employees to fit theirjobs, rather than designing jobs around particular employees (Rowland and Ferris 1982: 2-33). C. HUMAN RELATIONS Even though all of the changes in the early 1900's led to a major increase in production, the workers'needs were still ignored. In an effort to emphasize workers' needs, 24 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

the human,relations era emerged. This movement was the mayor influence on. modem HRM (French. 1986). The Inman relations movement emphasized improving social relationships between supervisors and employees in work groups (Rowland and Fcnis 1982: 2-33). Specifically, how group behaviors and workers' feelings related to productivity and morale was central to the movement (French 1986). Between 1927 and 1932, the most important experiments of this movement were performed by Elton Mayo and Fritz Roethlisberger. These experiments are known as the lighting experiments and the piece-rate experiments at the Hawthorne Plant of Western Electric in Chicago (Mayo 1933 and Roethlisberger and Dickson 1939). The observations from both experiments demonstrated that the workers were not simple tools, but they were complex personalities interacting in a situation that was difficult and thoroughly misunderstood (Mayo 1933). Mayo believed that *...collaboration...cannot be left to chance* (Mayo 1941: xix), and his associate, Roethlisberger, added that if human problems are to be brought to a human solution, they require human data and humantools (Roethlisberger 1941). Furthermore, as the researchers examined the influence a change in lighting had on productivity, they concluded that human interaction, not the lighting, influenced production changes. These results highlighted the importance of social factors within the organization (Argyris 1960). To Frederick Taylor, human factors \"...stood in the way of production and should be removed.\" To Elton Mayo, human factors \"...became a broad new realm of study and an opportunity for achievement\". Mayo could be called the father of what was then referred to as \"human relations\" and later developed into the field of organizational behavior. Taylor 25 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

increased production by rationalizing it Mayo sought to increase production by hmnanmng it (Davis 1977: 9). The concept Theory Y was advanced by Douglas McGregor in his 1960 book, The Human Side o fEnterprise. His were sets of assumptions that underscored management's attitudes and beliefs regarding workers behavior. Theory Y became a concept of employee motivation, generally consistent with the ideas of human relations, HRM and HC, by surmising that employees accept responsibility and worktoward organizational goals if, by so doing, they also achieve personal rewards. Theory Y has helped increase management's understanding of the importance of social factors and hnman relations in the workplace, while helping to create additional support for the developing theories of HRA (Scfaein 1980: 6 8 -7 0 ). D. HUMAN RESOURCE ACCOUNTING (HRA) The personnel theorist, Rensis Likert, viewed employees as valuable organizational resources in his work, centering his beliefs around the philosophy that every aspect of a firm's activities was determined by the competence, motivation, and general effectiveness of its human organizations (Likert 1961). Though not planned, Libert's beliefs helped create a place in corporate America for HRA. This view was also supported by early accounting theorists who recognized employees as assets, and that there must be an accounting for their real value. W.A. Raton (1962: 486-487) noted that *.-in a business enterprise a well-organized and loyal personnel may be a mnch more important asset than a stock of merchandise.* In addition, DIL Scott (1925: 258) stated that \"...a trained force of technical operatives is always a valuable asset* 26 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Businesses' awareness of and interest in.the behavioral aspects of accounting began to develop in the early 1950's, and has slowly, but steadily, grown, over the last fatty years. In June 1951, the ConlioQership Foundation of America sponsored a research study that explored the impact of budgets on people. The stndy was carried oat under the direction of the School of Business and Public Administration, of Cornell University by Scfanyler Dean Holett and Chris Argyris. This research resulted in a number of tentative conclusions about the behavioral problems in budgeting as well as suggestions for possible cores for the perceived problems (Argyris 1957). Argyris' research served as the basis for Ids Harvard Business Review article, \"Homan Problems with Budgets,\" which introduced die dimensions of behavioral accounting. Of great interest was that both of these events preceded the works of Maslow (1954), McGregor (1960), and Kikert (1961), which many scholars have maintained are the pioneering studies for the business applications of behavioral science. These four works led to the concern about the influence organizations had on their workers (Hebert 1970: 47-63). This phase of organizational analysis became know as the quality of work life (QWL). This movement was legitimized by the p««mg of new federal laws concerning equal employment opportunity (Civil Rights Act, Title VII), safety and health (Occupational Safety and Health Act), and the protection of retirement income (Employee Retirement Income Security Act) (Rowland and Ferris 1982: 2-33). While organizations continued to be concerned about productivity and efficiency, it could not be at the expense of their employees (Hebert 1970: 47-63). In 1974 and 1975, building upon the quality of work life concepts, Walton introduced 27 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

eight criteria far analyzing the QWL in organizations. They were: 1) the organization's providing of socially beneficial and responsible work for its employees, 2) fair and adequate compensation, 3) safe and healthy working conditions, 4) an opportunity for employees to use and develop their human capabilities, 5) an opportunity for employees to grow and havejob security, 6) a balance between workand nan-work activities for all employees, 7) social integration into the work organization, and 8) the organization's adherence to the concepts of due process and rights to privacy. In 1973, the American Accounting Association's Committee on Human Resource Accounting (HRA) defined HRA as '...the process of identifying measuring *****about famum resources and communicating Oifo tnfarmafirm to interested parties.' E. RESPONSIBILITY ACCOUNTING (RA) Higgins (1952: 93-113) introduced responsibility accounting (RA), a branch of HRA, as an accounting system planning, Tnaamrrng, and evaluating organizational performance along the lines of responsibility. He believed that this system resulted in the preparation, of accounting statements for all levels of management, designed primarily so that they could be effectively used by the operating people as a tool in controlling their operations and their costs. The National Association of Accountants (1953) indicated that the company's fabric should be broken down into a network of individual responsibility centers (organizational units) engaged in the performance of a single function, or group of closely related sections, having a single head accountable for the activities of the unit, in 1956, this group stated: 1) the person with authority over both the acquisition and the use of goods or services should be charged with their cost; 2) the person who can significantly influence the amount of cost 28 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

through their own actions may be charged with cost; 3) the person, who camtot significantly influence the amount of cost through direct action may be charged with elements with which management desires that person to be concerned, so they will help influence those who are responsible. In the 1966 annual report of Uniroyal, top management suted that: 'Our primary resource is people. We are essentially a collection of sHHs~the varied expertise of our 68,000 employees... Uniroyal has plants and has capital, but most of all, it has people.* Samuel C. Johnson (1988) in his book, The^Essence o fa Family Enterprise: Doing Business the Johnson Way (Johnson Wax), stated: *Ih our company..J don't believe there is a distinction between management and labor; we all sit on one side of the table. We all share in the pre-tax profits. We all have a great deal of interest in this business; we are all Johnson people.* hi addition he also pointed out that, *We believe that anyone at any level can have a good idea. It is important to recognize people for their achievements and to respect them as individuals.* By the end of the 1960's, accountants, managers, financial analysts, social and behavioral scientists, and economists became very concerned about the concept of accounting for employees as organizational assets and resources. Originally, the plan was to 'put people on the balance sheet* because it was recognized that people are valuable resources and corporate financial reports are deficient if they do not reflect the status of human assets (Helrimian and Jones 1967: 105-113). More recently, there has been a growing tread towards developing methods of accounting for human resources as managerial tools (resources of an organization utilized to achieve the primary goals of the organization) rather than far 29 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

purposes of financial reporting. Some business organizations have already begun to develop systems of HRA for their human resources (Flamholtz 1985: ix-xix) and RA far their activities (Gilbert 1970: 25-28). A mare current system jnflnencfaig HRA and RA has been, an attempt to combine the emphasis on production without sacrificing the employee emphasis of the QWL. It has been referred to as the ' career system' (Lawrence 1985a: 249-367) or the \"behavioral systems theory* (French 1986). Both of these systems could be said to address the issue of how change in one HRM function influence other HRM functions. Lawrence (1985a) outlined the career system as being based on human resource flow policies. Before recruiting employees, the organization must define the specific duties, responsibilities, and potential mobility associated with the position, and thrt definition must be documented. This was not only a benefit to the organization but also to the potential employee. This knowledge allowed organizations to offer new employees a long-term career, while knowing where the employee would begin as well as the level to which they would progress. Similarly, the behavioral systems theory perspective emphasized the relationships of the parts of HRA and RA to the total HRM system (French 1986). This allowed personnel managers and accountants to consider the repercussions that a single change in any HRM function might have on the other functions. In essence, this perspective allowed both HRA and RA to be viewed in a more macro perspective than had previously been the case. RJL Hermanson (1964: 15-17) believed that traditional financial statements failed to adequately reflect the financial position of a firm because they did not include human assets. 30 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

His belief was farther bolstered by the development of his *unpurchased goodwill method,* which he perfected to measure the value of human assets a firm had developed through the common course of operations (recruiting, training, etc.) as opposed to those that had been purchased through one firm's acquisition of another. In 1966, businesses began exploring RA and HRA. This research developed concepts, models, applications, and techniques for measuring and accounting the cost and value of human assets (Bruznmet, Flamholtz, and Pyle 1968: 20-25). F. CONCLUSION The importance of a more macro perspective of HRA has only been explored since the early 1980's. The most obvious reason seemed to be the phenomenal growth in the field of HRM (Bowers 1969: 585-592). As the number of researchers in file area grows, they will be able to exert demand side pressure (the desire far changes in HRA concepts) within the organization, and this could translate into a broader role for.the HRA functions. Another reason for a macro perspective is that both the HRM function and HRA theory seem to have gained importance and status within some very large organizations. Several reasons for this can be projected. Legal constraints placed upon organizations have grown, and timely and correct information is needed to abide by and deal with these constraints. Since the HRM function has the knowledge necessary to deal with the legal constraints, it has become more important and influential because the information can be exploited to enhance one's power position (Pfeifer 1978). In essence, both. HRA and HRM can become a boundary-spanning function (the ability to move across organizational obstructions), controlling and interpreting the information coming from both the internal and 31 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

external environments to the organization (Sherman and Bohlander 1992: 27-30). The increasing degree to which HRA can be linked to strategic planning can enhance its status within the organization (Mahoney and Deckop 1986: 223-241). Some firms are becoming mote inclined to include the HRA in the strategic plan process became personnel costs ate more often seen as a critical factor when evaluating strategic alternatives. HRA has also been seen as a provider of valuable inputs with respect to the firm's inventory of human resource capabilities, which can be relevant to the selection of the appropriate strategy. A final reason airy HRA should be viewed in a more macro perspective is the need to advance the degree to which the field has a strong theoretical base that can be scientifically validated (Dyer 1980). This validation could not only enhance the value of an organization but could place a measurable value an HC The various HRA literature «»«»tn«ng issues often tends not to be acknowledged by or aware of others in the field (Dalzell 1987). Perhaps this is partially due to the fact that HRA research,has been predominantly micro-analytic, operating at a single level of analysis (Hebert 1970: 97-115). Perhaps this suggests a need to consider the potential benefits of pursuing more organizational-level research, in HRA (Nitterhouse 1990: 383-399). Perhaps Behavioral Financial Analysis (BFA), which I propose, could help introduce the benefits of organizational-level research. Perhaps BFA will help answer two of HRA's most pressing problems: 1) What fittingly is the realm of HRA? 2) What Should be the level of its scrutiny? In building the concepts of BFA I visualized its foundations around the theories of HC, HRM, and HRA. These three areas produce what I believe to be the most important 32 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

business concepts In today's ever changing global economy. To be able to value, on the balance sheet, the participation of employees as assets in a finn's economic growth,leads itself to a new view of the humancondition. 33 I Reproduced w ith permission of the copyright owner. Further reproduction prohibited w ithout permission.

One would hope—that some day satisfactory solutions will be found to the pervasive and fundamental problem. At present, however, the problem of uncertainty Is clouded by uncertainty. Robert Dotflnan CHAPTER HI: METHODOLOGY The methodology presented In this chapter represents the 1) methods of research, 2) data collection, 3) analysis, 4) interpretation, and 5) presentation of flic data which were used in this dissertation. Viewed from this perspective, the methodology included all the presented results ofthe study (Chapter IV). The methodology was incorporated in four important ways. First, the topical method was used to review the literature. Second, the methodology presented foe survey results of three restanrant management questionnaires. Third, two statistical methods were used to make determinations about the survey results and financial statement studies. Finally, information about the sample population was used in a statistical study. A. TOPICAL REVIEW METHOD. This method of reviewing the literature (Wilkinson 1991: 126-127) allowed the Researcher to take the research problem as a problem and then draw on the literature to develop an integrated view of the problem. This method allowed a presentation of the structure of the problem at the current stage of knowledge. In this topical review, the Researcher began with a question that was central and basic to the research hypotheses: Do restaurant management surveys reflect conditions found in the financial statements of a business? Similarly, the purpose was to establish whether current financial analysis theories, 34 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

human resource management concepts, *»mnm capital investment strategies, and tinman resource accounting principles could be blended into a socioeconomic model Healing with behavioral financial analysis. This review was not necessarily associated with the earliest papers nor with any particularperiod in research. The Researcher focused on the central question and selected papers from the literature to develop the conceptual structure of my question. Since the progress on the question was not linear and because the literature was drawn upon as necessary to construct the framework of (he question, the literature discussed was not presented in chronological aider. B. DEFINITION AND SPECIflCATION OF VARIABLES. hi preparing a study '...with a quantitative technique one almost always has a number of historical observations or observed values* (Wheelwright and Makridakis 1977: 12). These observations may represent many things, from historical financial data of the subject company, to a historical comparison between the financial data of the target company and the financial data of similar companies, from employee observations and interviews, to employee surveys. Wheelwright and Makridalds (1977: 153) suggest that the initial step in any research is to determine the variables, the extent to which the sources differ from one another, to be studied which would be most useful to the researcher and for which it is feasible to obtain this information on a regular basis. Because of the importance in determining these variables, five aspects must be addressed before the research can began (Wheelwright and Makridalds: 153-155). 1. The time period covered for each data value. For practical purposes, most 35 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

I factors in an organizational situation can be viewed as taking place in a 'continuous manner.* This research, conducted a statistical study of three restaurant management surveys mw»n in March 1985, March 1986, and Much 1987, and a statistical study of the 1985, 1986, and 1987 financial statements of the same company. Additionally, the Researcher used observations, exit interviews and senior restaurant management interviews taken in 1984, 1985,1986, and 1987 to support the statistical findings ofthe three restaurant management surveys. Duns Analytical Services: Industry Norms and Key Business Ratios of Restaurants (5812 Rating Places) for 1985,1986, and 1987 were used to compare industry norms with the target company's financial statement results. 2. Level of detail required. The time period covered by each value of the variables was required for specific applications of this study. It was much more efficient to collect restaurant management surveys and review financial results on an annualized basis because of time constraints and the timing ofthe public filings of the annual financial statements of the target company. 3. The frequency with which the data is required. This characteristic of a variable is generally closely related to die time period covered by each value of the variable. By collecting the restaurant management surveys on an annualized basis, they could be collected in the fastest and most efficient manner because of the negative attitudes of some of the managers within the Southern region. The financial statement studies were completed on an annualized basis because of the availability of financial data from Duns Analytical Services. 4. The Unit of Measurement. An. important step in the design and definition of a research statistical application is the '...determination of the appropriate units (measurements) 36 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

I to be used.* The most common,measure of the '...central tendency of a group of scores is the avenge, or mean* (McCall 1986: 46-49). McCall believed that the mmm '.^possesses several properties that make it an appropriate measure of central tendency—the value of a typical source. First, if the mean is subtracted from each score in the distribution, the sum of the differences is zero, and, secondly, the son of die squared deviations of *.~scores about their mean is less than the sum of the squared deviations of die «n»e scores about any other value.* These two mean properties \"...make'the mean the appropriate measure of die central tendency...because the mean (in terms of squared deviations) is closer to the individual scores over the entire group than any other single value.* 5. Required level of accuracy. While different applications of statistical research require different levels of accuracy, the Researcher felt that the most desirable level should be based an the importance of the restaurant manager situations within the Southern region of the target company, and how the results of the study would be used by top managers and stockholders of the target company in effecting the situation. Even if the results of the statistical studies of restaurant management attitudes within the Southern region proved to be peripheral to the situation, die study should become the foundation for reviewing die operational procedures and organizational policies of the Southern region of die target company. C. RESTAURANT MANAGER SURVEYS After observing some major problems, i.e., poor product quality, poor service quality, poor employee training, and a lack of communications in the Southern region of XXX 37 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

restaurant franchise, the Researcher decided that a structured restaurant management cultural survey was needed. Because the respondents were not likely to be very involved and were not accustomed to writing; this method yielded a high response rate and was the fastest and most appropriate means of data collection. The variables used within this survey were five restaurant managementjob titles. In consideringjob titles (employment status), the Researcher evaluated only those restaurant managers who actually worked thirty (30) hours or more per week and had been with XXX for at least six months. The structured survey used was modified from a 59 question survey (Herbert 1970), which had been used to measure the attitudes of various mid-level religious leaders within several Eastern Rite Christian Churches, the Oriental Orthodox Churches of Syria, Ethiopia and Armenia (the Coptic Church) and Eastern Orthodox Churches (Greek and Russian Orthodox churches), who were concerned with organizational communications and policies of their churches operating outside oftheir traditional geographic regions. Also included in the survey instrument were elements of three handouts. Two were given to the Researcher at the University of Dallas by a fellow graduate student in July 1980 and labeled 'Survey Questions Recommendations: Jenkins, Nadler, Lauder, and Camtnann, 1975* and 'Survey Question Recommendations and Computations: Brinkman, 1976* One survey instrument was given to the Researcher in 1967 while he was in a management training program titled 'SkUlem Drugs Suggested Management Interview Questions, July 1966.* Question structure and survey computations were based on examples and fwonmnM»w«htinH«from all four references. A modified random sample (stratified) was used by selecting twenty-one (21) restaurants out of thirty-seven (37) within the Southern region of XXX and then selecting 38 ;i Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

three respondents randomly from an alphabetical list of managers at each restaurant, Le., numbers two four, and six. Sixty-three (63) respondents, representing 100% of the March 1985 surveyed managers, retained aU of their surveys completed, hi March 1986 and March 1987, the surveys were expanded to include four (4) randomly selected managers, Le., one, three, five, and seven,for a total of eigfaty-four (84) each year, from each of the twenty-one (21) target restaurants. Seven (7) of the managers did not return their 1986 surveys and nine (9) of the managers did not return their 1987 surveys. No reasons were given by those not returning their surveys. Nine (9) of the respondents took the surveys twice, while five (5) took the surveys three times. The following types of managers were under review during each of the three (3) surveys: 1) restaurant managers (unit), 2) first assistant managers, 3) second assistant managers, 4) shift managers, and 5) trstawrant (unit) trainers. These restaurant managers were chosen because they came from and directed the profit centers of XXX. The respondents agreed to take part in the survey only because the Researcher was one of only a few stockholders (less than one hundred [100]), and they knew their identities would be safeguarded. The survey was designed to collect specific information about areas that directly affected the success of the restaurants and districts throughout the Southern region of XXX. Appendix A presents a sample of the restaurant (unit) manager's cultural surveys (objective surveys) on which respondents were asked to read all the questions and answers and simply mark the answers that were their choices. The chief advantage of this survey was that it was easy to administer and to analyze statistically. The average score for each statement, section, and part was evaluated according to the 39 i Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.