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European Journal of Business and Management                                                www.iiste.orgISSN 2222-1905 (Pa...
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2.[10 18]influencing organisational behaviour through the application of learning theories

  1. 1. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 External Reserves Management and Economic Development in Nigeria (1980-2008) Alasan AbdulazeezB (Corresponding Author) Dept. of Humanities and Social Sciences, School of General Studies, Federal Polytechnic, Auchi, P.M.B 13, Nigeria. Tel: +2348038679900 E-mail: alasanbabdulazeez@yahoo.com Shaib Ismail Omade Dep. of Statistics, School of Information and Communication Technology, Federal Polytechnic, Auchi, P.M.B 13, Nigeria. Tel: +2347032808765 E-mail: shaibismail@yahoo.comAbstractExternal reserves which are variously called International Reserves, Foreign Reserve or Foreign ExchangeReserves. In recent years, issues related to the management of external reserves have gained prominence, andreserves management practices have evolved rapidly. Effective management of foreign exchange reserves is oneof the major macroeconomic objectives of countries like Nigeria. This is against the background of rapid riseand accumulated challenges currently facing many emerging economics, especially oil producing countries(CBN 2007). This paper examined the management of external reserves and economic development in Nigeriabetween1980-2008.The empirical result of the data analysis revealed that there is statistical significantrelationship in the management of Nigerian external reserves. Hence, the need for an effective and efficientmanagement of Nigeria’s external reserves is imperative and recommended that reserve management shouldseek to ensure that adequate reserves are available such that risks are controlled in a prudent manner andreasonable earnings are generated over the medium to long term on the funds invested.Keywords: External Reserves, Management, relationship, CBN, Macroeconomic variables1.0 IntroductionIn recent years, issues related to the management of external reserves have gained prominence, and reservesmanagement practices have evolved rapidly. Effective management of foreign exchange reserves is one of themajor macroeconomic objectives of countries like Nigeria. This is against the background of rapid rise andaccumulated challenges currently facing many emerging economics, especially oil producing countries (CBN2007). External reserves are variously called International Reserves, Foreign Reserve or Foreign ExchangeReserves. While there are several definitions of international reserves, the most widely accepted is the oneproposed by the IMF in its Balance of Payments Manual, 5th edition. It defined international reserves asconsisting of official public sector foreign assets that are readily available to, and controlled by the monetaryauthorities for direct financing of payment imbalances, and directly regulating the magnitude of suchimbalances, through intervention in the exchange markets to affect the currency exchange rate and/or for otherpurposes (CBN 2007). The level of external reserve in a country is influenced by external sector developments such asinternational trade transactions, exchange rate, external debt and other related external obligations. However,when foreign reserves are used for financing domestic foreign exchange needs they could exert pressures on theinternal monetary environment. Thus, if a country’s trade volume increases, banks and other financialintermediaries may exert increasing pressure on her foreign reserves. This scenario calls for a continuous effort1|Pagewww.iiste.org
  2. 2. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011by a country at effectively managing her foreign reserves to an optimum level that would sustain her numerousexternal commitments (CBN 1997). Foreign reserves management is the technique of optimizing a nation’s external resources to meet itseconomic needs. In Nigeria, the Central Bank has the sole responsibility of management of foreign reserves. Thecomponents of foreign reserves include monetary gold, reserve position at the International Monetary Fund(IMF), holding of special drawing right (SDRs) and foreign exchange which are convertible currencies of othercountries (CBN 1997).2.0 Review of Related Literatures Aluko (2007), observed that External reserves has, in recent times, played significant role in theNigeria economy. It has increased the level of money supply and therefore impact positively on the level ofeconomic activities as more funds became available for investment in productive activities. Employment was inturn generated, output increased and consumption boosted. With their multiplier effects on the economy coupledwith the efficient management of the financial resources, standard of living of the people improvedconsiderably. Also, the contribution of the manufacturing sector to Gross Domestic Product (GDP), which hascontinued to dip, witnessed a boost.In a related study (Obaseki 2007) noted that the uses of external reserves cannot be over emphasized.Essentially, external obligations have to be settled in foreign exchange. Therefore, the stocks of reserves becomeimportant as a source of financing external imbalances. Other uses to which external reserves can be put are tointervene in the foreign exchange market, guide against unforeseen volatility and maintain natural wealth forfuture generations. Typically, the purpose of holding reserves is to allow the central bank an additional means to stabilizethe issued currencies from shocks. In addition to meeting the transaction needs of countries, reserves are used asa precautionary purpose to provide a cushion to absorb unexpected shocks or a sharp deterioration in their termsof trade or to meet unexpected capital outflows, like the negotiated exit payment of the Paris Club Debt byNigeria. Reserves are also used to manage the exchange rate through intervention in the foreign exchangemarket. Thus, the motives for holding adequate level of external reserves can therefore be summarized as thereasons why individuals hold money (CBN 2007). Sound foreign reserves management practices are important because they can increase a country’soverall resilience to shocks as the central bank will have the ability to respond effectively to financial crisis.Sound foreign reserves management can equally support but not substitute for sound macroeconomicmanagement. Similarly, inappropriate economic policies can pose serious risks to the ability to manage foreignreserves. However, the process of foreign reserves management has spanned over the areas of risk management,securitization and the use of derivatives (Anifowose 1997). External reserves have impacted significantly on the development of Nigeria economy over the years.According to (Ojokwu 2007), Foreign Direct Investment (FDI) into the country increased from $42.4 million in1997 to $540.17 million in 2002 at an exchange of ₦118 to a dollar, while the level of investment increased in1999 from ₦4.24 billion to ₦63.74 billion in 2002. He added that employment increased from 4,093 in 1999 to10,885 in 2002, while revenue allocation to States and Local Government Areas grew from ₦156.06 billion in1999 to ₦44.074 billion at August 2004. The Federal Government has also made significant progress in the waragainst corruption. All these are indicative of progress economically.2.1 Concept of External Reserves Prior to the inception of the Central Bank of Nigeria in 1959, the country formed part of the defunctWest African Currency Board (WACB). In that period, management of external reserves posed little or noproblems to the country because the manner in which the Board operated prevented such problems from arising.Optimal deployment of reserves then was really not an issue since Nigeria’s non-sterling earnings weredeposited in London in exchange for credit entries in the sterling accounts maintained there (Aizenman 2005). Subsequently, the 1959 Act which established the Central Bank of Nigeria (CBN) required the Bank tohold external reserves solely in Gold and Sterling. With the amendment in 1962 of this Act, the Bank acquiredthe mandate to maintain the country’s foreign exchange reserves not only in sterling balance but also in non-sterling assets such as gold coin or bullion, bank balances, bills of exchange, government and government-guaranteed securities of countries other than Britain and treasury bills in other countries. The monetary optionsavailable to the country widened upon joining the International Monetary Fund (IMF) in 1961 to include manymore assets (Yuguda 2003).2|Pagewww.iiste.org
  3. 3. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 The problems of reserve management began during the periods of the First National Development Planin 1962 to 1966 and the Nigerian Civil War of 1967 to 1970. In these periods, financing the plan and the warconsumed a large portion of the country’s reserves. Also, the tempo in the foreign trade sector dropped,following the disruption of economic activities in the country. The problems became compounded immediatelyafter the war in the wake of the Federal Government’s efforts to reconstruct and reactivate the war ravagedeconomy which continued to demand immense foreign exchange reserves. Because of the exigencies of thisperiod, the CBN became committed to maintaining an ‘adequate’ level of external reserves (Olawoyin 2005). In a related development, (Odozi 2000) noted that in addition to the problem of depleting reserves;Nigeria faced a new scenario with reserve management. Following the admission into the organisation ofPetroleum Exporting Countries (OPEC) in 1973 and the oil boom of the era, the problem of reservemanagement switched from that of ‘inadequate’ to that of ‘excess reserves’. This remained so until 1981 whenthe country was hit by the global economic recession that led to a consistent decline in her external reserves. Inthe light of this development, economic stabilisation measures revolving stringent exchange control, which ranfrom April 1982 to June, 1986 (when accretion to external reserves was low), were introduced. By the end of1985, it was evident that the use of stringent economic controls was ineffective in restraining external reservesdepletion. To this end, exchange and trade controls were discontinued in 1986, following the adoption of marketbased policy measures, the Structural Adjustment Programme (SAP) in July 1986. However, after more thanseven years of liberation, government felt that the overall performance of the economy was unsatisfactory.Hence, in January 1994, some measures of control were re-introduced which saw the CBN as the sole custodianof foreign exchange and together with its designated agents, the avenues for foreign exchange important. Againthe trade and exchange policies in 1994 failed to substantially achieve the desired objectives. The guidedderegulation introduced in 1995, among other things, abolished the 1962 Exchange Control Act, in a bid toenhance the flow of capital and the reserves position of the country. Other measures aimed at boosting theexternal reserves included the introduction of an Autonomous Foreign Exchange Market (AFEM) for thepurpose of trading in foreign currencies at market determined rates and further liberation of the foreignexchange system in 1997 and the trade and exchange regime in 1998. The scope of this study covers external reserves management and its effects on economic developmentin Nigeria between the periods of 1980 – 2009. The study also looked into the problems associated with foreignreserves management as well as its relationship with gross domestic product (GDP). The other area covered ishow best external reserves can be prudently managed for the overall benefit of Nigeria. The research wasconcluded with a theoretical framework adopted for the study.2.3 Sources of Nigeria External Reserves Inflows Nigeria’s external reserves derive mainly from the proceeds of crude oil production and sales. Nigeriaproduces approximately 2,000,000 barrels per day of crude oil in joint venture with some international oilcompanies, notably Shell, Mobil, and Chevron. Out of this, Nigeria sells a predetermined proportion directly,while the joint venture partners sell the rest. The joint venture partners pay Petroleum Profit Tax to the FederalGovernment through the Federal Board of Inland Revenue (CBN 2007).The five categories of revenue from crude oil production and sales are:i) Sale of Nigeria’s Crude Oil Equity: The Nigerian National Petroleum Corporation (NNPC) has the responsibility for the sale of Nigeria’s crude oil. Receipts from such sales are warehoused into our foreign accounts and constitute part of external reserves.ii) Royalties: These are funds paid by oil companies to the nation arising from the commercial exploitation of Nigeria’s oil resources. The Petroleum Act of 1969 provides a percentage to be paid as loyalty on the chargeable value of the crude oil/petroleum spirit production in a particular period.iii) Petroleum Profit Tax (PPT): This is the tax paid by oil companies on profit arising from their operations. A tax rate of 85% effective 1st April 1975 was specified by the Petroleum Profits Tax Act.iv) Penalty for Gas Flaring, Rentals, Signature Bonuses: Foreign exchange is realized from penalties for gas flaring, rental payments from Oil Prospecting License (OPL), conversion to oil mining lease, oil exploration license, and concession block allocation. Also signature bonus (an amount payable at the signing of an agreement for the award of OPL as part of the validity process of oil contract agreement) is a source of foreign exchange.v) Receipt from Gas Sales: Other sources of foreign exchange inflows include: Withholding Tax, Value Added Tax, Company Income Tax, Education Tax, and Rent/interests received from investments abroad personal home remittances.vi) Export products from non oil sources agricultural produce, processed and semi-processed products, etc.3|Pagewww.iiste.org
  4. 4. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011vii) Grants and other miscellaneous receipts (CBN, 2007). In Nigeria, over 85 percent of foreign exchange reserves is realized from the oil sector.3.0 Statement of Research ProblemThe importance of external reserves to any country cannot be overemphasized. It can be said to be the officialpublic sector foreign assets controlled by the central bank of a country. The reserve position of Nigeria at anygiven time is a reflection of the circumstances prevailing in the international oil market (George 2007). The sizeof Nigeria’s external reserves has been fluctuating over the years. The stock of reserves which was US$7.47billion at end of December 2003, increased by 127 percent to US$16.96 billion in 2004. It could finance 18.4months of imports. The import cover was much higher than the West Africa Monetary Zone (WAMZ) minimumrequirement of 6 months. See chart and table as appendage:From the foregoing, the researcher is of the opinion that external reserves generally have focused mainly on theconcept, nature, sources, size, the foreign exchange disbursement and months such reserves could financeimportation. Against this backdrop, this work sees the following as constituting the major statement of problemfor this study.i. The non-utilization of Nigeria’s huge external reserves for the development of infrastructure/social servicesii. The poor management of the reserves which has, to a large extent affected the growth of the economy.4.0 Objectives of the Study The broad objective of this study is to examine the effects of external reserves management oneconomic development in Nigeria. The specific objectives are:i. To examine the relationship between external reserves and the explanatory variables.ii. To also examine the extent to which external reserves account for financial stability.5.0 Hypotheses of the Study In pursuance of the set objectives of this study, the following hypotheses were drawn for testing, whereeconomic development is the dependent variable.i. There is no significant relationship between external reserves and the explanatory variables (Gross domestic product, export oil, non-oil, import oil, non-import oil and political stability).ii. There is no significant relationship between external reserves and financial stability.6.0 Relevance of the Study The importance of the study cannot be over-emphasized. It is believed that this study will provide anappropriate framework for the analysis of foreign reserves management and its effects on economicdevelopment. Such a framework will help identify the key variables of foreign reserves management and itseffects on the economy.7.0 Model Specification The study adopted the econometric model in evaluating the role of external reserves in the Nigeriaeconomy. The econometric model used was to determine the relationship between external reserves and selectedmacroeconomic variables (gross domestic product, GDP, export oil, non-export oil, non-import oil, capitalgoods, non-capital goods and political stability) towards adopting a policy option. Evans and Egwakhe (2008) observed that external reserves were held with a view to making theeconomy more attractive to foreign investment, which would, in turn, improve the economic performance of thenation. Hence the expectation that external reserve has a relationship with the level of economic productivitycaptured by GDP and other variables. In their empirical investigation of the role of external reserves on the Nigerian economy, Evans andEgwakhe (2008), used the Ordinary Least Square (OLS) technique and adopted a model of the form: Ln(Ri ) = a0 + a1Ln(Ei ) + a2 (I i ) + ei (1)Where :4|Pagewww.iiste.org
  5. 5. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 Ln represents natural log transformation, i is time lag, R is ratio of external reserve to GDP, E is ratio ofexports to GDP,I is ratio of imports to GDP, ei is error term and as are parameters. Following the model of Evans and Egwakhe (2008), the researcher adopted their formulation with alittle modification. That is, export was divided into oil export and non-oil export because they are the majorcomponents of export. Oil export constitutes about 90 percent and the other 10 percent is non-oil export. In themodification, import was also broken into two, that is, capital goods and non-capital goods because these arealso the major components of import. In addition to the modification of Evans and Egwakhe (2008), GDP wasincluded because it captures the level of economic activity. A dummy variable was also introduced as a proxyfor political stability. It takes the values of O for stability and 1 for instability.7.1 Variable Descriptions The data collected are within a time frame of 1980 and 2009. It includes the following variables:EXTR – External Reserves, GDP – Gross Domestic Product, EXOIL – Export Oil, NEOIL – Non-Export Oil,NOILMP – Non-Oil Import, CPG – Capital Goods, NCPG – Non-Capital Goods, POLST – Political Stability.7.2 Model Specification and Adoption One model was adopted in this study. That is,EXTR = f (GDP, EXOIL, NEOIL, NOILMP, CPG, NCPG, POLST)The model was adopted based on the formulation of Evans and Egwakhe (2008) and operationalized as:EXTR = βo + β1 GDP + β2 EXOIL + β3 NEOIL + β4 NOILMP + β5 CPG + β6 NCPG + β7 POLST + U8.0 Research MethodologyThis chapter specifically deals with the technique of enquiry underlying the study. Attention has been focusedon source of data, model formulation and method of data analysis.8.1 Source of Data Collection The data used in this study were mainly secondary data. They covered the period of (1986 – 2009) andwere obtained from various sources, notably the Central Bank of Nigeria (CBN) annual reports (2007, 2008 and2009), CBN statistical bulletin (2008, 2009 and 2010) and economic journals. Others were obtained fromtextbooks and the internet.8.2 Data Analysis TechniquesThe technique used in this study is the Ordinary Least Square (OLS) estimation technique. The test instrumentsin the OLS are the T-statistics and F-test which were used to test the significance of variables and the overallsignificance of the regression respectively. Other test instruments also employed were the Durbin Watson testwhich was used to test the presence or absence of auto correlation between and among the explanatory variablesand the adjusted R square used to test the percentage variation of the dependent and the independent variables.8.3 Result of Empirical AnalysisThe estimate of the model EXTR = 917401.8+0.661458GDP+0.202 EXOIL– 36.00NEOIL -0.012NOILIMP +141.67CPG – 500.6398 NCPG – 9562011.POLST (2)From the OLS result, R2 = 0.66 which shows that there is high positive correlation among the variables at66.1%. The adjusted R-squared = 0.548 implies that the co-efficient of determination indicated that the degreeof analysis is accurate and the independent variables (GDP, EXOIL, NEOIL, NOILIMP, CPG, NCPG, andPOLST) are capable of explaining the dependent variable (EXTR) by 54.8%, while 45.2% of the explanatoryvariable is captured or accounted for by error and other factors. The result of Durbin Watson (2.6065) revealedthat there is no presence of serial autocorrelation, which means the model is good for policy evaluation. Theindividual analysis of the variables shows that the coefficient of β1 is 0.6615 which implies a positiverelationship between the regressor variable, gross domestic variable, and the dependent variable, externalreserves. It further implies that a unit change in gross domestic product brought about a 0.6615 change inexternal reserves.5|Pagewww.iiste.org
  6. 6. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011The estimate of β2 is 0.20222. As expected, it shows a direct relationship between export oil and externalreserves such that unit change in export oil resulted in 0.2022 changes in external reserves. -36.0074 is theestimated value of β3 which shows a negative relationship between non-oil export and external reserves. Theimplication is that a unit change in non-oil export resulted in a -36.0074 variation in external reserves. Theestimate of β4 is -0.0126 which also signals an inverse relationship between non import and external reserves.What this signifies is that a -0.0126 change occurred as a result of a unit change in non-oil import. For β5,141.6775 is estimated value. This shows a positive relationship between capital goods and external reserves.Impliedly, a unit change in capital goods resulted in a 141.6775 variation in external reserves. The coefficientof β6 is -500.6398. It demonstrates a negative relationship between non capital goods and external reserves. Thisfurther means that a change in non-capital goods brought about a negative change of -500.6398 in externalreserves. For β7, -956201.1 is the coefficient. This shows an inverse relation between political stability andexternal reserves. Impliedly, a unit change in political stability resulted in a -956201.1 change in externalreserves.The values of t-ratio for β1, β2, β3, β4, β5, β6 and β7 are 0.644, 0.145, -0.962, -0.036, 0.092, -0.349, and -0.770respectively, while that of the statistical table at 5% level of significance is 2.056. Since the value of the T-ratiofrom the statistical table is greater than that which was calculated, it means that the estimates of β1 - β7 arestatistically significant. We therefore reject Ho: β1 = 0, β2 = 0, β3 = 0, β4 = o, β5 = 0 β6 = 0, β7 = 0 and accept H1 :β1 ≠ 0, β2 ≠ 0, β3 ≠ 0, β4 ≠ o, β5 ≠ 0 β6 ≠ 0 and β7 ≠ 0.9.0 The summary of findings is as follows:i) The empirical analysis shows a positive relationship between external reserves and some explanatory variables. The variables include gross domestic product, export oil, and capital goods. These account for 54.8% variation in external reserves.ii) The study has also shown that a negative relationship exist between external reserves and non-oil export, non-capital goods, non-import, and political stability.iii) External reserve was also found to be negatively related to macroeconomic stability, hence the non- utilization of this reserve to provide social services and infrastructure.10.0 RecommendationsThe study has shown that there is a positive correlation between external reserves and the growth rate of GDP,EXOIL and CPG. It is therefore important for appropriate policy formulation and implementation of suchpolicies to encourage and boost the growth rate of these variables.Since there is a direct relationship between external reserves and GDP, the need to diversify the economic baseand encourage agriculture becomes instructive. With this, our non oil export will be increased. This is because ifwe encourage agricultural production, it will not only guarantee food security, increase the nation’s GDP andforeign earnings, but it will generate employment and incomes thereby increasing the standard of living of theaverage Nigerian. If agriculture is encouraged, it will also act as a buffer to cushion shocks arising from thevolatility as well as the instability in the international oil market.From the empirical analysis, it was also observed that a positive relation exist between external reserves andEXOIL. It follows therefore that the downstream oil sector needs to be encouraged. To do this end, governmentshould provide an enabling environment such that the mutilnationals are protected and youth restiveness in theNiger Delta nipped in the bud permanently.Against the general consensus that a stable political climate encourages both local and foreign investment, ourempirical result deviated from this by showing a negative relationship between political stability and externalreserves. It is against the backdrop of this scenario that the researcher is of the opinion that our democracyshould be practiced according to the rules and cost of governance drastically reduced.Also, government should encourage and partner with the private sector. Such public/private sector partnershipwill reduce the unemployment scourge and consequently relax the political tension that has continuouslycharacterized the political in recent times.6|Pagewww.iiste.org
  7. 7. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011Furthermore, there should be deliberate and systematic effort to use part of the reserves for infrastructuraldevelopment and save part of it for future generation as oil, which is the main source of this reserveaccumulation is a wasting asset. This can be given impetus through an appropriate constitutional provision.11.0 Conclusion Over the years, the Nigerian economy has witnessed a lot of socio-economic and political challenges.These challenges notwithstanding, it is the researchers’ opinion that with determination and sincerity of purpose,we shall actualize the desired economic growth and development. The challenges may be daunting, but we haveall it takes to face them squarely. In conclusion, the need for an effective and efficient management of Nigeria’sexternal reserves is imperative. This is because poor management of external reserves may put at risk otherelements or components of national policy. For instance, an official exchange rate policy can cause severeeconomic damage. Hence, reserve management should seek to ensure that adequate reserves are available suchthat risks are controlled in a prudent manner and reasonable earnings are generated over the medium to longterm on the funds invested.ReferenceAluko, J. J. (2007). The Monetization of Nigeria’s Foreign Exchange Inflows. CBN Bullion. Vol. 31(2).Anifowose, O. K. (1997). Management of Foreign Exchange: A peep into the next decade”. CBN Bullion. Vol. 21, No. 4.Aizenman, J. (2005), International Reserves, UCSU and the NBER. Economic Journal vol. 3, No. 6.Central Bank of Nigeria (CBN), (2007). The Bullion: Building and Managing External Reserves for Economic Development. Vol. 31, No. 2.CBN, (2007), Building and Managing External Reserves for Economic Development. The CBN Bullion. Vol. 31 No. 2.Evans, S.C.O and Egwakhe, A.J. (2008). External Reserves and the Nigerian Economy. Published in African Journal of Business and Economic Research. Vol. 3 No. 2.George, O. (2007), External Reserves Management in Nigeria. The Bullion Publication of the CBN, Vol. 31 No. 2. April – June.IMF (2004), Guidelines for Foreign Exchange Reserve Management, IMF, Washington D.C.International Monetary Fund (2003), Guidelines for Foreign Exchange Reserve Management. IMF, June.Obaseki, P.J. (2007), Foreign Exchange Management in Nigeria. Past, Present and Future. CBN Economic and Financial Review. Vol. 29, No. 1.Odozi, V. (2000), Foreign Exchange Management: The Role of CBN. CBN Bullion, vol. 10, No. 3 p 17 – 22.Olawoyin, G. A. (2007), Reserves Management in Nigeria. A paper presentation, CBN.Obaseki, P. J. (2007). Sources, Currency Composition and uses of External Reserves. CBN Bullion. Vol. 32 (2).Ojukwu, P. (2007). Nigeria External Reserves and Issues in Economic Development Strategies: The Guardian, Wed. 9, p. 27.Yuguda, L. A. (2003). Management of External Reserves: 13th Annual Internal Auditors Conference, Central Bank of Nigeria, Kaduna No. 27 – 30.7|Pagewww.iiste.org
  8. 8. European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.11, 2011 Appendix Fig. 1 Nigeria’s Stock of External Reserves Position (US$ Billion) 60 30External Reserves (US$ Billion) 50 25 40 20 30 15 Months of Imports 20 10 10 5 0 0 1992 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: CBN Annual Report and Statement of Accounts (1997 – 2008) editions and CBN Statistical Bulletin, Vol. 16, Dec. 2008. Table1: Recent Trends in Nigeria’s External Reserves (1992 – 2008) Year Stock of Percentage Months of External debt Ratio of External change in imports cover stock (US$ reserves/stock Reserves (US$ stock of Billion) of external Billion) reserves debts 1992 0.70 *** *** *** *** 1993 1.30 85.71 *** *** *** 1994 1.70 30.77 3.00 29.43 0.06 1995 1.40 -17.65 2.10 32.58 0.04 1996 4.10 192.90 7.60 28.06 0.15 1997 7.58 84.90 9.60 27.09 0.28 1998 7.10 -6.30 9.20 28.91 0.25 1999 5.50 -22.50 7.60 28.07 0.20 2000 9.90 80.00 13.60 28.27 0.35 Source: CBN Annual Report and Statement of Accounts (1997 – 2008) editions and CBN Statistical Bulletin, Vol. 16, Dec. 2008. *** Not available . 8|Page www.iiste.org
  9. 9. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011Table2: Result of Empirical Analysis The model specified in the study was estimated using the ordinary least square regression technique.The result obtained is summarized below:Regression Result of ModelVariables Coefficient Standard Error T=Statistics Prob.GDP 0.661458 1.026505 0.644379 0.5263EXOIL 0.202154 1.391980 0.145228 0.8859NEOIL -36.00743 37.42813 -0.962042 0.3470NOILIMP -0.012592 0.351806 -0.035793 0.9718CPG 141.6775 1541.058 0.091935 0.9276NCPG -500.6398 1432.677 -0.349444 0.7302POLST -956201.1 1240965 -0.770530 0.4496C 917401.8 1149267 0.798249 0.4337R2 0.6612, R-2 0.5483, F-stat 5.8549, DW Stat. 2.6066Source: SPSS Result Output9|Pagewww.iiste.org
  10. 10. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 Influencing organisational behaviour through the application of learning theories Kwasi Dartey-Baah (Corresponding Author) Department of Organisation & Human Resource Management, University of Ghana Business School P.O. Box LG78, Legon, Accra-Ghana, West Africa Telephone: 00233209621292 Email: kdartey-baah@ug.edu.gh Kwesi Amponsah-Tawiah Department of Organisation & Human Resource Management, University of Ghana Business School P.O. Box LG78, Legon, Accra-Ghana, West Africa Telephone: 00233546238672 Email: kamponsah-tawiah@ug.edu.ghAbstractOver the years, learning has been seen as an active and rewarding aspect of peoples’ personal and collectiveexperiences. Learning is a feature of all human activities and defines humanity. As the business environmentcontinually changes, organisations increasingly need innovative ideas to stay ahead of competition. Learningtherefore is viewed as the key factor that underpins organisational competitiveness. It enables organisations toachieve a better balance between long-term effectiveness and short-term efficiency; hence, a focus on capturingand sharing learning produces a wider range of solutions to organisational issues. Renowned psychologists haveidentified learning theories that thoroughly analyse the effect of learning on behaviours. Learning theories havetherefore influenced a range of people management best practices. This paper seeks to analyse howorganisational behaviour can be influenced through the application of these learning theories.Keywords: Learning, organisational behaviour, organisational learning, learning theories.1. IntroductionThe complexity of current business environments has imposed constantly changing settings in whichorganisations compete for survival. As a result, special emphasis is placed on acquiring, motivating andretaining quality human resources, since these initiatives are essential for the success of organisations.Moreover, as organisational success is tied to human resource innovations, it is increasingly obvious that allorganisations whatever their size and business orientation, depend on the knowledge and expertise of theiremployees to create sustainable agility and competitive advantage.To achieve this, organisations not only create enabling environment but also ensure that employees have theappropriate expertise to do the job. Learning clearly underpins this and as such to remain competitive in abusiness environment characterised with uncertainty and constant change, organisations’ ability to learn fromthe past and with a better understanding of what is required for the future is essential for their survival. Learningtherefore influences organisational behaviour and vital for their relevance and success. Mullins (2010)Most organisations often fail to capitalise on the collective learning ability of their people. Organisations thatvalue the knowledge and experience of their staff and see that as central to their progress will value the role oflearning in the work they do. Applying a range of learning concepts is the foundation for building and managingeffective organisational learning. It must however be noted that organisational learning and learningorganisations are similar learning concepts which are related to organisational setting but are very distinct innature. This paper concentrates on the organisational learning concept and provides the analysis of howorganisational behaviour can be influence through the application of learning theories.1.1. OrganisationAn organisation is a managed system designed and operated to achieve a specific set of objectives.Organisations can mean different things for those who use them and work in them, because for some, they aresignificant personal and social sources of money, physical resources; meaning, relevance, purpose and identity;order and stability and for others it offers security, support and protection; status, prestige, self esteem and self-10 | P a g ewww.iiste.org
  11. 11. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011confidence; power, authority and control (Huczynski and Buchanan, 2007).According to Laudon and Laudon (2006), an organisation can be defined technically as a stable, formal socialstructure with internal rules and procedures that must abide by laws. They further defined an organisation from abehavioural perspective as a collection of rights, privileges, obligations and responsibilities that is delicatelybalanced over a period of time through conflict and conflict resolution. In this behavioural view, people inorganisations develop customary ways of working and they gain attachment to existing relationships.Organisations are thus social arrangements for the controlled performance of collective goals according toHuczynski and Buchanan (2007).Mullins (2010) asserted that organisations are complex social systems that can be defined and studied in anumber of ways. A significant approach to this perspective on the nature of organisations is provided by Morgan(1989). Through the use of metaphors, Morgan identified eight different ways of viewing organisations asmachines, organisms, brains, cultures, political systems, psychic prisons, flux and transformation, andinstruments of domination. According to Morgan, these contrasting metaphors help in the understanding of thecomplex nature of organisational life and the critical evaluation of organisational phenomena.1.2 Organisational BehaviourOrganisational behaviour is the study of the structure, functioning and performance of organisations, and thebehaviour of groups and individual within them Huczynski and Buchanan (2007). It is further defined by Griffin(1999) as a pattern of actions by the members of an organisation that directly or indirectly influencesorganisational effectiveness. He continued to outline the workplace behaviours to include performancebehaviours, withdrawal behaviours and organisational citizenship. He further defined performance behaviours asthe total set of work-related behaviours that the organisation expects the individual to display. On the otherhand, absenteeism and high turnover rates constitute withdrawal behaviours in organisations. Additionally,Griffin (1999) referred to organisational citizenship as the behaviours of individuals that make a positive overallcontribution to the organisation.The purpose of organisational behaviour is to gain a greater understanding of those factors that influenceindividual and group dynamics in an organisational setting so that individuals and the groups and organisationsto which they belong may become more efficient and effective. The study of organisational behaviour thereforeseeks to integrate the insights of diversity, discipline and applying them to real-life problems and opportunities.2. Factors that influence organisational behaviourAccording to Mullin (2010), the main factors that influence the way individuals and groups in organisationsbehave can be listed as follows: • Individual differences • Organisational culture • Information technology • Organisational structure • Organisational mission statement • Learning2.1 Individual DifferencesAccording to Griffin (1999), as a starting point of understanding human behaviour in organisations, it isimportant to consider the basic nature of the relationship between individuals and organisations. This is essentialin gaining the appreciation of the nature of individual differences which significantly influence organisationalbehaviour. This is emphasised by Mullins (2010) who advanced that the individual is a central feature oforganisational behaviour whether they act in isolation or as part of a group.Griffin (1999) further identified personality, attitudes, perception, diversity, multiculturalism and stress as thefundamental elements of individual behaviours in organisations. Where the needs of the individual and theorganisational demands are incompatible, it can result in frustration and conflicts. It is therefore the task ofmanagement to integrate the individual and the organisations needs to provide a working environment thatpromotes the satisfaction of individual needs as well as the attainment of organisational goals (Mullins 2010).11 | P a g ewww.iiste.org
  12. 12. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 20112.2 Organisational CultureOrganisational culture plays a major role in shaping the behaviours in an organisation. It is a system of sharedmeaning within the internal environment of a business atmosphere. Griffin (1999) defined organisational cultureas the set of values, beliefs, behaviours, customs, and attitudes that help members of organisation to understandwhat it stands for, how it does things, and what it considers important. Furthermore Griffin also noted thatorganisational culture determines the feel of the organisation. It is a powerful force that shapes the overalleffectiveness and long-term success of the organisation (Popper and Lipshitz, 1998). It can also impactunfavourably on organisational behaviour creating barriers to change, diversity, mergers and acquisitions.2.3 Information TechnologyInformation technology affects the behaviours of people in organisations. This impact can be positive ornegative. According to Laudon and Laudon (2006), information technology improves individual efficiency andorganisational excellence as a whole. However on the negative side, Griffin (1999) argued that informationtechnology can lead to isolation as people do their job without physically interacting with others; andredundancy as a number of peoples work are taken over by computers. Thus information systems change theorganisational balance of rights, privileges, obligations, responsibilities and feelings that have been establishedover a long period of time.2.4 Organisational StructureThe structure and design of organisations have implications for individual and group behaviours. As it has beenrightly stated by Mullins (2010), behaviour is affected by patterns of organisational structure through whichorganisational processes are planned, directed and controlled. This means how job tasks are divided, grouped,and coordinated in an organisation can shape the behaviours and therefore very important cause of individualand group behaviours (Popper and Lipshitz, 1998). Hence, the decisions about structure are key to implementingstrategy and may affect individual and group motivation and commitment in organisations.2.5 Organisational Mission StatementThis refers to the core purpose of the organisation. According to Reeves (2006), the mission of the organisationcan influence individual and group behaviours; performance; and self-initiative. The clarity and sincerity of thisstatement does not only motivate staff but also sets the service expectations for the customer (Perrin andTavakoli, 1997). The culture created by the mission plays a key role in the effectiveness of employees andtherefore, management must strive to embrace the core values of the statement so that others will inherentlyexhibit these values (Griffin, 1999).2.6 LearningLearning frequently occurs when an individual has to deal with a new situation. It is about developing newskills, competencies and attitude to meet new situations. It is a change in behaviour that occurs as a result ofone’s interaction with the environment. Torrington, et al (2005) defined learning as the changed or newbehaviour resulting from new or reinterpreted knowledge that has been derived from an external or internalexperience. Learning is a powerful incentive for many employees to stick to certain organisations and hassignificant impact on individual behaviour as it influences abilities, role perceptions and motivation.Organisations can therefore influence these factors in their bid to promote and encourage learning initiatives. Asthe Chartered Institute of Personnel Development (CIPD), UK put it, learning is a self-directed, work-basedprocess leading to increased adaptive capacity. (www.trainingjournal.com/content/cipd-sad-report). Accessed10-11-2011.Torrington et al (2005) stated that there are a number of ways people learn and outlined the following as some ofthe effective means of work-related learning techniques: • Action learning • Coaching • Mentoring • Peer relationships • Learning logs.Honey and Mumford (1992) believed that there are different learning styles which suit different individuals andhave drawn up a classification of four learning styles:12 | P a g ewww.iiste.org
  13. 13. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 • Theorist – one who seeks to understand the underlying concepts of a situation and takes an intellectual approach based on logical argument; • Reflector – one who observes situations, thinks about them and then choose how to react; • Activist – one who likes to deal with practical problems and is not interested in theory; and • Pragmatist – one who only value ideas if there is a direct link to problems.Huczynski and Buchanan (2007) advanced that changes in behaviour can be measured or quantified usinglearning curves. A learning curve is a high learning concept which is valid for a wide range of situations. It is adiagrammatic presentation of the amount of learning in relation to time. At the beginning, it is natural that therate of learning increases but levels off at a point indicating that maximum performance has been achieved andplateaus indicating flattening off in terms of the improvement.An organisation which facilitates the learning of all it members and continually transform itself is refer to as alearning organisation (Peddler et al 1991). On the other hand, organisational learning is based on the detachedobservation of individual and collective learning processes in organisations (Torrington et al 2005). Accordingto Torrington et al, although the learning organisation concept centre more on individual learning and selfdevelopment, organisational learning is more than just the sum of individual learning in the organisation. Itimplies that it is only when an individual’s learning has an impact on and interrelates with others thatorganisation members learn together and gradually begin to change the way things are done.The organisational learning approach is therefore critical to organisational success and is mainly focused on theprocess of collective learning whereas Easterby-Smith and Araujo (1999) cited that the study of learningorganisations is focused on normative models for creating change in the direction of improved learningprocesses. They argued further that the literature on the learning organisation draws heavily on the concepts oforganisational learning mechanisms and can be seen as a way of making the concept of organisational learningmore concrete. The organisational learning mechanisms have been described as the structural and proceduralarrangements that allow organisations to learn (Popper and Lipshitz 1998).Organisational learning is therefore the process through which individuals and groups in an organisation developshared values and knowledge based on past experiences. Organisations vary greatly in all aspects and thereforeestablishing an understanding of what influences organisational learning is extremely valuable. Lohman (2005)outlined initiative, positive personality traits, commitment to professional development, self-efficacy and love oflearning as factors that influence the motivation for organisational learning. Conversely, an unsupportiveorganisational culture, unwillingness to participate, and lack of proximity with colleagues, negatively impactedorganisational learning. Albert (2005) also found out that top management support and involvement ofconsultants also facilitate organisational learning.An European study showed that lack of motivation; unclear roles; lack of confidence; insufficient learningculture; lack of innovation and lack of resources negatively impacted organisational learning Sambrook andStewart (2000). From the positive perspective, motivation, enthusiasm, involvement, clarity and understandingof role, increased responsibility, a developed learning culture, senior management support, and investment inhuman resources make a significant difference in organisational learning.Garvin (1993) cited three critical factors that are essential for organisational learning in practice: meaning,management, and measurement. He advanced that for learning to be a meaningful organisational goal, it mustbe widely understood, have application to the work being performed, and be supported by the organisationalleadership. Furthermore, Garvin reiterated that for an organisation to learn, a change must take place and newlygained knowledge must be intentional and managed. Learning practices and policies must therefore be thefoundation of managed organisational learning. Garvin further suggested five basic practices that organisationscan manage to enable organisational learning: systematic problem solving, experimentation, the use ofdemonstration projects, experiential learning, and learning from others on the outside (benchmarking). Headded that measurements must effectively gauge the stages of organisational learning: cognitive, wheremembers are exposed to new ideas or knowledge; behavioural changes, where members actually alter theirbehaviour based on new learning; and finally, performance improvement, where behavioural changes lead topositive business results in safety, quality, market share, and profitability.It can be seen that a learning culture play a significant role in the organisational learning process. Amabile(1998) pointed out the following management practices in creating an effective learning culture within anorganisation: providing employees with challenges; freedom to innovate; providing the resources needed tocreate new ideas; diversity of perspectives and backgrounds within groups; supervisor encouragement; and13 | P a g ewww.iiste.org
  14. 14. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011organisational support. Barriers to learning according to Torrington, et al (2005) are identified as the culture ofan organisation, risk of admitting failure, lack of incentive to change, internal competition, resistance to ideasand learning from other context. Clearly it is imperative for organisations competing in a rapidly changingworld to have a continuous learning approach. The ability of individuals and groups to learn is therefore crucialto organisational success especially those organisations that are preoccupied with controlled performance.3. Learning TheoriesThere are broadly four theoretical approaches to understanding the nature of learning. The subsequentdiscussions focuses on these theories and whilst there are no right or wrong theory, organisational behavioursoften reflect the explicit or implicit acceptance of one or more of such theoretical perspectives.3.1 Classical Conditioning theoryClassical conditioning theory discovered by Pavlov (1927) shows how a behaviour or response that is alreadyestablished can become associated with a new stimulus. It is based on the premise that a physical event termeda stimulus that initially does not elicit a particular response gradually acquires the capacity to elicit that responseas a result of repeated pairing with a stimulus that elicits a reaction. Despite the theoretical possibility of thewidespread applicability of classical conditioning, most theorists agree that it represents only a very small partof total human learning. Skinner (1953), in particular, argued that classical conditioning explains only reflexivebehaviours. These are the involuntary responses that are elicited by a stimulus. Skinner felt that the morecomplex human behaviours cannot be explained by classical conditioning alone and asserted that most humanbehaviour affects or operates on the environment. According to Skinner, the latter type of behaviour is learntthrough operant conditioning.3.2 Operant Conditioning theoryThis learning theory states that people learn by continually looking for ways to achieve more positivereinforcement in terms of rewards and avoid negative reinforcement in terms of punishment (Skinner, 1953).Reinforcement is defined as a stimulus or event that affects the likelihood that an immediately precedingbehaviour will be repeated. Besides reinforcement, punishment produces avoidance behaviour, which appears toweaken learning but not curtail it. It operates under the assumption that if behaviour can be learned, it can alsobe unlearned. Skinner (1953) has been associated with operant conditioning. He believes that our behaviours areinfluenced by our history of rewards and punishments. According to Skinner once actions have pleasant effects,then there is the likelihood that such actions will be repeated in the future. This suggests that any behaviour, in aparticular context that is reinforced (rewarded) in some way will tend to be repeated in that context. However, ifone’s actions have unpleasant effects (punishment), then one is less likely to repeat them in the future.According to this theory, behaviour is the function of its consequences. Skinner (1974) introduced the conceptof shaping behaviour by selectively reinforcing desired pieces of behaviour. His experiment revealed that humanbehaviour is shaped by the environment, by past experiences in that environment and by the selective rewardsand punishments that are received. He further argued that thinking, problem solving and acquisition of languageare dependent on these simple conditioning processes (Skinner, 1954). Hence, operant conditioning has a greatimpact on human learning and it also explains much of organisational behaviour.The classical and operant conditioning theories constitute the behavioural theories concentrating on changes inobservable behaviours. The behaviourist psychologist like Pavlov and Skinner associated reward with certainbehaviours in order to increase the display of such behaviours. The relevance of this for organisations may beseen for example in telesales training where employees are taught to follow a script and calls are listened to, toensure that the script is followed. Reward or punishment follows depending on behaviour. The main problems ofthese behavioural theories are that they are manipulative and limited in nature.3.3 Social learning theoryA lot of psychologists have been associated with this theory; notable among them are Albert Bandura, N. E.Miller and J. C. Dollard. Social learning theory, also known as observational learning, state that people learnthrough observing others’ behaviour, attitudes, and outcomes of those behaviours Bandura, (1977). Furthermore,Bandura (1977) explained human behaviour in terms of continuous reciprocal interaction between cognitive,behavioural, and environmental influences. He believed that direct reinforcement could not account for all typesof learning. The social learning theory added a social element, arguing that people can learn new informationand behaviours by watching other people. He noted that external environmental reinforcement was not the only14 | P a g ewww.iiste.org
  15. 15. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011factor to influence learning and behaviour but also intrinsic reinforcement such as pride, satisfaction, and asense of accomplishment. In other words, this theory assumes learning to be a social activity that is based onone’s needs as a human being to fit in with others. In organisational setting, this happens naturally as workerslearn to fit into the perceived organisational culture. Fitting here means that one can be accepted successfullyinto the organisation but does not necessarily mean the individual internalise and believe the way things aredone in the organisation. Social learning theory therefore has a considerable relevance to organisationalbehaviour (Miller and Dollard, 1950) but its main limitation is that it ignores the role of choice for theindividual.3.4 Cognitive theoryCognitive theory is based on an information processing approach and is basically concerned with what goes onin the learner’s mind. The cognitive theorist argued that the rewards and punishment that behavioural theoristscall reinforcement, work in more complex ways than the conditioning theories suggested (Huczynski andBuchanan 2007). These authors claimed that in reinforcement, people are always aware about the results of thepast behaviour; thus a feedback on how successful a behaviour has been. Huczynski and Buchanan furtherstressed that knowledge is information which can be used to modify or maintain previous behaviour. Cognitivetheory of learning is therefore not concerned with the relationship between stimuli and responses, but rather withthe plans that people choose and the way they adopt to pursue and how these plans are modified by experience(Torrington et al 2005). Cognitive process assumes that people are conscious and active participants in how theylearn. This theory is relevant in the contemporary managerial practices as many motivation theories such asEquity theory, Goal-Setting theory, and Expectancy theory which centre on the concept of cognition.Expectations, attributions and locus of control are all cognitive concepts requiring attention while motivatingemployees.The strengths of the cognitive theory are: • It stresses the importance of learner motivation and individual needs; • It recognises the fact that the individual has control over what is learnt; and • It identifies feedback as a vital aspect of learning.The drawbacks of this theory on the other hand are that it assumes learning is neutral and unproblematic; and itis a purely rational approach that ignores emotions.4. Influencing organisational behaviour through the application of learning theoriesThe behavioural approach (classical conditioning and operant conditioning theories) to learning has led to thedevelopment of a range of techniques generally describe as behaviour modifications which have effectivelybeen applied to organisational settings. Behaviour modification is a general label for approaches to changingbehaviour through the use of appropriate and timely reinforcement. This approach is based on the premise thatpeople learn to repeat behaviours that have favourable consequences. It uses the principles of reinforcement(motivational strategies) to eliminate undesirable workplace behaviours and to increase the frequency of suchdesirable behaviours.Effective motivational strategies can either be transactional or relational rewards. The transactional rewards aremostly in the form of pay increase and attractive benefits whereas the relational rewards are in the form ofemployee recognition, flexible work/life balance, positive working conditions, sense of achievement, employeeempowerment and involvement in decision making, opportunities for personal growth and career advancement.All these motivational strategies drive employee satisfaction and commitment toward the achievement oforganisational goals.Suppose a manager want more assignment completed on time, and less submitted beyond the required deadline;the manager may use positive reinforcement like compliment to reinforce this behaviour or use negativereinforcement (punishment/sanctions) like warning letter to deter undesirable behaviours. Smither (1988) citeda typical example of how this was applied in a factory in Mexico which suffered serious timekeeping problem;15% of their workforce arrived late for work on regular basis. Management decided to reward good timekeepingby paying workers two pesos a day extra if they started work early. Lateness fell from 15% to 2%, at minimaladditional cost to the company. In customer oriented organisations, a positive reinforcement can be used tocreate superior customer value; motivational strategy like recognition can greatly influence behaviourspositively as far as delighting customers is concerned.15 | P a g ewww.iiste.org
  16. 16. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011Moreover, inappropriate behaviours in organisational setting can be punished directly by withholding rewards orby initiating disciplinary procedures. Punishment, be it perceived or real, is likely to cause feeling of resentmentin the mind of the affected employee leading to apathy or psychological revenge. It is therefore not surprisingthat most organisations prefer to use reward management as means of positively controlling organisationalbehaviours.It is however important that behaviour modification techniques are carefully planned to identify specificbehavioural goals and particular procedures for reinforcing the behaviours that will achieve those goals. Wherebehaviour and appropriate reinforcement can be clearly identified and linked (example, if you wear your seatbelt we will give you a prize) the techniques can be effective. Where this relationship is less clear (example, ifyou demonstrate commitment to the organisation we will consider you for promotion) the applicability of thetechnique is less certain. Behaviour modification techniques also involve clear communication of goals andexpectations to employees in unambiguous terms.Social learning theory can also be applied in organisational setting to influence organisational behaviour. A greatdeal of what is learnt about how to behave in organisations can be explained through the process ofobservational learning. For instance, a new staff acquires job skills by observing what an experienced employeedoes.Organisations tend to have different standards concerning, for example, what counts for good workperformance; familiarity in everyday social interactions at work; the appropriate amount of deference to show tosuperiors, dress and appearance; and attitudes to work, colleagues, managers and customers. The newcomer hasto learn these standards to be a successful and accepted member of the organisation. It is not enough just to learnthe knowledge and skills required to perform work duties and responsibilities but to also acclimatise towards theaccepted corporate culture. Individuals arrive in a new organisation with values, attitudes, beliefs andexpectation that they have acquired elsewhere. The old way of doing things from previous organisations mayhave to be unlearned sometimes in order to learn the new ways of doing things in a new organization so theconcept of learning is unavoidable in organisations.Observational learning occurs in a very informal and unarticulated manner. For example, people who experiencethe norms and traditions of their organisations and who subsequently incorporate these into their own behaviourmay be recognized as having learnt through observation. The new recruit often learns about the organisation byjust being there. This is achieved by giving rewards such as encouragement, privilege and promotion foraccepted behaviour; and on the other hand by punishments such as being sanctioned for undesirable behaviours.Social learning on the other hand enhances the self-efficacy of the learner, where self- efficiency refers to aperson’s belief that she has the ability and motivation to complete a task successfully. Social learning increasesself-efficiency because people gain greater self-confidence after observing others perform task. Managers canshape employee behaviour by systematically reinforcing each successive step that moves the individual closer tothe desired response. If an employee, for example, who has often been an hour late for work comes in onlytwenty minutes late, the boss can reinforce that improvement.The main problem of organisational application of the social learning theory is that, because it is a natural socialprocess and most often there is no clear financial or material benefit from investing in its operation, it may bedifficult gaining management support and commitment.Cognitive learning theory, which emphasised the informative and motivational function of feedback, can also beapplied in an organisational setting to positively influence organisational behaviour as follows: • Motivating organisational members to learn and with management establishing what the motives of organisational learning are, and clearly outlining the benefits. The motivational strategies may include a prestigious job title, career opportunities or the acquisition of a valued skill. • Tasks to be learned should be divided into meaningful segments for which performance standards can be established. The more meaningful the task, the stronger the motivation to learn. • Giving employees clear, frequent and appropriate feedback on their performance and progress. It is worth noting that intrinsic feedback is usually inadequate in organisational learning and therefore it is essential that management provide the relevant extrinsic feedback as well. • Focus on rewarding appropriate behaviours since punishment does not tell employees what they are doing wrong or what they have to do to improve but rather punishment for poor work done is likely to instil dislike, distrust and hostility in affected employees and reduce their motivation for learning. The16 | P a g ewww.iiste.org
  17. 17. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011 effects of punishment are likely to be less predictable than those of reward. However, encouragement and recognition create feeling of confidence and competence that enhance motivation to learn. • Concurrent feedback is more effective than delay feedback. Research into employee performance appraisal systems shows that delayed feedback is usually done casually and annually; in order words, too little is done too late to be of any use in developing job knowledge, skills and performance. Supervisors therefore need to give frequent feedback in a helpful and considerate manner. It is not unreasonably to think that most workers would potentially respond positively to helpful, encouraging and motivating criticism than to no feedback at all.5. ConclusionFrom the above discussions, it can be deduced that learning theories can be applied in various ways to influenceorganisational behaviours positively. The role of management in organisational learning has been to encouragecontinuous and collective learning and subsequently transform them into desirable behaviours and processes tocreate a sustainable competitive advantage. Managers must therefore recognise the central role motivation playsin influencing the behaviour of individuals and groups in organisational settings and be familiar with the contentand the cognitive motivational factors that drive employee satisfaction and commitment.Key motivators such as employee recognition, work/life balance, empowerment and participation, advancementand growth, and sense of achievement can be used to reinforce desirable employee behaviours towards theattainment of organisational goals. However, managers need to be sure that the motivational strategies fulfilneeds; otherwise they will have little value. Content theories of motivation suggest that different people havedifferent needs at different times. These theories also warn against relying too heavily on financial rewards as asource of employee motivation.To enable positive learning environment in organisations, the following approaches should be adopted: • Organisations must foster conducive climate where workers are encouraged to learn and share knowledge acquired with others; • The process of strategy formulation should be designed with learning in mind, and incorporate experimentation and feedback; • Members of organisations should be encouraged and given the opportunity to contribute to policy making as part of the learning process. This way they own the policy outcome as this drives their motivation and commitment towards the achievement of the organisational goals; • The implications for effective learning are that people react to problem situations in different ways and so there should be harmonisation between the learning methods and the learning styles; • Managers should understand the psychological contract they establish with their employees and be fair and equitable. Furthermore, managers need to also realise that people may not be precisely matched with their jobs but still attempt to do as good a job as possible in optimising this relationship and recognise and appreciate the fact that every individual is unique. In addition in attempting to assess behaviour in organisations, the context/situation within which the behaviour occur must be considered because an individual who is satisfied and productive in one context may become dissatisfied and unproductive in another context.ReferencesACCA (2003), “Managing People”, Foulks Lynch, Publications.Albert, M. (2005), “Managing change: Creating a Learning Organisation focused on quality”, Problems andPerspectives in Management 1, 47-54.Amabile, T. M. (1998), “How to kill creativity”, Harvard Business Review, 76(5), 76-87.Bandura, A. (1977), “Social Learning Theory”, New York, General Learning Press.Easterby-Smith, M & Araujo, L. (1999), “Organisational Learning: Current Debates and Opportunities’, In: M.Easterby-Smith, J. Burgoyne & L. Araujo (eds.) Organisational Learning and the Learning Organisation.London: Sage.Garvin, D. A. (1993), “Building a learning organisation”, Harvard Business Review, 71(4), 78-91.17 | P a g ewww.iiste.org
  18. 18. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 3, No.11, 2011Griffin, R. W. (1999), “Management”, Houghton Mifflin Company, 6th Edition.Honey, P. & Mumford, A. (1992), “The Manual of Learning Styles”, Honey Publications, 3rd Edition.Huczynski, A. & Buchanan, D. (2007), “Organisational Behaviour”, Prentice Hall International.Keller, F.S. (1969), “Learning: Reinforcement Theory”, New York, NY: Random House Inc.Laudon, K.C. & Laudon J.P. (2006), “Management Information System: Managing the Digital Firm”, PearsonEducation Inc, 10th Edition.Lohman, M. C. (2005), “A survey of factors influencing the engagement of two professional groups in informalworkplace learning activities”, Human Resource Development Quarterly, 16(4), 501-527.Mayer, R. E. (2003). “Learning and instruction”, Upper Saddle River, NJ: Merril Prentice Hall.Miller, N. E. & Dollard, J. C. (1950), “Personality and Psychotherapy”, McGraw-HillMorgan, G. (1989). “Creative organisation theory”, Sage Publications.Mullins, L.J. (2010), “Management and Organisational Behaviour”, Pearson Education, 9th Edition.Pavlov, I. P. (1927), “Conditioned Reflexes: An Investigation of the Physiological Activity of the CerebralCortex”, Translated and Edited by G. V. Anrep, Oxford University Press.Peddler, M., Burgoyne, J, & Boydell, T. (1991), “The Learning Company”, McGraw-Hill.Perrin, L. and Tavakoli, I.(1997), “Mission Impossible without Commitment”, Professional Manager, July; 14-15.Popper, M. and Lipshitz, R. (1998), “Organisational learning: A cultural and structural approach toorganisational learning”, Journal of Applied Behavioural Science, Vol. 34, pp161 – 178.Reeves, C. (2006), “Making vision statements meaningful”, British Journal of Administrative Management,April/May 2006.Sambrook, S. & Stewart, J. (2000). “Factors influencing learning in European learning oriented organisations:issues for management”, Journal of European Industrial Training, 24(2-4), 209-219.Skinner, B.F. (1954), “The science of learning and the art of teaching”, Harvard Educational Review, 24(2), 86-97.Skinner, B.F. (1953), “Science and Human Behaviour”, Macmillan.Skinner, B.F. (1969), “Contingencies of Reinforcement: A Theoretical Analysis”, Englewood Cliffs, NJ:Prentice-Hall.Skinner, B.F. (1974), “About Behaviourism”, Jonathan Cape.Smither, R. D. (1988), “The Psychology of work and Human Performance”, Harper & Row.Torrington, D., Hall, L., & Taylor, S. (2005), “Human Resource Management”, Pearson Education Limited, 6thEdition.www.cipd.co.uk (Accessed 10-10-2011)www.learning-theories.com (Accessed 15-10-2011)www.trainingjournal.com/content/cipd-sad-report/ (Accessed 10-11-2011)18 | P a g ewww.iiste.org

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