2.[10 18]influencing organisational behaviour through the application of learning theories

European Journal of Business and Management www.iiste.org
ISSN 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.com

Abstract
External reserves which are variously called International Reserves, Foreign Reserve or Foreign Exchange
Reserves. In recent years, issues related to the management of external reserves have gained prominence, and
reserves management practices have evolved rapidly. Effective management of foreign exchange reserves is one
of the major macroeconomic objectives of countries like Nigeria. This is against the background of rapid rise
and 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 Nigeria
between1980-2008.The empirical result of the data analysis revealed that there is statistical significant
relationship in the management of Nigerian external reserves. Hence, the need for an effective and efficient
management of Nigeria’s external reserves is imperative and recommended that reserve management should
seek to ensure that adequate reserves are available such that risks are controlled in a prudent manner and
reasonable earnings are generated over the medium to long term on the funds invested.

Keywords: External Reserves, Management, relationship, CBN, Macroeconomic variables

1.0 Introduction

In recent years, issues related to the management of external reserves have gained prominence, and reserves
management practices have evolved rapidly. Effective management of foreign exchange reserves is one of the
major macroeconomic objectives of countries like Nigeria. This is against the background of rapid rise and
accumulated challenges currently facing many emerging economics, especially oil producing countries (CBN
2007).
External reserves are variously called International Reserves, Foreign Reserve or Foreign Exchange
Reserves. While there are several definitions of international reserves, the most widely accepted is the one
proposed by the IMF in its Balance of Payments Manual, 5th edition. It defined international reserves as
consisting of official public sector foreign assets that are readily available to, and controlled by the monetary
authorities for direct financing of payment imbalances, and directly regulating the magnitude of such
imbalances, through intervention in the exchange markets to affect the currency exchange rate and/or for other
purposes (CBN 2007).
The level of external reserve in a country is influenced by external sector developments such as
international 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 the
internal monetary environment. Thus, if a country’s trade volume increases, banks and other financial
intermediaries may exert increasing pressure on her foreign reserves. This scenario calls for a continuous effort

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by a country at effectively managing her foreign reserves to an optimum level that would sustain her numerous
external commitments (CBN 1997).
Foreign reserves management is the technique of optimizing a nation’s external resources to meet its
economic needs. In Nigeria, the Central Bank has the sole responsibility of management of foreign reserves. The
components 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 other
countries (CBN 1997).

2.0 Review of Related Literatures

Aluko (2007), observed that External reserves has, in recent times, played significant role in the
Nigeria economy. It has increased the level of money supply and therefore impact positively on the level of
economic activities as more funds became available for investment in productive activities. Employment was in
turn generated, output increased and consumption boosted. With their multiplier effects on the economy coupled
with the efficient management of the financial resources, standard of living of the people improved
considerably. Also, the contribution of the manufacturing sector to Gross Domestic Product (GDP), which has
continued 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 become
important as a source of financing external imbalances. Other uses to which external reserves can be put are to
intervene in the foreign exchange market, guide against unforeseen volatility and maintain natural wealth for
future generations.
Typically, the purpose of holding reserves is to allow the central bank an additional means to stabilize
the issued currencies from shocks. In addition to meeting the transaction needs of countries, reserves are used as
a precautionary purpose to provide a cushion to absorb unexpected shocks or a sharp deterioration in their terms
of trade or to meet unexpected capital outflows, like the negotiated exit payment of the Paris Club Debt by
Nigeria. Reserves are also used to manage the exchange rate through intervention in the foreign exchange
market. Thus, the motives for holding adequate level of external reserves can therefore be summarized as the
reasons why individuals hold money (CBN 2007).
Sound foreign reserves management practices are important because they can increase a country’s
overall 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 macroeconomic
management. Similarly, inappropriate economic policies can pose serious risks to the ability to manage foreign
reserves. 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 in
1997 to $540.17 million in 2002 at an exchange of ₦118 to a dollar, while the level of investment increased in
1999 from ₦4.24 billion to ₦63.74 billion in 2002. He added that employment increased from 4,093 in 1999 to
10,885 in 2002, while revenue allocation to States and Local Government Areas grew from ₦156.06 billion in
1999 to ₦44.074 billion at August 2004. The Federal Government has also made significant progress in the war
against 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 defunct
West African Currency Board (WACB). In that period, management of external reserves posed little or no
problems 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 were
deposited 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 to
hold external reserves solely in Gold and Sterling. With the amendment in 1962 of this Act, the Bank acquired
the 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 options
available to the country widened upon joining the International Monetary Fund (IMF) in 1961 to include many
more assets (Yuguda 2003).

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The problems of reserve management began during the periods of the First National Development Plan
in 1962 to 1966 and the Nigerian Civil War of 1967 to 1970. In these periods, financing the plan and the war
consumed 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 immediately
after the war in the wake of the Federal Government’s efforts to reconstruct and reactivate the war ravaged
economy which continued to demand immense foreign exchange reserves. Because of the exigencies of this
period, 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 of
Petroleum Exporting Countries (OPEC) in 1973 and the oil boom of the era, the problem of reserve
management switched from that of ‘inadequate’ to that of ‘excess reserves’. This remained so until 1981 when
the country was hit by the global economic recession that led to a consistent decline in her external reserves. In
the light of this development, economic stabilisation measures revolving stringent exchange control, which ran
from April 1982 to June, 1986 (when accretion to external reserves was low), were introduced. By the end of
1985, it was evident that the use of stringent economic controls was ineffective in restraining external reserves
depletion. To this end, exchange and trade controls were discontinued in 1986, following the adoption of market
based policy measures, the Structural Adjustment Programme (SAP) in July 1986. However, after more than
seven 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 custodian
of foreign exchange and together with its designated agents, the avenues for foreign exchange important. Again
the trade and exchange policies in 1994 failed to substantially achieve the desired objectives. The guided
deregulation introduced in 1995, among other things, abolished the 1962 Exchange Control Act, in a bid to
enhance the flow of capital and the reserves position of the country. Other measures aimed at boosting the
external reserves included the introduction of an Autonomous Foreign Exchange Market (AFEM) for the
purpose of trading in foreign currencies at market determined rates and further liberation of the foreign
exchange 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 development
in Nigeria between the periods of 1980 – 2009. The study also looked into the problems associated with foreign
reserves management as well as its relationship with gross domestic product (GDP). The other area covered is
how best external reserves can be prudently managed for the overall benefit of Nigeria. The research was
concluded 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. Nigeria
produces approximately 2,000,000 barrels per day of crude oil in joint venture with some international oil
companies, 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 Federal
Government 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.

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vii) 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 Problem

The importance of external reserves to any country cannot be overemphasized. It can be said to be the official
public sector foreign assets controlled by the central bank of a country. The reserve position of Nigeria at any
given time is a reflection of the circumstances prevailing in the international oil market (George 2007). The size
of Nigeria’s external reserves has been fluctuating over the years. The stock of reserves which was US$7.47
billion at end of December 2003, increased by 127 percent to US$16.96 billion in 2004. It could finance 18.4
months of imports. The import cover was much higher than the West Africa Monetary Zone (WAMZ) minimum
requirement 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 the
concept, nature, sources, size, the foreign exchange disbursement and months such reserves could finance
importation. Against this backdrop, this work sees the following as constituting the major statement of problem
for this study.

i. The non-utilization of Nigeria’s huge external reserves for the development of infrastructure/social
services
ii. 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 on
economic 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, where
economic 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 an
appropriate framework for the analysis of foreign reserves management and its effects on economic
development. Such a framework will help identify the key variables of foreign reserves management and its
effects on the economy.

7.0 Model Specification

The study adopted the econometric model in evaluating the role of external reserves in the Nigeria
economy. The econometric model used was to determine the relationship between external reserves and selected
macroeconomic variables (gross domestic product, GDP, export oil, non-export oil, non-import oil, capital
goods, 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 the
economy more attractive to foreign investment, which would, in turn, improve the economic performance of the
nation. Hence the expectation that external reserve has a relationship with the level of economic productivity
captured by GDP and other variables.
In their empirical investigation of the role of external reserves on the Nigerian economy, Evans and
Egwakhe (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 :

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Ln represents natural log transformation, i is time lag, R is ratio of external reserve to GDP, E is ratio of
exports 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 a
little modification. That is, export was divided into oil export and non-oil export because they are the major
components of export. Oil export constitutes about 90 percent and the other 10 percent is non-oil export. In the
modification, import was also broken into two, that is, capital goods and non-capital goods because these are
also the major components of import. In addition to the modification of Evans and Egwakhe (2008), GDP was
included because it captures the level of economic activity. A dummy variable was also introduced as a proxy
for 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 + U

8.0 Research Methodology

This chapter specifically deals with the technique of enquiry underlying the study. Attention has been focused
on 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) and
were obtained from various sources, notably the Central Bank of Nigeria (CBN) annual reports (2007, 2008 and
2009), CBN statistical bulletin (2008, 2009 and 2010) and economic journals. Others were obtained from
textbooks and the internet.

8.2 Data Analysis Techniques
The technique used in this study is the Ordinary Least Square (OLS) estimation technique. The test instruments
in the OLS are the T-statistics and F-test which were used to test the significance of variables and the overall
significance of the regression respectively. Other test instruments also employed were the Durbin Watson test
which was used to test the presence or absence of auto correlation between and among the explanatory variables
and the adjusted R square used to test the percentage variation of the dependent and the independent variables.

8.3 Result of Empirical Analysis
The 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 at
66.1%. The adjusted R-squared = 0.548 implies that the co-efficient of determination indicated that the degree
of analysis is accurate and the independent variables (GDP, EXOIL, NEOIL, NOILIMP, CPG, NCPG, and
POLST) are capable of explaining the dependent variable (EXTR) by 54.8%, while 45.2% of the explanatory
variable is captured or accounted for by error and other factors. The result of Durbin Watson (2.6065) revealed
that there is no presence of serial autocorrelation, which means the model is good for policy evaluation. The
individual analysis of the variables shows that the coefficient of β1 is 0.6615 which implies a positive
relationship between the regressor variable, gross domestic variable, and the dependent variable, external
reserves. It further implies that a unit change in gross domestic product brought about a 0.6615 change in
external reserves.

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The estimate of β2 is 0.20222. As expected, it shows a direct relationship between export oil and external
reserves such that unit change in export oil resulted in 0.2022 changes in external reserves. -36.0074 is the
estimated value of β3 which shows a negative relationship between non-oil export and external reserves. The
implication is that a unit change in non-oil export resulted in a -36.0074 variation in external reserves. The
estimate 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 coefficient
of β6 is -500.6398. It demonstrates a negative relationship between non capital goods and external reserves. This
further means that a change in non-capital goods brought about a negative change of -500.6398 in external
reserves. For β7, -956201.1 is the coefficient. This shows an inverse relation between political stability and
external reserves. Impliedly, a unit change in political stability resulted in a -956201.1 change in external
reserves.

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 -0.770
respectively, while that of the statistical table at 5% level of significance is 2.056. Since the value of the T-ratio
from the statistical table is greater than that which was calculated, it means that the estimates of β1 - β7 are
statistically 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 Recommendations

The 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 such
policies 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 base
and encourage agriculture becomes instructive. With this, our non oil export will be increased. This is because if
we encourage agricultural production, it will not only guarantee food security, increase the nation’s GDP and
foreign earnings, but it will generate employment and incomes thereby increasing the standard of living of the
average Nigerian. If agriculture is encouraged, it will also act as a buffer to cushion shocks arising from the
volatility 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 and
EXOIL. It follows therefore that the downstream oil sector needs to be encouraged. To do this end, government
should provide an enabling environment such that the mutilnationals are protected and youth restiveness in the
Niger Delta nipped in the bud permanently.

Against the general consensus that a stable political climate encourages both local and foreign investment, our
empirical result deviated from this by showing a negative relationship between political stability and external
reserves. It is against the backdrop of this scenario that the researcher is of the opinion that our democracy
should 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 partnership
will reduce the unemployment scourge and consequently relax the political tension that has continuously
characterized the political in recent times.

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Furthermore, there should be deliberate and systematic effort to use part of the reserves for infrastructural
development and save part of it for future generation as oil, which is the main source of this reserve
accumulation 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 have
all it takes to face them squarely. In conclusion, the need for an effective and efficient management of Nigeria’s
external reserves is imperative. This is because poor management of external reserves may put at risk other
elements or components of national policy. For instance, an official exchange rate policy can cause severe
economic damage. Hence, reserve management should seek to ensure that adequate reserves are available such
that risks are controlled in a prudent manner and reasonable earnings are generated over the medium to long
term on the funds invested.

Reference

Aluko, 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.

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Appendix

Fig. 1 Nigeria’s Stock of External Reserves Position (US$ Billion)
60 30
External 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 .

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Table2: 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 Model
Variables Coefficient Standard Error T=Statistics Prob.
GDP 0.661458 1.026505 0.644379 0.5263
EXOIL 0.202154 1.391980 0.145228 0.8859
NEOIL -36.00743 37.42813 -0.962042 0.3470
NOILIMP -0.012592 0.351806 -0.035793 0.9718
CPG 141.6775 1541.058 0.091935 0.9276
NCPG -500.6398 1432.677 -0.349444 0.7302
POLST -956201.1 1240965 -0.770530 0.4496
C 917401.8 1149267 0.798249 0.4337

R2 0.6612, R-2 0.5483, F-stat 5.8549, DW Stat. 2.6066

Source: SPSS Result Output

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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.gh
Abstract
Over the years, learning has been seen as an active and rewarding aspect of peoples’ personal and collective
experiences. Learning is a feature of all human activities and defines humanity. As the business environment
continually changes, organisations increasingly need innovative ideas to stay ahead of competition. Learning
therefore is viewed as the key factor that underpins organisational competitiveness. It enables organisations to
achieve a better balance between long-term effectiveness and short-term efficiency; hence, a focus on capturing
and sharing learning produces a wider range of solutions to organisational issues. Renowned psychologists have
identified learning theories that thoroughly analyse the effect of learning on behaviours. Learning theories have
therefore influenced a range of people management best practices. This paper seeks to analyse how
organisational behaviour can be influenced through the application of these learning theories.
Keywords: Learning, organisational behaviour, organisational learning, learning theories.

1. Introduction
The complexity of current business environments has imposed constantly changing settings in which
organisations compete for survival. As a result, special emphasis is placed on acquiring, motivating and
retaining 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 all
organisations whatever their size and business orientation, depend on the knowledge and expertise of their
employees to create sustainable agility and competitive advantage.
To achieve this, organisations not only create enabling environment but also ensure that employees have the
appropriate expertise to do the job. Learning clearly underpins this and as such to remain competitive in a
business environment characterised with uncertainty and constant change, organisations’ ability to learn from
the past and with a better understanding of what is required for the future is essential for their survival. Learning
therefore 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 that
value the knowledge and experience of their staff and see that as central to their progress will value the role of
learning in the work they do. Applying a range of learning concepts is the foundation for building and managing
effective organisational learning. It must however be noted that organisational learning and learning
organisations are similar learning concepts which are related to organisational setting but are very distinct in
nature. This paper concentrates on the organisational learning concept and provides the analysis of how
organisational behaviour can be influence through the application of learning theories.
1.1. Organisation
An 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 are
significant 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-

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confidence; power, authority and control (Huczynski and Buchanan, 2007).
According to Laudon and Laudon (2006), an organisation can be defined technically as a stable, formal social
structure with internal rules and procedures that must abide by laws. They further defined an organisation from a
behavioural perspective as a collection of rights, privileges, obligations and responsibilities that is delicately
balanced over a period of time through conflict and conflict resolution. In this behavioural view, people in
organisations 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 to
Huczynski and Buchanan (2007).
Mullins (2010) asserted that organisations are complex social systems that can be defined and studied in a
number 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 as
machines, organisms, brains, cultures, political systems, psychic prisons, flux and transformation, and
instruments of domination. According to Morgan, these contrasting metaphors help in the understanding of the
complex nature of organisational life and the critical evaluation of organisational phenomena.
1.2 Organisational Behaviour
Organisational behaviour is the study of the structure, functioning and performance of organisations, and the
behaviour 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 influences
organisational effectiveness. He continued to outline the workplace behaviours to include performance
behaviours, withdrawal behaviours and organisational citizenship. He further defined performance behaviours as
the total set of work-related behaviours that the organisation expects the individual to display. On the other
hand, 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 overall
contribution to the organisation.
The purpose of organisational behaviour is to gain a greater understanding of those factors that influence
individual and group dynamics in an organisational setting so that individuals and the groups and organisations
to which they belong may become more efficient and effective. The study of organisational behaviour therefore
seeks to integrate the insights of diversity, discipline and applying them to real-life problems and opportunities.

2. Factors that influence organisational behaviour
According to Mullin (2010), the main factors that influence the way individuals and groups in organisations
behave can be listed as follows:
• Individual differences
• Organisational culture
• Information technology
• Organisational structure
• Organisational mission statement
• Learning
2.1 Individual Differences
According to Griffin (1999), as a starting point of understanding human behaviour in organisations, it is
important to consider the basic nature of the relationship between individuals and organisations. This is essential
in gaining the appreciation of the nature of individual differences which significantly influence organisational
behaviour. This is emphasised by Mullins (2010) who advanced that the individual is a central feature of
organisational behaviour whether they act in isolation or as part of a group.
Griffin (1999) further identified personality, attitudes, perception, diversity, multiculturalism and stress as the
fundamental elements of individual behaviours in organisations. Where the needs of the individual and the
organisational demands are incompatible, it can result in frustration and conflicts. It is therefore the task of
management to integrate the individual and the organisations needs to provide a working environment that
promotes the satisfaction of individual needs as well as the attainment of organisational goals (Mullins 2010).

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2.2 Organisational Culture
Organisational culture plays a major role in shaping the behaviours in an organisation. It is a system of shared
meaning within the internal environment of a business atmosphere. Griffin (1999) defined organisational culture
as the set of values, beliefs, behaviours, customs, and attitudes that help members of organisation to understand
what it stands for, how it does things, and what it considers important. Furthermore Griffin also noted that
organisational culture determines the feel of the organisation. It is a powerful force that shapes the overall
effectiveness and long-term success of the organisation (Popper and Lipshitz, 1998). It can also impact
unfavourably on organisational behaviour creating barriers to change, diversity, mergers and acquisitions.
2.3 Information Technology
Information technology affects the behaviours of people in organisations. This impact can be positive or
negative. According to Laudon and Laudon (2006), information technology improves individual efficiency and
organisational excellence as a whole. However on the negative side, Griffin (1999) argued that information
technology can lead to isolation as people do their job without physically interacting with others; and
redundancy as a number of peoples work are taken over by computers. Thus information systems change the
organisational balance of rights, privileges, obligations, responsibilities and feelings that have been established
over a long period of time.
2.4 Organisational Structure
The structure and design of organisations have implications for individual and group behaviours. As it has been
rightly stated by Mullins (2010), behaviour is affected by patterns of organisational structure through which
organisational 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 individual
and group behaviours (Popper and Lipshitz, 1998). Hence, the decisions about structure are key to implementing
strategy and may affect individual and group motivation and commitment in organisations.
2.5 Organisational Mission Statement
This refers to the core purpose of the organisation. According to Reeves (2006), the mission of the organisation
can influence individual and group behaviours; performance; and self-initiative. The clarity and sincerity of this
statement does not only motivate staff but also sets the service expectations for the customer (Perrin and
Tavakoli, 1997). The culture created by the mission plays a key role in the effectiveness of employees and
therefore, management must strive to embrace the core values of the statement so that others will inherently
exhibit these values (Griffin, 1999).
2.6 Learning
Learning frequently occurs when an individual has to deal with a new situation. It is about developing new
skills, competencies and attitude to meet new situations. It is a change in behaviour that occurs as a result of
one’s interaction with the environment. Torrington, et al (2005) defined learning as the changed or new
behaviour resulting from new or reinterpreted knowledge that has been derived from an external or internal
experience. Learning is a powerful incentive for many employees to stick to certain organisations and has
significant 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. As
the Chartered Institute of Personnel Development (CIPD), UK put it, learning is a self-directed, work-based
process leading to increased adaptive capacity. (www.trainingjournal.com/content/cipd-sad-report). Accessed
10-11-2011.
Torrington et al (2005) stated that there are a number of ways people learn and outlined the following as some of
the 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 and
have drawn up a classification of four learning styles:

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• 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 using
learning curves. A learning curve is a high learning concept which is valid for a wide range of situations. It is a
diagrammatic presentation of the amount of learning in relation to time. At the beginning, it is natural that the
rate of learning increases but levels off at a point indicating that maximum performance has been achieved and
plateaus 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 a
learning organisation (Peddler et al 1991). On the other hand, organisational learning is based on the detached
observation of individual and collective learning processes in organisations (Torrington et al 2005). According
to Torrington et al, although the learning organisation concept centre more on individual learning and self
development, organisational learning is more than just the sum of individual learning in the organisation. It
implies that it is only when an individual’s learning has an impact on and interrelates with others that
organisation 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 the
process of collective learning whereas Easterby-Smith and Araujo (1999) cited that the study of learning
organisations is focused on normative models for creating change in the direction of improved learning
processes. They argued further that the literature on the learning organisation draws heavily on the concepts of
organisational learning mechanisms and can be seen as a way of making the concept of organisational learning
more concrete. The organisational learning mechanisms have been described as the structural and procedural
arrangements that allow organisations to learn (Popper and Lipshitz 1998).
Organisational learning is therefore the process through which individuals and groups in an organisation develop
shared values and knowledge based on past experiences. Organisations vary greatly in all aspects and therefore
establishing 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 of
learning as factors that influence the motivation for organisational learning. Conversely, an unsupportive
organisational culture, unwillingness to participate, and lack of proximity with colleagues, negatively impacted
organisational learning. Albert (2005) also found out that top management support and involvement of
consultants also facilitate organisational learning.
An European study showed that lack of motivation; unclear roles; lack of confidence; insufficient learning
culture; lack of innovation and lack of resources negatively impacted organisational learning Sambrook and
Stewart (2000). From the positive perspective, motivation, enthusiasm, involvement, clarity and understanding
of role, increased responsibility, a developed learning culture, senior management support, and investment in
human 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 must
be widely understood, have application to the work being performed, and be supported by the organisational
leadership. Furthermore, Garvin reiterated that for an organisation to learn, a change must take place and newly
gained knowledge must be intentional and managed. Learning practices and policies must therefore be the
foundation of managed organisational learning. Garvin further suggested five basic practices that organisations
can manage to enable organisational learning: systematic problem solving, experimentation, the use of
demonstration projects, experiential learning, and learning from others on the outside (benchmarking). He
added that measurements must effectively gauge the stages of organisational learning: cognitive, where
members are exposed to new ideas or knowledge; behavioural changes, where members actually alter their
behaviour based on new learning; and finally, performance improvement, where behavioural changes lead to
positive 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 an
organisation: providing employees with challenges; freedom to innovate; providing the resources needed to
create new ideas; diversity of perspectives and backgrounds within groups; supervisor encouragement; and

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organisational support. Barriers to learning according to Torrington, et al (2005) are identified as the culture of
an organisation, risk of admitting failure, lack of incentive to change, internal competition, resistance to ideas
and learning from other context. Clearly it is imperative for organisations competing in a rapidly changing
world to have a continuous learning approach. The ability of individuals and groups to learn is therefore crucial
to organisational success especially those organisations that are preoccupied with controlled performance.

3. Learning Theories
There are broadly four theoretical approaches to understanding the nature of learning. The subsequent
discussions focuses on these theories and whilst there are no right or wrong theory, organisational behaviours
often reflect the explicit or implicit acceptance of one or more of such theoretical perspectives.
3.1 Classical Conditioning theory
Classical conditioning theory discovered by Pavlov (1927) shows how a behaviour or response that is already
established can become associated with a new stimulus. It is based on the premise that a physical event termed
a stimulus that initially does not elicit a particular response gradually acquires the capacity to elicit that response
as a result of repeated pairing with a stimulus that elicits a reaction. Despite the theoretical possibility of the
widespread applicability of classical conditioning, most theorists agree that it represents only a very small part
of total human learning. Skinner (1953), in particular, argued that classical conditioning explains only reflexive
behaviours. These are the involuntary responses that are elicited by a stimulus. Skinner felt that the more
complex human behaviours cannot be explained by classical conditioning alone and asserted that most human
behaviour affects or operates on the environment. According to Skinner, the latter type of behaviour is learnt
through operant conditioning.
3.2 Operant Conditioning theory
This learning theory states that people learn by continually looking for ways to achieve more positive
reinforcement 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 preceding
behaviour will be repeated. Besides reinforcement, punishment produces avoidance behaviour, which appears to
weaken learning but not curtail it. It operates under the assumption that if behaviour can be learned, it can also
be unlearned. Skinner (1953) has been associated with operant conditioning. He believes that our behaviours are
influenced 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 a
particular context that is reinforced (rewarded) in some way will tend to be repeated in that context. However, if
one’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 concept
of shaping behaviour by selectively reinforcing desired pieces of behaviour. His experiment revealed that human
behaviour is shaped by the environment, by past experiences in that environment and by the selective rewards
and punishments that are received. He further argued that thinking, problem solving and acquisition of language
are dependent on these simple conditioning processes (Skinner, 1954). Hence, operant conditioning has a great
impact on human learning and it also explains much of organisational behaviour.
The classical and operant conditioning theories constitute the behavioural theories concentrating on changes in
observable behaviours. The behaviourist psychologist like Pavlov and Skinner associated reward with certain
behaviours in order to increase the display of such behaviours. The relevance of this for organisations may be
seen for example in telesales training where employees are taught to follow a script and calls are listened to, to
ensure that the script is followed. Reward or punishment follows depending on behaviour. The main problems of
these behavioural theories are that they are manipulative and limited in nature.

3.3 Social learning theory
A 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 learn
through 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 types
of learning. The social learning theory added a social element, arguing that people can learn new information
and behaviours by watching other people. He noted that external environmental reinforcement was not the only

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factor to influence learning and behaviour but also intrinsic reinforcement such as pride, satisfaction, and a
sense of accomplishment. In other words, this theory assumes learning to be a social activity that is based on
one’s needs as a human being to fit in with others. In organisational setting, this happens naturally as workers
learn to fit into the perceived organisational culture. Fitting here means that one can be accepted successfully
into the organisation but does not necessarily mean the individual internalise and believe the way things are
done in the organisation. Social learning theory therefore has a considerable relevance to organisational
behaviour (Miller and Dollard, 1950) but its main limitation is that it ignores the role of choice for the
individual.
3.4 Cognitive theory
Cognitive theory is based on an information processing approach and is basically concerned with what goes on
in the learner’s mind. The cognitive theorist argued that the rewards and punishment that behavioural theorists
call reinforcement, work in more complex ways than the conditioning theories suggested (Huczynski and
Buchanan 2007). These authors claimed that in reinforcement, people are always aware about the results of the
past behaviour; thus a feedback on how successful a behaviour has been. Huczynski and Buchanan further
stressed that knowledge is information which can be used to modify or maintain previous behaviour. Cognitive
theory of learning is therefore not concerned with the relationship between stimuli and responses, but rather with
the 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 they
learn. This theory is relevant in the contemporary managerial practices as many motivation theories such as
Equity 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 motivating
employees.
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 it
is a purely rational approach that ignores emotions.

4. Influencing organisational behaviour through the application of learning theories
The behavioural approach (classical conditioning and operant conditioning theories) to learning has led to the
development of a range of techniques generally describe as behaviour modifications which have effectively
been applied to organisational settings. Behaviour modification is a general label for approaches to changing
behaviour through the use of appropriate and timely reinforcement. This approach is based on the premise that
people 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 such
desirable behaviours.
Effective motivational strategies can either be transactional or relational rewards. The transactional rewards are
mostly in the form of pay increase and attractive benefits whereas the relational rewards are in the form of
employee recognition, flexible work/life balance, positive working conditions, sense of achievement, employee
empowerment and involvement in decision making, opportunities for personal growth and career advancement.
All these motivational strategies drive employee satisfaction and commitment toward the achievement of
organisational 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 negative
reinforcement (punishment/sanctions) like warning letter to deter undesirable behaviours. Smither (1988) cited
a 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 timekeeping
by paying workers two pesos a day extra if they started work early. Lateness fell from 15% to 2%, at minimal
additional cost to the company. In customer oriented organisations, a positive reinforcement can be used to
create superior customer value; motivational strategy like recognition can greatly influence behaviours
positively as far as delighting customers is concerned.

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Moreover, inappropriate behaviours in organisational setting can be punished directly by withholding rewards or
by initiating disciplinary procedures. Punishment, be it perceived or real, is likely to cause feeling of resentment
in the mind of the affected employee leading to apathy or psychological revenge. It is therefore not surprising
that most organisations prefer to use reward management as means of positively controlling organisational
behaviours.
It is however important that behaviour modification techniques are carefully planned to identify specific
behavioural goals and particular procedures for reinforcing the behaviours that will achieve those goals. Where
behaviour and appropriate reinforcement can be clearly identified and linked (example, if you wear your seat
belt we will give you a prize) the techniques can be effective. Where this relationship is less clear (example, if
you demonstrate commitment to the organisation we will consider you for promotion) the applicability of the
technique is less certain. Behaviour modification techniques also involve clear communication of goals and
expectations to employees in unambiguous terms.
Social learning theory can also be applied in organisational setting to influence organisational behaviour. A great
deal of what is learnt about how to behave in organisations can be explained through the process of
observational learning. For instance, a new staff acquires job skills by observing what an experienced employee
does.
Organisations tend to have different standards concerning, for example, what counts for good work
performance; familiarity in everyday social interactions at work; the appropriate amount of deference to show to
superiors, dress and appearance; and attitudes to work, colleagues, managers and customers. The newcomer has
to learn these standards to be a successful and accepted member of the organisation. It is not enough just to learn
the knowledge and skills required to perform work duties and responsibilities but to also acclimatise towards the
accepted corporate culture. Individuals arrive in a new organisation with values, attitudes, beliefs and
expectation that they have acquired elsewhere. The old way of doing things from previous organisations may
have to be unlearned sometimes in order to learn the new ways of doing things in a new organization so the
concept of learning is unavoidable in organisations.
Observational learning occurs in a very informal and unarticulated manner. For example, people who experience
the norms and traditions of their organisations and who subsequently incorporate these into their own behaviour
may be recognized as having learnt through observation. The new recruit often learns about the organisation by
just being there. This is achieved by giving rewards such as encouragement, privilege and promotion for
accepted 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 a
person’s belief that she has the ability and motivation to complete a task successfully. Social learning increases
self-efficiency because people gain greater self-confidence after observing others perform task. Managers can
shape employee behaviour by systematically reinforcing each successive step that moves the individual closer to
the desired response. If an employee, for example, who has often been an hour late for work comes in only
twenty 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 social
process and most often there is no clear financial or material benefit from investing in its operation, it may be
difficult gaining management support and commitment.
Cognitive learning theory, which emphasised the informative and motivational function of feedback, can also be
applied 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. The

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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. Conclusion
From the above discussions, it can be deduced that learning theories can be applied in various ways to influence
organisational behaviours positively. The role of management in organisational learning has been to encourage
continuous and collective learning and subsequently transform them into desirable behaviours and processes to
create a sustainable competitive advantage. Managers must therefore recognise the central role motivation plays
in influencing the behaviour of individuals and groups in organisational settings and be familiar with the content
and the cognitive motivational factors that drive employee satisfaction and commitment.
Key motivators such as employee recognition, work/life balance, empowerment and participation, advancement
and growth, and sense of achievement can be used to reinforce desirable employee behaviours towards the
attainment of organisational goals. However, managers need to be sure that the motivational strategies fulfil
needs; otherwise they will have little value. Content theories of motivation suggest that different people have
different needs at different times. These theories also warn against relying too heavily on financial rewards as a
source 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.

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2.[10 18]influencing organisational behaviour through the application of learning theories