i THE IMPACT OF I FORMATIO A D COMMU ICATIO TECH OLOGY USAGE O BA K BRA CH PERFORMA CE (PERSPECTIVE OF A LEADI G COMMERCIAL BA K I SRI LA KA) MASTER OF BUSI ESS ADMI ISTRATIO I I FORMATIO TECH OLOGY Maldeni HMCM Department of Computer Science & Engineering University of Moratuwa December 2008 ii THE IMPACT OF ICT USAGE O BA K BRA CH PERFORMA CE (PERSPECTIVE OF A LEADI G COMMERCIAL BA K I SRI LA KA) By Maldeni HMCM The Dissertation was submitted to the Department of Computer Science & Engineering of the University of Moratuwa in partial fulfilment of the requirement for the Degree of Master of Business Administration. Supervised by: Dr. Sanath Jayasena, Department of Computer Science & Engineering, University of Moratuwa Department of Computer Science & Engineering University of Moratuwa December 2008 iii DECLARATIO I certify that this thesis does not incorporate without acknowledgement any material previously submitted for a Degree or Diploma in any University, contain any material previously published or written by another person except where due reference is made in the text. …………………………….. H M C M Maldeni (MBA/IT/07/9077) I endorse the declaration by the candidate. Signature of the supervisor ……………………………. Dr Sanath Jayasena iv ABSTRACT Banks are investing huge amounts of money on Information and Communication Technology (ICT). After successful implementation of comprehensive banking solutions, institutions are now being concerned about the usage levels and the returns of such investments. Initial findings indicate a scarcity of empirical research with respect to benchmarking on the ICT usage at bank branches in Sri Lanka and the impact of ICT on overall bank branch performance. This research study aims to provide an analysis on the impact of ICT usage at branches on the overall bank branch performance. It is from a perspective of a leading commercial bank in Sri Lanka. They have implemented a new comprehensive banking solution with a branch network commencing from the year 2004. The study is based on the analysis of primary and secondary data collected for the study. Perceptions of 18 branch managers selected from 18 branches, a minimum of 5 staff members and a minimum of 5 customers attached to each of the same set of branches of the bank were collected using survey method. All 18 branches selected are of an equivalent grade and situated in the western province of Sri Lanka. Three types of questionnaires were designed with structured and semi structured questions with 5 point and 4 point likert scale. Questionnaire distribution was done by post, via e-mail and hand delivery. Data analysis was done using bivariate correlation and linear regression. Pearson’s correlation coefficient was used to measure the linear relationship between variables. The analysis revealed that ICT usage has a positive linear relationship with financial performance and quality performance of bank branches. Bank branch performance was found to have a correlation with factors such as staff attitude towards ICT usage, ICT literacy level of branch staff and scope and complexity of the ICT applications. This paper concludes with a discussion and recommendation to overcome the barriers affecting the ICT usage at bank branches. v DEDICATIO This thesis is dedicated to my beloved parents who encouraged me to continue with my postgraduate studies. H M C M Maldeni December 2008 vi ACK OWLEDGEME T I offer my sincere thanks to Dr. Sanath Jayasena who supervised my research despite busy schedules. I cannot miss the honourable panel of lecturers attached to the MBA (IT) of the University of Moratuwa in delivering my gratitude. I honour the encouragement and guidance given by Dr R. B. Ekanayake not only for this thesis but for my ICT carrier. Finally I need to thank the group of professional bankers who nourished me by expressing valuable implicit knowledge and all my friends and relatives who helped me to experience this achievement. vii TABLE OF CO TE TS DECLARATION .......................................................................................................... iii ABSTRACT .................................................................................................................. iv DEDICATION ............................................................................................................... v ACKNOWLEDGEMENT ............................................................................................ vi TABLE OF CONTENTS ............................................................................................. vii LIST OF FIGURES ...................................................................................................... ix LIST OF TABLES ......................................................................................................... x ABBREVIATIONS ...................................................................................................... xi Chapter 1_Introduction .................................................................................................. 1 1.1 Background and Motivation ......................................................................... 1 1.2 Problem Statement ........................................................................................ 2 1.3 Research Objectives ...................................................................................... 2 1.4 Scope ............................................................................................................. 2 1.5 Importance / Benefits of the Study ................................................................ 3 1.6 Structure of the Dissertation .......................................................................... 3 Chapter 2_Literature Review ......................................................................................... 5 2.1 Definition of ICT Literacy ............................................................................. 5 2.2 ICT in Banking ............................................................................................. 7 2.3 Bank Branch Performance .......................................................................... 11 2.4 Benchmarking of Bank Branches on the Usage Level of ICT .................... 16 2.5 Chapter Summary ........................................................................................ 21 Chapter 3_Research Methodology ............................................................................... 22 3.1 Research Design ........................................................................................... 22 3.2 Data Collection from Questionnaires ........................................................... 23 3.3 Formulation of the Framework ................................................................... 23 3.4 Conceptual Model for the Investigation ..................................................... 25 3.5 Hypotheses .................................................................................................. 26 3.5 Chapter Summary ........................................................................................ 27 viii Chapter 4_Analysis and Discussion ............................................................................. 29 4.1 Introduction ................................................................................................. 29 4.2 Descriptive Analysis on Samples ................................................................. 30 4.2.1 Customers ................................................................................................ 31 4.2.2 Branch Staff ............................................................................................ 33 4.2.3 Branch Managers ..................................................................................... 35 4.3 Descriptive Analysis -Financial Performance ............................................. 37 4.4 Descriptive Analysis on Relationships ....................................................... 39 4.4.1 Scatter Plots Depicting Financial Performance ....................................... 39 4.5 Correlation Analysis .................................................................................... 42 4.6 Multiple Regression Analysis ...................................................................... 44 4.6.1 Impact of ICT Usage on Increase in Deposits ......................................... 44 4.6.2 Impact of ICT Usage on Increase in Advances........................................ 45 4.6.3 Impact of ICT Usage on Increase in Profit .............................................. 46 4.6.4 Impact of ICT Usage on Quality Performance of the Branch.................. 47 4.7 Hypotheses Testing ...................................................................................... 48 4.8 Difficulties Experienced by the Branch Staff in using ICT ........................ 51 Chapter 5_Conclusion and Recommendation .............................................................. 53 5.1 Introduction ................................................................................................. 53 5.2 Enhancement of ATM Facilities ................................................................. 54 5.3 Mitigation of Negative Impacts from ICT Usage in Banking .................... 55 5.4 Conclusion ................................................................................................... 55 References .................................................................................................................... 58 Bibliography ................................................................................................................ 61 Appendix A .................................................................................................................. 62 Appendix B .................................................................................................................. 65 Appendix C .................................................................................................................. 68 ix LIST OF FIGURES Figure 2. 1 Technology Acceptance Model (TAM) ............................................... 13 Figure 2. 2 Analysis of Determinant Factors of ICT Success ................................ 17 Figure 2. 3 A Contingency Framework for Benchmarking ICT ............................ 18 Figure 2. 4 Key Areas for Benchmarking ICT ....................................................... 19 Figure 2. 5 Conceptual Framework on Impact of the Use of ICT .......................... 20 Figure 2. 6 Research Framework on Effects of ICT on Total Quality ................... 21 Figure 3. 1 Conceptual Model ................................................................................ 25 Figure 4. 1 Introduction of New Core Banking Application System ..................... 29 Figure 4. 2 Gender Distribution – Customer Sample.............................................. 31 Figure 4. 3 Age Distribution – Customer Sample .................................................. 31 Figure 4. 4 Distribution of Education Level – Customer Sample .......................... 32 Figure 4. 5 Customer Perspective on Quality Performance Improvement ............. 32 Figure 4. 6 Customer Perspective – Performance Improvement is due to ICT ...... 33 Figure 4. 7 Branch Staff – ICT Literacy Level ...................................................... 34 Figure 4. 8 Branch Staff – Job Satisfaction ............................................................ 34 Figure 4. 9 Branch Staff – Job Stress ..................................................................... 35 Figure 4. 10 ICT Literacy Level of Branch Managers ............................................. 35 Figure 4. 11 Branch Manager Perspective – Effectiveness of Core Application ..... 36 Figure 4. 12 Branch Manager Perspective – Usage of ICT at the Branch ............... 36 Figure 4. 13 Staff Allocation in Branches (December 2006 and June 2008) .......... 37 Figure 4. 14 Total Deposits Branch-wise ( December 2006 and June 2008) ........... 38 Figure 4. 15 Total Advances Branch-wise (December 2006 and June 2008) .......... 38 Figure 4. 16 Branch Profit (December 2006 and June 2008) ................................... 39 Figure 4. 17 Relationship Between ICT Usage and Staff Reduction ....................... 40 Figure 4. 18 Relationship Between ICT Usage and Increase in Deposits ................ 40 Figure 4. 19 Relationship Between ICT Usage and Increase in Advances .............. 41 Figure 4. 20 Relationship Between ICT Usage and Increase in Profit ..................... 41 Figure 4. 21 Relationship Between ICT Usage and Quality Performance ............... 42 x LIST OF TABLES Table 2. 1 An ICT Literacy Framework, Which Involves 7 Processes....................... 6 Table 2. 2 Past Studies Done on ICT Usage in Banking ............................................ 8 Table 2. 3 Factors Other Than ICT Usage That Affect Branch Performance........... 12 Table 2. 4 Past Studies Done on Bank Branch Performance .................................... 14 Table 3. 1 Measurement Criteria for Branch Performance ....................................... 24 Table 3. 2 Measurement Criteria for the ICT Usage ................................................. 24 Table 3. 3 Distribution and Receipt of Questionnaires ............................................. 26 Table 4. 1 Correlation Analysis Between ICT Usage and Increase in Deposits ....... 43 Table 4. 2 Correlation Analysis Between ICT Usage and Increase in Advances ..... 43 Table 4. 3 Correlation Analysis Between ICT Usage and Increase in Profit ............ 43 Table 4. 4 Correlation Analysis Between ICT Usage and Quality Performance ...... 43 Table 4. 5 Summarised Results from Correlation Analysis ...................................... 44 Table 4. 6 Model Summary – Increase in Deposits .................................................. 45 Table 4. 7 ANOVA – Increase in Deposits ............................................................... 45 Table 4. 8 Coefficients – Increase in Deposits .......................................................... 45 Table 4. 9 Model Summary – Increase in Advances ................................................ 45 Table 4. 10 ANOVA – Increase in Advances ......................................................... 46 Table 4. 11 Coefficients – Increase in Advances .................................................... 46 Table 4. 12 Model Summary – Increase in Profit ................................................... 46 Table 4. 13 ANOVA – Increase in Profit ................................................................ 47 Table 4. 14 Coefficients – Increase in Profit .......................................................... 47 Table 4. 15 Model Summary - Quality Performance of the Branch ...................... 47 Table 4. 16 ANOVA – Quality Performance of the Branch ................................... 48 Table 4. 17 Coefficients – Quality Performance of the Branch .............................. 48 Table 4. 18 The Impact of ICT Usage On Branch Performance ............................. 52 xi ABBREVIATIO S ATM - Automated Teller Machine DEA - Data Envelopment Analysis FP - Financial Performance ICT - Information and Communication Technology ISDN - Integrated Services Digital Network IS - Information System IT - Information Technology OC - Organizational Commitment QP - Quality Performance SEM - Structural Equation Modelling SISP - Strategic Information Systems Planning SPSS - Statistical Package for Social Sciences TAM - Technology Acceptance Model TQM - Total Quality Management