Operations, readiness and culture: don't reengineer ..... Re-engineering work: Don't automate; obliterate. .... Lapre´, M. A., & Van Wassenhove, L. N. (2002).
ORGANIZATIONAL TRANSFORMATION: INFLUENCE OF RADICAL IMPROVEMENT OF PROCESSES AND INFORMATION TECHNOLOGY CAPABILITY
By KABIRU JINJIRI RINGIM MOHD RIZAL RAZALLI NORLENA HASNAN
PREFACE As the world becomes technologically advanced coupled with the rise in global competitive market, banks are left with no choice but to improve their operational process's performance. Furthermore, the global economic meltdown, have necessitated for banks to enhance their professional capability by engaging in process change and reengineering that bring about efficiency, accuracy and intensifying new ways in order to enhance banking services to meet customer needs. Banks tend to improve on process's performance by utilising information technology to reduce cost and cycle time, minimise mistakes, affect cost control, improve human relations and above all speed up product development in order to satisfy customer needs. Banking services such as remittances, credit evaluation, customer service, tellering and cash transactions processes were reviewed, redesigned and reengineered to enhance efficiency and effectiveness for customer value. The advocates of BPR claimed that, if BPR is rightly and correctly implemented, organisation would achieve quantum leap of improvement in cost reduction, speed, productivity and profitability. Business process Reengineering (BPR) is management approach introduced by Hammer (1990) and Davenport and Short (1990) that would enable organisation to manage their business profitably in the 1990’s and beyond. The entire banking industry is now focusing on major performance enhancements and gains in domestic market share as a springboard to successful international expansion. Operational process's performance enhancement efforts would aim at a complete realignment of internal and inter-organizational processes. In contrast to the trend in the recent years, the focus is no longer on cost containment alone, but rather on simultaneously improving service to customers. Not only, it processes to become efficient, they must be made more customers friendly as well. Reengineering is a painful process because the whole set of values and belief in the enterprises are being challenged.
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DISCLAIMER
We are responsible for the accuracy of all opinion, technical comment, factual reports, data, figures, illustration and photographs in this report. We bear full responsibility for checking, whether material submitted in subject to copyright or ownership rights.
_________________________________ Name: Dr. Kabiru Jinjiri Ringim
_________________________________ Name: Dr. Mohd Rizal Razalli
________________________________ Name: Associate Prof. Dr. Norlena Bt. Hasnan
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TABLE OF CONTENTS
PREFACE DISCLAIMER TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES CHAPTER 1 IMPORTANCE OF BUSINESS PROCESS REENGINEERING AND INFORMATION TECHNOLOGY CAPABILITY. Introduction
Page 2 3 4 8 9
10 10
Brief History of BPR
11
The Motivation of BPR
12
Evaluating process re-engineering initiatives
17
The fallacy of the clean slate
18
The paradox of information technology: enabler and disabler of radical change
20
The hypocrisy of empowerment
22
The irony of employee commitment
24
CHAPTER 2 ORGANIZATIONAL TRANSFORMATION: BUSINESS PROCESS REENGINEERING INITIATIVES Introduction
27 27
The Radical Transformation of Nigerian banks
28
Suitability of BPR as radical performance improvement method
29
BPR success factors
30
Change management
38
Reward and motivation
39
Effective communication
40
Creating effective organizational culture
41
Stimulating receptivity to change
41
Employee’s empowerment
42
Human involvement
42
Training and education
43
4
BPR Project management
43
Top management commitment
44
Customer focus
46
IT infrastructure
46
Process redesigns
47
Financial resources
48
Less bureaucratic (flatter) structure
49
BPR failure factors
51
Lack of proper strategy
51
Unrealistic objectives
52
No clear concept of a process
52
Wrong scope of process objectives
52
Non recognition of BPR benefit
53
Over dependence on IT systems
53
Opposition and lack of commitment from top management
53
CHAPTER 3 INFORMATION TECHNOLOGY CAPABILITY Introduction
68 68
Definition and concept of IT capability
68
The role of IT capability in improving performance
70
The contradictory role of IT as an enabler in BPR.
72
IT capability measurement
74
IT knowledge
74
IT operations
75
IT service capability maturity model
80
The key process areas on the IT Service CMM
82
Initial level
83
Repeatable level
83
Defined level
86
Managed level
91
Optimizing level
92
IT capability as the moderating variable CHAPTER 4 UNDERLYING THEORIES Resource-based view (RBV) theory 5
93 98 98
How the RBV theory relates to BPR factors and IT capability
104
IT capability as dynamic capability
106
Complementarity theory
107
Summary
108
CHAPTER 5 BPR FACTORS, IT CAPABILITY & PERFORMANCE Introduction
110 110
Relationship between BPR factors and organizational performance
111
Relationship between IT capability and organizational performance
112
Moderating effects of IT capability on BPR, IT Capability and Performance
114
CHAPTER 6 MEASUREMENT AND OPERATIONALIZATION OF BPR FACTORS AND IT CAPABILITY Introduction BPR factors
120 120 122
Change management
123
BPR project management
124
Top management commitment
124
Customer focus
125
IT infrastructure
126
Effective process redesigns.
127
Adequate financial resources
127
Less bureaucratic (flatter) structure
128
IT capability
129
IT knowledge
129
IT operations
130
Organizational performance
131
Non-financial performance measures
131
Financial performance measures
132
Validity test of instrument measures
135
Reliability test analysis of construct
137
Data analysis method
138
CHAPTER 7 DISCUSSION AND CONCLUSION Introduction
140 140
Recapitulation of study
140 6
Overall discussion of findings
142
Relationship between BPR factors and organizational performance
142
BPR factors and overall performance
146
BPR factors and operation's cost reduction
152
BPR factors and customer service management
153
BPR factors and business operation's efficiency
156
Relationship between IT capability and organizational performance
157
Moderating effects of IT capability
159
BPR factors - IT capability- overall performance
161
BPR factors - IT capability-operations cost reduction performance.
166
BPR factors - IT capability-customer service management performance
167
BPR factors - IT capability-business operations efficiency performance
169
Implications of the study
170
Managerial implications
171
Theoretical implications
176
Limitations of the study
181
Directions for future research
182
Conclusion
Error! Bookmark not defined.
REFERENCES
187
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LIST OF TABLES
Page Table 1 Summary of the BPR Success Factors and Causes of Failure
51
Table 2 Summary of Studies on BPR Factors and Performance in Banks and Financial Services Setting
60
Table 3 Summary of Studies on BPR Factors and Performance in Banks and Financial Services Setting
61
Table 4 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector
64
Table 5 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector
64
Table 6 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector
66
Table 7 Summary of Some Selected Previous Studies on IT and performance
77
Table 8 Five Levels of the IT Service Capability Maturity Model
82
Table 9 Summary of Various Relevant Theories of the Firm Performance and their Implication
99
Table 10 Summary of Measurement Instrument Variables, Sources, and Number of Items
133
Table 11 Summary of the pilot test reliability analysis of constructs
8
138
LIST OF FIGURES
Page Figure 1: Factor of Change in Nigerian Financial InstitutionsSuitability of BPR as radical performance improvement method
29
Figure 2: The diagram of the basic types of process measures
34
Figure 3: Business Process Reengineering Versus other Process movement
36
Figure 4: BPR Life cycle
55
Figure 5: Graphical Presentation of a Moderated model
96
Figure 6: Graphical Presentation of a Mediated model
97
Figure 7: Conceptual Framework
108
Figure 8: The moderating effect of IT capability on the relationship between management commitment and overall performance
163
Figure 9: The moderating effect of IT capability on the relationship between customer focus and overall performance
165
Figure 10: The moderating effect of IT capability on the relationship between change management and overall performance
166
Figure 11: The moderating effect of IT capability on the relationship between change management and operation's cost reduction Performance
167
Figure 12: The moderating effect of IT capability on the relationship between IT investment and customer service management performance
168
Figure 13: The moderating effect of IT capability on the relationship between management commitment and customer service management performance
169
Figure 14: The moderating effect of IT capability on the relationship between management commitment and business operations efficiency performance
170
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CHAPTER 1 IMPORTANCE OF BUSINESS PROCESS RE-ENGINEERING AND INFORMATION TECHNOLOGY CAPABILITY
Introduction In today’s competitive business environment, companies are looking closely at ways to increase their efficiency by reducing cost, while providing the products and services that customers want and when they want them. Business Process Reengineering (BPR) is an approach that is most often used to radically alter the processes of a company and generate new and better ways to run a business. BPR is concerned with the fundamental rethinking and radical redesign of a business process to obtain dramatic and sustained improvements in quality, cost, service, lead time, flexibility and innovation. BPR focuses all in all process starting from product conceptual stage to final product design. It provides the opportunity to reengineer the process or to reduce radically the number of activities it takes to carry out a process with the help of advanced Information Technology (IT) (Hammer, 1990; Hammer & Champy, 1993).
In a volatile global world, organizations enhance the competitive advantage through Business Process Reengineering (BPR) by radically reengineering whole processes. BPR implies transformed processes that together form a component of a larger system aimed at enabling organizations to empower themselves with contemporary technologies, business solutions and innovations. In realizing the importance of BPR, this chapter goes on to review the literature on it. It explores the advantages,
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disadvantages, success factors, obstacles of BPR and presents the use of BPR case tools in business organizations.
Brief History of BPR
BPR was introduced to the business world by Frederick Taylor when he published his article ‘The Principles of Scientific Management’ in the 1900s. Scientific Management was the first step to the introduction of BPR. It turned out to be unsuccessful due to the many issues, which were not resolved. During Taylor's time few knowledgeable workers were employed in the manufacturing workforce which at the time was the main wealth generator. Scientific Management involves breaking the manufacturing process down to simple sequences, which are to be carried out in the least amount of time possible with the minimum amount of effort. This often raised the factory workers' salaries but also caused the workers to work just as hard in back-breaking manual labour. This practice of improving efficiency in manufacturing often raised the concern of dehumanization of the workplace.
The Scientific Management method gave birth to Total Quality Management in Japan after World War II, which eliminated many of the discrepancies in the previous method of improving the business structure. William Deming and Dr. Joseph Juran helped Japan become a super economic power by taking over market share from North American businesses with quality goods and services (Bergner, 1991; Chapman, 1991; Deming, 1986; Juran, 1989; Walton, 1989). Total Quality Management's main goal is to improve the manufacturing operations. In the 1990s,
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Michael Hammer and James Champy introduced their book ‘Reengineering the Corporation’, which gave birth to the term business process reengineering.
BPR gained immense and unexpected popularity due to the early articles of Hammer (1990) and Davenport (1993). Many conferences and seminars were organized by many agencies to spread the concept of BPR to business organizations. After realizing the BPR benefits, Peter Drucker, in an article described BPR as “Reengineering is new, and it has to be done”. Consequently, BPR has become the hottest management trend. European countries and United States of America are the early countries which implemented BPR in their organizations. However, European firms have responded to BPR differently than U.S.A for the simple reason that European business culture is different from that of the U.S.A. Many companies in U.S.A have succeeded in their BPR project like Cigna Corporation and Ford Motor.
The Motivation of BPR
Business Process Reengineering can be defined as "the analysis and design of workflow and processes within and between organizations" (Hammer and Champy, 1993). BPR has three key target categories:
1. Customer Friendly: To get a competitive edge and that can only be gained by providing the customers more than what the others in the market are asking for.
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2. Effectiveness: How effective is the product or service that the business or manufacturing company is providing the customer?
3. Efficiency: How efficient is the company that is manufacturing the product before introducing it to the market to minimize costs? Efficiency is not just about being efficient at the production floor level but also the management level.
Besides these, the rapidity of technological change also promotes innovation and improvements in business processes. Through advanced technology, companies are able to diminish the time available to develop new products and introduce them to the market.
Change management will also encourage an organization to reengineer its business processes because different management will have different policies and principles (Hammer and Champy, 1993). Moreover, politics, economics, legislation and regulation dimensions determined by government agencies and other nongovernment organizations for a variety of reasons are also encouraging organizations to reengineer their business processes. Furthermore, economic fluctuation and government policies may also bring enormous impact to business processes and subsequently will lead an organization to reengineer its business processes.
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The progressive globalization of financial markets requires market participants to make
changes
to
their
operational
processes
beyond
local
to
global
competitiveness. This trend has led many banks in developing countries to improve customer service quality, speed, reduce operating costs, and enhance profitability performance. Innovative banking services and personalized portfolio management are evolving as the market consolidates due to mergers and acquisitions of up-todate strategy. As a result, the focus is no longer on cutting costs alone, but rather on simultaneously improving services to customers. In other words, the processes must not only be more efficient, but also more customer-friendly as well.
Attempts are being made to adopt approaches in the financial sector that have proven effective in other industries, particularly those in manufacturing. One of these approaches is known as BPR. BPR is a major management approach that focuses on doing things in a better way that is clearer and easier to achieve a radical improvement on quality, speed, customer service, and reduction in cost. The focus of reengineering is on the process of redesign, which relates to doing things better and clearer. One of the primary goals of the financial service industry is to enhance processes and customer service performance through the management approach of cost reduction, improving quality, speed, and customer service for profit maximization.
Therefore, management scholars argue that organizations can
become proactive in operation by adopting the BPR to achieve a remarkable improvement in organizational performance (Davenport & Short, 1990; Hammer, 1990).
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BPR is a popular management tool for dealing with rapid technological and business changes. It was introduced by Hammer, as radical redesigns of processes in order to gain significant improvements in cost, quality, and services. BPR creates changes in people (behaviour and culture), processes and technology (Al-Mashari & Zairi, 2000). It does not seek to alter or fix existing processes, but forces companies to ask whether or not a process is necessary, and then seeks to find a better way to do it. BPR integrates all departments into a complete process that has been designed to fulfil a specific business goal. Hence, successful implementation of BPR enables organizations to achieve dramatic gains in business performance.
BPR helps banks to deal with new economic challenges and change the traditional processes to improve their customers' satisfaction. BPR is a management discipline for analyzing and redesigning current business processes and their components in terms of efficiency, effectiveness and added value to the objectives of the business. The conduct of the BPR steps is planned to gather and process business requirements in support of a modernization effort for a defined area. The BPR starts with planning activities that include the creation of a BPR team, the development of a BPR scope document and an examination of the proposal that relates to a given area, examines the existing and future business process and improves it accordingly. The successful implementation of BPR depends on how the project fits into the organization cultural norms, and IT.
Reengineering of operational processes undertaken in the bank should be handled by the project management expertise within the IT department. The IT capability includes both the technical and managerial expertise required to provide reliable
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physical services and extensive electronic connectivity within and outside the firm. IT increases the market share of the bank through offering a product or service that is not offered by others, e.g., those customers who prefer private/personalized services or use of debit cards have become the focus of retail and investment in banking. Therefore, this study uses the resource-based view (RBV) of the firm, dynamic capability's theory and complementarity theory to explain the relationship between BPR factors and organizational performance under the influence of IT capability. The application of IT capability is to enhance the service-delivery process, produce new products, processes, strategy, and work faster, eliminate all communication barriers within the organization, and empower workers to link up with customers and suppliers to achieve the competitive advantage.
IT in a banking sector is an important tool that helped to streamline the back-office operations by improving both efficiency and cost reduction. Advances in technology also influence the way banks’ services are delivered with the aim of making them more convenient for customers. For example, many banks have their branches connected online real time (24/7). Some banks have ATMs to make cash available to their customers 24/7. Bank's practice e-banking, telephone, and mobile services, Money transfer services through MoneyGramme, and Western Union Money transfer. These enabled the customer’s in Diaspora to send money to their families. Moreover, the IT capability (IT operations and IT knowledge) makes banks participate more effectively in the financial service arena. For instance, some organization can access international banking networks for efficient fund transfers, open, amend, and negotiate letters of credit, and retrieve up-to-date status of
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customer transactions between the banks that joined the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT).
Evaluating process re-engineering initiatives
The campaign to improve organizations operates under many banners, including total quality management, continuous improvement, right-sizing, organizational transformation, and so on. The common goal for these approaches is to change how business is conducted in order to improve organizational performance. Since 1990, few treatments of organizational change or improvement have been complete without consideration of business process re-engineering (BPR). However, little reliable evidence exists confirming that BPR has delivered on its initial promise (Cummings, 1993). Despite acknowledged successes at Ford, CIGNA, Mutual Benefit Life Insurance, Wal-Mart, and other firms, most observers express concern over the high failure rates of BPR projects. Champy (1995), one of the originators of BPR, recently admitted that “reengineering is in trouble. Substantial reengineering payoffs appear to have fallen well short of their potential. Empirical studies provide mixed evidence regarding the success of BPR. On the one hand, researchers at CSC Index reported that approximately one-fourth of the reengineering projects they had studied in North America were not meeting their goals (Cafasso, 1993). The four contradictions that potentially undermine the application of BPR were discussed as follows:
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The fallacy of the clean slate
One of the guiding principles of BPR is the assumption that new processes be designed from scratch using a clean slate. The clean-slate approach implies disregarding existing structures and procedures in order to invent new ways of accomplishing work (Hammer and Champy, 1993). BPR, according to the purists, should be distinguished from fewer radical approaches designed to improve the performance of existing processes – e.g. continuous business improvement and total quality management (Brandt, 1994; Carr and Johansson, 1995; Hammer and Champy, 1993). Moreover, presupposes spending little time analyzing current business processes in order not to be influenced by assumptions underlying these actual processes such as reasoning are fallacious because even the most radically redesigned business processes need to be implemented in real organizations that have histories and memories. Re-engineering design teams cannot wipe to clean the slates that members of the organization carry in their heads, nor can they obliterate the shared understandings and mental models that have accrued over time. As noted by Davenport (1995), existing constraints have to be taken into account during implementation of BPR plans. In practice then, the appealing rhetoric of obliterating existing processes and beginning anew with a blank slate poses a logical impossibility. This fallacy fuels much of the contemporary skepticism regarding BPR’s claims of effectiveness. Blank slates also pose practical difficulties. Davenport and Stoddard (1994) have noted that radical innovations requiring obliteration of existing processes may simply cost too much to obtain top management support. The blank slate too often implies a “blank cheque” at implementation, especially where advanced information technologies are advocated
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(as they usually are) (Davenport and Stoddard, 1994, p. 123). Thus, even if existing processes could be wiped clean, few organizations seem prepared to finance the mass migration towards an unproven future. Several reports support this concern with the observation that truly radical change has been rare (Grant et al., 1996; Maglitta, Robey et al., 1995).
A modification to the extreme BPR rhetoric has been offered by Davenport and Stoddard (1994) to cope with the blank slate fallacy. They argue, quite reasonably, that process redesigns can proceed to use a blank slate, but that process implementation must acknowledge the constraints imposed by existing processes. This leads to the advice to plan for radical change, but to implement gradually. Recent case studies show that this approach is favored by organizations (Stoddard and Jarvenpaa, 1995). Unfortunately, while addressing the fallacy of the blank slate, this more moderate approach to BPR raises another question: why should new processes is designed without incorporating the assumptions affecting their implementation? In effect, the assumption that design and implementation are activities that can be separated is another fallacy. If designs need to be modified on implementation to account for pre-existing conditions, these conditions should be taken into account during the design phase. Thus, the more moderate version of BPR does not remove the fallacious assumptions that existing organizational processes can be either removed from the equation or postponed for later consideration.
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The paradox of information technology: enabler and disabler of radical change
One of the most straightforward assertions about BPR is that information technology is a key enabler of a process redesign. It is information technology that permits companies to re-engineer business process. A company that cannot change the way it thinks about information technology cannot re-engineer (Hammer and Champy, 1993). Most other BPR proponents also adopt an essentially technical model of organizational change in which information technology basically drives the re-engineering effort (Grey and Mitev, 1995; Jones, 1994). These arguments acknowledge the technological determinism inherent to BPR; technology determines not only to work structure, but also organizational structure, culture, management styles, and beliefs (Grey and Mitev, 1995). Thus, outmoded organizational designs can be changed through the use of advanced, enabling technologies that support new business processes that respond to changing market needs.
However reasonable and straightforward this argument seems; it has also become the source of controversy. Rather than being a simple enabler of new organizational processes; information technology paradoxically can also disable an organization’s ability to change. When an organization revises its basic business processes using information technology, it introduces a new structure that may become even more difficult to change in the future. Since the technical backbone of automated processes exists as software routines, a later change in a process will require a reconstruction of the software application and its various links to other systems.
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While all changes require reprogramming of some sort, either to human or machine components, software programs are often virtually inaccessible to the persons nearest to the application. Given the inevitability of business change, hard-wired business processes that are built today may seriously constrain later efforts to redesign them. Ironically, today’s BPR may have already produced the organizational structures and processes that will be considered outmoded tomorrow, and those processes may be more difficult to change because today’s software conventions will probably also be considered outmoded tomorrow. Seen with hindsight, the BPR movement of the 1990s may later be blamed for the construction of the next generation of legacy systems and organizations in need of transformation. Lucas and Olson (1994) provide a clear analysis of this paradox in their examination of information technology’s effects on organizational flexibility. They argue that technology provides the capability for more flexible organizational structures by allowing a greater variety in the time and place of work while increasing the speed of response. However, they note that information technology also constrains flexibility by embedding routines into software programs that are not easy to change. Gill’s (1995) comparable analysis of MRS Fields’ Cookies shows how information technology both enabled and disabled that organization’s ability to respond to a changing business environment. By employing centralized systems for controlling production and inventory, MRS Fields’ Cookies was able to operate hundreds of small stores as it had run its original store. No middlemanagement layers were used, and the company achieved notoriety as an example of the more efficient, flattened hierarchy structure (Lucas, 1996). Eventually, Gill notes, MRS Fields’ Cookies encountered problems in responding to local markets
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and began to experience financial difficulties. As the vaunted systems were designed to remove “unnecessary” layers of management which actually prevented top management’s awareness of needed change. Since no middle-management layers existed in the company, the organization was constrained from perceiving environmental changes taking place. Paradoxically, the same technology applications that enabled the innovative centralized structure that led to corporate success were partly responsible for blinding top management to the need for change. Resolving the paradox of information technology is not easy. Gill (1995, p. 54) claims that managers should not “over-program” their organizations in search of dramatic productivity gains. To ensure greater flexibility, Lucas (1996) recommends a commitment to continuous investment in new technologies, thereby keeping any programmed routines from becoming calcified in the organization. Applying these recommendations seems to be inconsistent with BPR’s agenda to achieve radical change with quantum changes in information technology. Moreover, although Lucas’s recommendation makes great sense to most systems professionals, on-going investment hardly addresses management’s concerns for operating efficiency, one of the primary motivations for getting into BPR.
The hypocrisy of empowerment
The third contradiction manifest in discussions about BPR deals with the empowerment of workers at all levels of the organization. Empowerment entails sharing information with workers, basing rewards on organizational performance, training employees to contribute more to organizational performance, and involving
22
employees in management decision making (Bowen and Lawler, 1992). Reengineered business processes, it is argued, result in empowered workers with greater access to information, enhanced knowledge, and the freedom to perform their jobs in ways that make sense to them. Hammer and Champy (1993) portray empowerment as an unavoidable consequence of process re-engineering. They maintain that empowered workers make their own rules and have the authority to make the decisions needed to it get it done. While not denying the empowering potential of some BPR programmes, skeptics have been quick to challenge the claim that empowerment results inevitably from re-engineering. Changes in the behaviour, values and attitudes of organizational members are not so easily achieved, as many years of study by behavioural scientists can attest. It is certainly debatable whether the redesign of business processes can, in and of itself, induce such behavioural changes. Indeed, it seems contradictory for empowerment to be characterized as a gift that can be bestowed by re-engineering. More realistically, empowerment is acquired through active struggle and achievement rather than bestowed (Grey and Mitev, 1995).
A more incisive criticism of the empowerment rhetoric exposes it as hypocritical, motivated by management’s desire to place BPR in a more politically correct and favorable light. Willmott and Wray-Bliss argue that re-engineering is firmly wedded to a top-down philosophy of organizational change in which experts design the systems which employees are expected to operate. Moreover, the widespread use of information technologies to enable process change increases the surveillance to which employees are subject – whether through hierarchical monitoring or the
23
internalization of control through processes of self-discipline and peer monitoring. The objectives and values promoted by re-engineering, and the methods proposed to instill them, also involve the coercive manipulation of attitudes and beliefs to secure cultural conformity. Finally, the assumption of consumer sovereignty inherent to BPR legitimizes the shedding of staff and increases the vulnerability of those who remain in employment. On the whole, Willmott and Wray-Bliss (1996) strongly disagree with re-engineering’s claim to bestow power on employees; rather, they argue that BPR remains essentially hierarchical in its approach to organizational control. The hypocrisy lies in BPR’s deployment as a means of deriving legitimacy for a philosophy that, paradoxically, marks a reassertion of classical and mechanistic thinking. Unlike logical fallacy or paradox, hypocrisy is somewhat easier to resolve. By simply replacing the equivocal message – that BPR is capable of both tightening and loosening of hierarchical control – with one’s true intentions, one becomes less hypocritical. Unfortunately, the true intention of using information technology to reduce worker power is never likely to be expressed openly. Therefore, in practice, organizational hypocrisy is commonly present and accepted. It becomes a normal part of organizational conduct – a feature of hypocrisy – rarely questioned or examined except by skeptical researchers.
The irony of employee commitment
The fourth contradiction considered here deals with the issue of employee commitment to radical organizational change. As with most other approaches to planned organizational change, the proponents of BPR note that the commitment of
24
individuals to a re-engineering project can make the difference between its success and failure. In addition to the widely acknowledged need to obtain the commitment and support of top managers, the literature also emphasizes the importance of commitment for process owners, BPR team members and implementers of the redesigned processes. In other words, the commitment and positive attitude of most of the individuals in an organization towards BPR appear to be the sine qua non condition for project success and resultant organizational improvements. However, BPR is often a threatening proposition for members of an organization, and gaining their commitment is not easy. Guimaraes (1996) presents evidence that while BPR usually creates a richer overall work environment, lower organizational commitment occurs after business processes are re-engineered. According to Melone (1995), it is not the redesign of processes per se that frightens people and reduces their commitment, but rather the likelihood that BPR can affect the design of these people’s jobs, including the way they are evaluated, rewarded and supervised. Their whole lives, their sense of worth and their relationships to others are thus at stake in BPR. Moreover, because re-engineering is so frequently associated with the downsizing of employment, people subject to re-engineering have good reason to withhold their commitment to change efforts. Indeed, it is ironic that re-engineering seeks to secure the commitment of those who may ultimately suffer from its outcomes. Willmott (1995) wryly suggests that obtaining such commitment from doomed (yet empowered) employees is analogous to persuading turkeys to vote for Christmas! Anecdotal evidence of the irony of commitment is provided in Petrozzo and Stepper’s (1994) account of one reengineering effort in which the project leader was so dedicated that he took a
25
“crash-and-burn” position, making the ultimate personal sacrifice of leaving the company after the project was complete. In most cases, however, we would expect to see re-engineering’s progress impeded by employees unwilling to participate wholeheartedly in a systematic programme to terminate their positions or those of their colleagues. Even when a BPR effort is restricted to certain areas of a company, employees in unaffected areas may witness the realities of reengineering’s effects upon their co-workers in other areas. Their commitment to later re-engineering may as a result diminish (Grey and Mitev, 1995). In their minds, avoiding today’s re-engineering may only be a temporary stay of execution and knowledge of impending consequences may weaken the commitment necessary to successfully conduct future projects. When confronted with an understanding of the potential irony of participating in their own demise, employees are most unlikely to sustain their commitment to BPR efforts. In this way, the irony is removed but so is the chance of success for the BPR project.
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CHAPTER 2 ORGANIZATIONAL TRANSFORMATION: BUSINESS PROCESS REENGINEERING INITIATIVES
Introduction Business process reengineering (BPR) is an approach to keep pace with the changing
business
environment,
persistent
technological,
political
and
organizational changes to increase the effectiveness and efficiency of business processes that provide output to internal and external customers (Harrington, 1991). Since the BPR has become a part of the mainstream of business improvement, many different terms in the literature are related to the improvement of business processes. Examples are: business process improvement (BPI); business process redesigns; business (process) reengineering (BPR); core process redesigns; business restructuring; continuous improvement process or Kaizen while Six-sigma is a quality improvement methodology for organisation performance.
Depending on the degree of improvement (radical or incremental), the two areas BPR and BPI can be distinguished, whereas reengineering (BPR) is synonymous with radical improvement and process improvement (BPI) to incremental improvement. Both areas can be seen as a subset of redesign. Another degree of improvement called quick hits, which focuses on the immediate payback through process improvement within a few months, whereas BPR and BPI focus, on the long run. Even though the philosophy and procedure of the above-mentioned approaches are different they all have been one-goal – the redesign (radical or incremental) and improvement of business processes.
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Hammer (1990) defines performance improvement as a structured approach to performance improvement that caters for the disciplined design and careful execution of a company's end-to-end business process. However, not all performance improvement efforts are successful. As reported on the literature, 5070 percent of the BPR as performance improvement initiatives fails to achieve their objectives (Hammer & Champy, 1993). The reasons behind the failure of performance improvement efforts include: a focus on the tactical issues not on the issues that affect the entire business, and the lack of knowledge transferability of BPR projects.
The Radical Transformation of Nigerian banks The merger and consolidation of Nigerian banks operations has led to the radical transformation of the sector and the nature of competition in the banking industry have change fundamentally. The banks minimum share capital requirement rose to N25billion about $2billion. This situation saw the emergence of 25 banks against 89 banks before consolidation. The successfully consolidated bank achieved 93.5% of aggregate deposit liabilities. Aggregate capitalization rose from 24% to 38%, which enhanced liquidity and capitalization of stock market, expansion of shareholders base of Nigerian banks, improve profitability, operational efficiency and effective supervision focus of few. The consolidation policy has also effectively raised entry barriers for those wishing to start banking business (Osubo, 2006.5). Therefore, the reasons for the radical transformation of Nigerian banks can be attributed to six (6) factors (1. Technology, 2. De-regulation/Liberalization, 3.
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Shareholders value orientation; 4. Customer demand; 5. Progress in finance theory; 6.
International
politics) which combined
with
resulting manifestations
(Globalization, Innovation in products and processes; and New competitors) radically change the banking industry as shown in Figure 1. The development of the Information and Telecommunication sector was crucial for the transformation of the banks. This led to the globalization of the banking services as customer’s demand for effective and efficient service delivery as well as the influence of the world politics on the Nigerian democratization.
Underlying Forces
Manifestation
Consequences
Technology Globalization Liberalisation De-Regulation
Shareholders Value Innovations Orientation Figure 1. Factor of Change in Nigerian Financial Institutions: Products & Adapted from Geiger &Processes Hürzeler, (2003) Demography Customers Progress in Finance Theory
New Competitors
International Policies
Figure 1: Factor of Change in Nigerian Financial Institutions
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RADICAL TRANSFO RMATION OF NIGERIAN FINANCIA L INSTITUTI ONS
Suitability of BPR as radical performance improvement method
The suitability of the reengineering method for process improvement to the organizational context is of great significance. Although the process reengineering could benefit manufacturing and service firms, there is a distinction in its implementation to suit the unique situation of the firm. The main causes of failure in reengineering practice are: Negligence of the work environment aspects to the design process; the rigidity to the infrastructure system; and consideration of human factors, such as costs that need to be reduced, rather than a resource to be developed. As to the reengineering success factors, it is noticed that reengineering efforts are behind many positive outcomes, such as: reduce a cost, increase productivity, reduce time, improve quality, reduce business cycle, increase profit, and decrease response time. Therefore, based on the above empirical evidence, clearly the key drivers for reengineering success comprise: questioning the fundamental assumptions of a process, drastic improvement of this process, alignment with corporate strategy, and effective use of information and communication technologies.
BPR success factors
Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in a critical quantum leap of contemporary measures of performance, such as cost, quality, service, and speed
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(Hammer & Champy, 1993). This definition comprises four keywords: fundamental, radical, and dramatic and processes.
BPR seeks to split away from the old and current processes to come up with new ways of doing things/tasks, organizing people and making use of IT systems so that the resulting processes would better support the goals of the organization. The basic operation in a business is the first and important priority to reengineering. The essential question of how an organization should be run should be asked by the business owners; the answers to these questions always lead to an understanding of the fundamental operations of the company and rationale behind any existing assumption. Re-engineering starts with no assumption and companies that implement reengineering must guard against such assumptions, take nothing for granted and must determine what a company needs and how effectively it can be done. Radical redesigning is the second keyword to reengineering, which means abandoning all existing arrangement and methods and creating a completely new contemporary system of achieving a task. This means that reengineering is all about beginning with a new process with no assumption or modification. Therefore, business processes are re-innovated. The third keyword in the BPR concept is dramatic
improvement,
reengineering,
which
involves
achieving
greater
performance unlike making incremental improvement. Marginal improvement requires re-adjustment while dramatic improvement demands doing away with an existing process and replacing it with something new and contemporary. The fourth keyword in defining BPR is processes. This is the paramount concept in reengineering. The division of labour approach, which is wholly applied in classic
31
business structure, should be transformed to the process-based approach to ensure the effectiveness and efficiency of processes.
The advocates of BPR claim that if the concept is correctly implemented, organizations would achieve a quantum leap of improvement in cost reduction, speed, productivity and profitability (Hammer & Champy, 1993). BPR is a method for improving the performance of an organization with the objective of finding a new way to organize people, and redesign processes with the aid of IT to achieve organisational goals. When restructuring the business process, the content of jobs and organisational structure changes for all employees to bring about radical changes in values and beliefs. As a result, reengineering is not complete until all elements of the business system, i.e., business processes, jobs and structures, changes because people, jobs, managers and values are linked together.
The core business processes of an organisation are: customer acquisition and service, product development, and order fulfillment. These processes are extending over different functions and embed suppliers as well as customers. Hence, one of the characteristics of a business process is that it begins and ends outside the organisation and has clear interfaces towards other processes. One of the main criteria for reengineering success is to get all the way around the business system diamond. The business system diamond identifies the relationship between business processes, jobs and structures, management and measurement systems, and values and beliefs. BPR is a method of improving the operational processes of an organization. The objective is to find a new way to organized people and redesign information technology so that the processes support the organizational goals.
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When restructuring the business process, the content of jobs and of organisational structures changes for all employees. Changing jobs and structures require changes in management principles and performance measurement systems. These new management principles and performance measurement systems induce change in values and beliefs, which in turn enable the new business processes. Consequently, reengineering is not complete until all elements of the business system diamond have been changed and aligned the changes that occur when company re-engineers its business processes; Jobs and structure certainly change, as business processes ultimately change practically everything about the company, because people, jobs, managers and values are linked together. The top point on the diamond is the company’s business processes (method of the ways company’s work is done); the second is its jobs and structure; the third, its management and measurement systems; and the fourth, its organisational culture (employees value and believe). The linkage to each point is the key. The top point of the business system diamond is a business process. It determines the second point job and structure. The ways in which work is performed determine the nature of people’s task and how the people who perform these tasks are grouped together. Likewise, people who perform multidimensional jobs are organized into teams. They are recruited, evaluated, and compensated by means of appropriate management systems. In other words, jobs and structures are determined by the process designs. This led us to the third point on the diamond. The kind of management systems a company should be employed, how people are paid, the measure by which their performance is evaluated. The fourth stage on diamond is the organisational culture that shapes the employees' values and beliefs. Finally, the reigning values and beliefs in an organisation must
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support performance of its process designs. This brings us back to the top of the diamond. Once again, we say that in reengineering it is not sufficient to redesign processes alone. All the four points on the business system diamond must fit together or the company will be flawed and misshapen. Discussion of process management today revolves mainly around challenges to technical processes support, the integration of a technical process steps into operational systems and quality of technical control functions in an information technology context. Process performance controls are viewed in the overall context of business performance metrics, quantitative reporting of process performance being Siebert 1998) seen as an integral part thereof. Figure 2 shows the diagram of the basic types of process measure below provides an overview of the four (4) general categories of key performance indicators (KPIs), or metric. Quality and timeliness tend to be external measures usually determine by reference to the customer of the process. Efficiency and cycle time tends to be internal measures and are pursued to ensure that the process does what it does in the most cost-efficient possible manner.
Performance
Requirements
Meet or Exceed Customer Expectation PROCESS PERFORMANCE
Attain Superior Business Results
Figure 2: The diagram of the basic types of process measures
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Key
Quality Timeliness Efficiency Cycle Time
Quality – measure the conformance or non-conformance (defects) to requirements or expected performance Timeliness – measure the success in meeting a customer commitment Efficiency – measure the output that a customer request and delivery of the product or service to the customer. Cycle-time – measure the time between a customer request and delivery of the product or services to the customer.
Business Process Re-engineering Versus Other Process Movement The worldwide success of Japanese companies led to the emergence of Japanese principles in Western management literature during the 1980s. These developments together with value chain analysis gradually brought horizontal business processes back to the focus of management attention. The total quality management (TQM) was a horizontal process cutting across the boundaries separating organizational unit’s in order to leverage quality in company's products and activities. More recent notions such as lean management and time based competition and management also contain the same basic ideas. These two (2) schools of thoughts, i.e. the quality movement (TQM) and time based movement (JIT) were argued to have formed a sort of synthesis, revolving around such concept as lean activity-based management and finally business process reengineering (BPR) as shown in Figure 3.
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Quality Movement 1970s
1980s
Total Quality Control
Time Based Movement Just In Time (JIT)
Total Quality Management
Time -Based Management
Lean Management 1990s Activity- Based Management Present Time
Business Process Reengineering
Figure 3: Business Process Reengineering Versus other Process movement
Davenport (1990) pointed out that major difference between BPR and other organizational approaches, especially the continuous improvement or TQM movement where he states: “Today’s organization must seek not a fractional but multiplicative level of improvement. Business Process Reengineering seeks radical rather than merely continuous improvement. It accelerated the effect of JIT and TQM to make process orientation a strategic means and capabilities of the organisation. BPR concentrates on business processes and uses the specific techniques within JIT and TQM concepts as enabler, while enlarging the process vision. The objective of restructuring is to reduce business capacity to meet a lower cost, address poor financial performance by eliminating unprofitable businesses or personnel while downsizing entails a reduction in a number of personnel of an organization. However, BPR efforts attempt to change the way work is done; downsizing does not include re-invention, which sets the target for the disengagement of manpower. In a reorganization project, the organisational
36
structure is altered by either de-layering several levels of middle management or by acquiring or disposing of corporate assets. In de-layering or de-leveling the aim is to reduce the number of layers in the organization, resulting in flatter organizational structure with few middle management staffs.
TQM and BPR share common features, such as: the principle of processes, the need for organisational and cultural change, the use of benchmarking, the focus on customer needs, the importance of process measurement and their aim of improving business performance for competitive gains. Hammer (1991) explained the series of sequential performance improvements using the two techniques and warned against the concurrent usage of the two approaches. However, the two approaches are different in many respects. Firstly, TQM is focused on incremental, evolutionary and continuous in nature (Kaizen) while, BPR is, in contrast, radical, innovative, revolutionary and a onetime approach. Secondly, TQM addresses tight processes regularly within departments; BPR, on the other hand, is wider in scope and addresses one or more processes that cross multiple functions (Gulden and Reck, 1992; Wells et al.1993). Thirdly, while quality is considered necessary in BPR projects, benefits such as cost and cycle-time reduction are among the major targets. Finally, IT has a major role in BPR, while in TQM, the role of I T is less important.
Re-engineering success factors The implementation of BPR claims fantastic outcome of performance improvement and is able to provide an enhance results for organizations. Several firms achieved are high-cost reductions; enhance profits, effective quality and productivity,
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efficient response to market, and good customer service. Factors that resulted to the successful results for reengineering projects include: 1. Strong, consistent, commitment and sponsorship of top management 2. Strategic Alignment of business objectives with firm’s strategic direction 3. Specific commitment to focus on customers and performance measurement objectives 4. Effective methodology that includes a vision process. 5. Effective Change Management and cultural transformation 6. Management ownership and accountability 7. BPR Team with in-depth knowledge of re-engineering
Change management
One of the most overlooked obstacles to successful project implementation is resistance from those whom implementers believe will benefit. Most projects underestimate the cultural impact of the major process and structural change, and, as a result, do not achieve the full potential of their change effort. Change is not an event, despite the many attempts to call people together and have a meeting to make a change happen. Change management is the discipline of managing change as a process, with due consideration that we are people, not programmable machines. It is about leadership with open, honest and frequent communication. It must be okay to show resistance, to voice issues, and to be afraid of change. Organizations do not change. People change, one at a time. The better one manages the change, the less pain one will have during the transition, and the impact on
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work productivity will be minimized. Reengineering is not downsizing, restructuring or automation. Reengineering eliminates works, not jobs or people. It is concerned with how work is done not how organizations are re-structured. Reengineering enables process design, rather than providing a new mechanism for performing old ones, and it is revolutionary.
Change Management can be referred to as a process for restructuring and redesigning the organizational activities in order to keep abreast of challenges and for meeting the needs of customers (Moran & Brightman, 2000). Changes in organization are being managed by the leader or manager for the organization by incorporating the employees into the process to achieve a positive goal. Radical changes in organizations are being achieved through effective communication, involvement of employees, reward and motivation. Socio-cultural adjustment needs to overcome resistance and facilitate the acceptance of the desired procedures or policy (Tower, 1996; Zairi & Sinclair, 1995). The factors that relate to change management in organizations include:
Reward and motivation Organizations motivate employees through various means. The method of motivation can be in a form of addressing the hygienic or motivating factors. The hygienic factors include inducement by increasing salary, and bonuses. The motivating factors encompass job enlargement, job enrichment, job rotation, promotion, offering higher responsibility, and acknowledgement of higherperformance achievement of employees. The organization reward system should be revised as part of the motivation process for the BPR effort (Jackson, 1997). An
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effective motivation package for an organization has to be wide spread and give equal chances and opportunities for all employees (Towers, 1994). Job's enlargement through the introduction of new job titles can be considered as an example of motivation and encouragement of people to endorse the reengineering programme without fear.
Effective communication
Communication is another important change management tool perceived as very critical in facilitating BPR (Hammer & Stanton, 1995). However, it is also considered by some organizations to be the most difficult part of BPR. Davenport, (1993) emphasizes the need for communication throughout the change process for all levels and for all individuals, and stresses that, it should occur regularly between the top management and the subordinate. The communication should discuss issues related to sensitive issues such as employee’s right sizing, downsizing openly and honestly, business strategies, vision, mission, customers and competitors. Effective communication in organization keeps employees up-to-date with related changes in policies and procedures. Communication in organizations avoids rumour mongering and filters noise. Communication should be open, honest and clear, especially when discussing sensitive issues relating to change, such as personnel reductions (Davenport, 1993; Janson, 1992).
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Creating effective organizational culture
An effective organizational culture exhibits the professionalism of its employees to work as a team for achievement of the desired objectives. BPR encourages integration; teamwork; cooperation; coordination; empowerment of employees in the reengineered work environment; create effective organization’s culture norms and value acceptable to the employees. However, trust and honesty among team members are also needed, as well as within the organization as a whole (Dixon, Arnold, Heineken, Kim, Mulligan, 1994; Jackson 1997). Organisational culture is an important factor in successful BPR implementation. Cooperation, coordination, and empowerment of employees are the standard characteristics of an innovative organisational environment. A classless culture supports these attitudes (Ahadi, 2004). An egalitarian culture should be developed within the organization to enable the successful implementation of any organizational change. It also avoids stress and resistance to change among employees, which is acknowledged as being a fundamental barrier to change (Abdolvand et al., 2008).
Stimulating receptivity to change
Stimulating Receptivity to Change measures the extent of the organizations influence on its employees to accept the new changes introduced for overall organisational improvement. The organisational influence requires top management interaction with subordinate and various teams within the organization to achieve positive results (Hall, Rosenthal, & Wade, 1993; Guha, Kettinger & Teng, 1993).
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Employee’s empowerment
Employee’s empowerment is an effective factor leading to the success of BPR implantation. Empowerment gives a chance to its employees to contribute positively to the organization by making decisions without reference to their supervisor, at the same time, deciding on how work should be tackled or the right technology/tools to be used in achieving the organizational objectives. As BPR results in a top-down approach, decisions are being pushed down to lower levels, and empowerment of both individuals and teams become a critical factor for successful BPR efforts (Thomas, 1994; Cooper & Markus, 1995; Hinterhuber, 1995; Dawe, 1996). It establishes a culture in which staff from all levels feels more responsibly accountable (Rohm, 1993) and promotes a self-management and collaborative teamwork culture (Mumford, 1995).
Human involvement Human involvement in an organisational project decision process facilitates achievement of its objectives (Jackson, 1997). Human involvement is a powerful instrument for organisational culture that encourages employee’s motivation and loyalty to the organization. The culture of experimentation is an essential part of a successfully reengineered organization. Therefore, people involved or affected by BPR must be prepared to endure errors while reengineering is taking place.
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Training and education
Training and Education refers to the extent of the organization’s activities that increase job involvement and facilitate updating the skills of employees in implementing BPR. Many researchers consider training and education to be an important component of successful BPR implementation (Zairi & Sinclair, 1995). Business managers, line managers, Information system managers and other staff in the front-line are the people who benefit most from education and training activities of BPR (Tower, 1994). New processes may require training, technology and data availability. The change to the business and job environment, and the availability of a supportive infrastructure should be considered.
BPR Project management
As effective Project management is considered as the critical factor of change management. A pilot project indicates failures and risks that provide the opportunity to make appropriate changes to the efforts, thus promoting success and preventing possible disasters. BPR project management refers to the extent of the alignment of project strategy with the corporate strategy, effective use of consultants, effective planning and project management techniques and adequate identification of values and performance measures of the project (Hammer, 1990). Successful project implementation is highly dependent on effective project management. New processes would be created to define jobs and responsibilities across the existing organisational functions (Davenport & Short, 1990). There is a clear need to create a new organisational structure that determines how project
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teams are going to work, how human resources are integrated, and how the new jobs and responsibilities are going to be formalized. Project management is important in order to plan and manage the BPR to be correctly implemented (AlMashari & Zairi, 2000). Ahmad et al. (2007) posited that employees should be adequately trained to get the required skills in doing tasks assigned to them. The reengineering strategy should be closely aligned with, and tied to the corporate strategy and core competencies that are critical to the organization's success.
Top management commitment
It is the most evident managerial practice that directly affects the success of the organization (Hammer & Stanton, 1995; Holland & Kumar, 1995; Guimaraes & Bond, 1996). Top management commitment ensures that employees contribute towards the successful achievement in remarkable organizational performance as a result of the implementation of projects in the organization. A lack of commitment in organizations may result in a lack of resources and funding that terminates redesigning of the processes. Top management: the real involvement of top management in the organizational performance. It should be effective, real, active and clear to involve all employees. Top management leaders should have a clear knowledge about the company’s situation. In addition, they should have enough knowledge of the project and a realistic expectation of the results. Top management is responsible for each activity on all levels within the organization (Singh & Kant, 2008). They should provide a clear direction or vision in order to help BPR team members to be directed towards the desired results (Sung & Gibson, 1998).
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Major business process change typically affects processes, technology, job roles and culture in the workplace. Significant changes to even one of these areas require resources, money, and leadership. Changing them simultaneously is an extraordinary task. If top management does not provide strong and consistent support, most likely, one of these three elements (money, resources, or leadership) will not be present over the life of the project and severely cripple the chances for success. It may be true that consultants and reengineering managers give this topic a lot of attention, as most current models of re-designing business processes use staff functions and consultants as change agents, and often the targeted organizations are not inviting the change. Without top management sponsorship, implementation efforts can be strongly resisted and ineffective.
Top management support for large companies with corporate staff organizations has another dimension. If the top management within the line organization and staff organization do not partner and become equal stakeholders in the change, and only have staff management support, the organization is most likely ill-prepared for a successful reengineering project (line management in this context includes the top managers of the operation who are ultimately accountable for business performance P&L, and customer service, etc.). Projects that result in a major change in an organization rarely succeed without management support for the line organization. Top management commitment is the highest level of management where the top officials determine the strategic direction of the organization. In order to have successful BPR, top management should communicate with employees in order to motivate the movement, and control the BPR users (Abdolvand et al., 2008).
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Customer focus
Customer focuses on the external orientation are based on customer research, competitive analysis, analysis of customer requirements on products/services, and firms that are able to meet customer demand to achieve a competitive advantage over their competitors (Chen & Chiu, 2008). Customer requirements and expectations should be defined and measured, and processes should be defined broadly in terms of customer values. Benchmarking allows learning from the experience of other organizations as well as from one reengineering process to another in the same organization. Electronic banking (e-Banking) is an innovative way of doing business in an information environment. An innovative organizational requires customer involvement during BPR (Zirger & Maidique, 1990). Organizations should gather information from their customers to drive the BPR projects. This helps them to recognize their customers' needs (Ahadi, 2004).
IT infrastructure
This study defines IT infrastructure as the extent of the organization’s expenditure on IT infrastructure, IT personnel training, IT consulting, IS maintenance, computers and software, effective alignment of IT infrastructure and building an effective IT infrastructure, proper IS integration, effective reengineering of legacy IS, increase IT competency, and effective use of software tools, which are the most important factors that contribute to the improvement of operational performance of a bank. IT is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment, such as
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automated teller machines and debit cards (Khalifa, 2000). It is a term that generally covers the harnessing of electronic technology for the information needs of a business at all levels.
Irechukwu (2000) lists some banking services that have been revolutionized through the use of ICT as including account opening, customer account mandate, and transaction processing and recording. Information and Communication Technology have provided self-service facilities (Automated customer service machines) from where prospective customers can complete their account opening documents direct online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards. Communication Technology deals with the physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon & Laudon, 2001).
Process redesigns
Sheehy (1997) viewed the effective process redesign as the ability of finding a new way of adding value to customers. Similarly, Hall et al. (1993) argued that for BPR to be successful, the redesign effort must be concentrated on areas that have the most direct impact on customer value and cost. Firms that are able to meet customer demands for new products and services can achieve a competitive advantage over their competitors. The key processes of the organization should be effectively redesigned so that the resulting performance enhancement would extend throughout the entire business organization. The effect of the new improved process
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on the employees should not be neglected. They need to know how it is going to affect their future job and what is in it for them. Moreover, ensure the use of the right people in the right project.
Process redesigns of the organization process orientation includes: appropriate level of process knowledge, documentation of existing processes, appropriate selection of core processes and use of prototypes are critical to process redesign. The redesign processes should have a direct impact on customer value and cost. The redesign processes perform a work activity in a radically new way of adding value to customers. It starts with a relatively clean slate with creativity to produce a specified output for a customer or particular market. Adequate identification of process gaps and the evaluation of effectiveness of the current processes by making use of appropriate software tools to visualize and analyses them (El-Sawy & Bowles, 1997; Tower, 1994). Identifying process owners is also important for project implementation (Boyle, 1995). The redesign process must have a direct impact on customer value and cost.
Financial resources The recapitalization of Nigerian banks was aimed at ensuring adequate financial resources for the banks to conduct their business effectively. The weak capital base cannot adequately provide a cushion for the risk of lending to entrepreneurs without collateral. BPR is normally an expensive project and requires a huge amount of money (Ahmad et al., 2007). In order for BPR to happen successfully, the organization needs to have an adequate amount of funding, sufficient to implement change and to back up unpredictable circumstances.
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Madubueze (2007) reported that Nigerian banks were directed by the Central Bank to have a minimum capitalization of N25 billion (or about $200 million) from Naira 2 billion for meeting the international standard, become players on an international scale, and help to make Nigeria a financial capital of Africa. The recapitalization and consolidation will improve the profitability and operational efficiency of banks; expand the shareholding base of Nigerian banks. Thus, eliminating the phenomenon of family banks and the tendency for poor corporate governance, the Nigeria economy will be stronger and better capitalized to finance the long-term development projects in different spheres of the economy and businesses and banks will also invest in infrastructure development, good business enterprises, and, moreover, support entrepreneurship (Osubo, 2005). The average capital base of Nigeria's banks is US$10 million, which is very low compared to that of banks in other developing countries like Malaysia where the capital base of the smallest bank is US$526million. Similarly, the aggregate capitalization of the Nigerian banking system at 311million naira (US$2.4million) is extremely low in relation to the size of the Nigerian economy and in relation to the capital base of US$688billion for a single banking group in France and US$541billion for a bank in Germany (CBN, 2005).
Less bureaucratic (flatter) structure The organizational structure should be flatter to enable BPR in terms of it encouraging creativity and innovativeness in the organization, as well as the need for less bureaucracy, and more participation and empowerment in the organization. The general view is that BPR means a flatter, cross-functional and less bureaucratic structure. However, since innovativeness is essential for BPR to happen
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successfully, McAdam (2003) suggested that organizations could implement less bureaucracy to encourage innovativeness. Therefore, organizational structure should be flexible in order to avoid the failure of BPR implementation, as discussed in Aggarwal (1998), and Ranganathan and Dhaliwal (2001). Additionally, several authors that worked on BPR research, such as Davenport and Short (1990), stressed the importance of process integration in organisation structure in order to achieve desirable business outcomes. Hall et al. (1993), and Peppard and Fitzgerald (1997) suggested ways to achieve successful results in BPR implementation by significantly changing the organization’s structure, with emphasis on crossfunctional work teams. This suggests that the top management should re-evaluate their organizational structure to determine whether it is appropriate for the situation, with the rapid changing environment and tight competition in the market. Bank branches, units and departments should be empowered to operate within their budget allocation. This kind of organisational structure eliminates a delay in decision-making and enables the bank to be more responsive to its customers. Thomas (1994) and Peppard and Fitzgerald (1997) argued that employee’s empowerment would make organizations respond faster to customer needs, and, hence, improve the organisational performance. Having discussed the BPR factors, the summary of the success and failure factors of BPR are listed in Table 1.
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Table 1 Summary of the BPR Success Factors and Causes of Failure Method Business Process Reengineering
BPR success factors 1.
2. 3. 4. 5.
6.
7.
Questioning the fundamental assumptions of the process of integration of BPR with the corporate strategy Total commitment of the leadership Strong communication among the participating team The ambitious goals of the reengineering process Deployment of the most talented, competent and creative people in the project The process chosen for reengineering should be in the center of the organization for the improvement to be felt The effective use of information and communication technology
Failure factors 1) Negligence of the work environment aspects of the design process 2) The importance of BPR projects 3) The rigidity of the infrastructure system 4) Consideration of human factors as costs that need to be reduced, rather than a resource to be developed.
BPR failure factors
The detailed explanations on the summary of critical success and failure factors of BPR in Table 2.3 were discussed in literature extensively by Al-Mashari and Zairi, (1999). Chan and Choi (1997) reported some of the reasons for BPR failure as lack of understanding and inability to perform BPR. An estimate of 70% of the companies that involved in BPR failed to achieve any benefit from implementation efforts (Hammer & Champy, 1993). The subsequent sections discuss the summary of the different reasons attributed to the high failure rate of BPR effort. Lack of proper strategy One of the reasons given for the high failure rates of BPR efforts is that most of the BPR project has not been connected to the goals (Wu, 2002). Tomasko (1993) said that reengineering was about operations and that only strategy can show what
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operations matter. Therefore, understanding the existing process should be the focus of reengineering. Gateway Management Consulting Incorporated conducted a survey on understanding of BPR initiatives among the company's senior executive management. The study found that 54% of the respondent had incorrect understanding of reengineering. Unrealistic objectives Many managers have a great expectation on BPR performance outcome (Millman, 1994). They target unachievable goals for the BPR projects (Manganelli, 1993). Unfortunately, at the end, when the results do not meet the unrealistic goals, they concluded that the BPR project has failed. The unrealistic expectation reduces the commitment and confidence of management to BPR. BPR aims at dramatic improvement. No clear concept of a process Reengineering calls for multi-perspective and creative thinking. People with inadequate exposure and a misunderstanding of the operational processes may not be able to adequately handle the reengineering techniques. This is true, particularly with the capability to value evolving information technologies in an organization (Rai & Paper, 1994). Wrong scope of process objectives Some managers may target restructuring rather than the reengineering process, which is not a problem to operations, since the downsizing process adds value or results in a better situation after reengineering. An incorrectly defined business objective result in reengineering process failure as the contribution of BPR is reduced to negative (Mathews, 1995).
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Non recognition of BPR benefit The inability of an organization to recognize the benefits of BPR or realize the positive performance may be as a result of inadequate vision for dramatic improvement of customer satisfaction and effective process operations (Rai & Paper, 1994). Over dependence on IT systems Many managers over-rely on IT solutions. They forget to investigate the business process and attempt instead to simply automate an ineffective process (Anonymous, 1994). Opposition and lack of commitment from top management To achieve satisfactory results of BPR, it requires top management commitment (Bashein, 1994). Members of top management need commitment in order to endorse the change and direct the changes of operations and culture (Klein, 1994). BPR failure factors related to change management and culture include problems in communication as a result of hiding uncertainties in communication, a poor communication link between BPR team and personnel, lack of motivation and reward. The organizational resistance to change may result from a fear of job security, job loss, and lack of adequate planning for resistance to change, and lack of optimism about the BPR result. Therefore, BPR is a strategy that organizations implement to deliver value to customers. It is one of the topics for practitioners and academicians, as the process constitutes the core of how to advance.
BPR Methodology Reengineering is inherently highly situational and creative. The methodology originally prescribed by Hammer and Champy (1993) is a top-down approach,
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which suggests that the BPR team should focus on determining how the strategic objectives of the organisation can be met without letting its thinking be constrained by the existing process (Facilities Operations and Maintenance, 2005). The emphasis is on process and is consistent with the step-change philosophy that the authors presented.
The more incremental change methodology outlined by
Harrington (1998) is a bottom-up approach which advocates modeling the existing process to gain understanding of it, and then streamlining it appropriately to meet the strategic objectives. The focus is on changing the as-is process by identifying opportunities for improving it (Facilities Operations and Maintenance, 2005).
In practice, a BPR team will ordinarily need to adopt a mixed approach. If the topdown methodology is used as the basis, there is still a need to understand the current functionality and to define carefully the transition path from the current to the preferred future process. With a bottom-up methodology, BPR teams can spend too much time on detailing the current process and lose innovative thinking. A mixed approach would encourage the team to consider high-level changes without being cluttered by the details of the current process. It is important to recognize that an initial BPR study may lead to recommendations for a number of more detailed projects on improving sub processes, which may only require relatively small changes (perhaps to remove some bottlenecks).
The complete BPR initiative will involve five phases (Facilities Operations and Maintenance, 2005); Project Planning, Map As-Is Processes, Design To-Be Processes, Implement New Processes and Continuous Improvement. Figure 4
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depicts each phase in the project life cycle, and a sampling of major activities proposed for each phase.
PROJECT PLANNING 1. Identify customer-driven objectives 2. Finalize Project Management Plan and work plan 3. Build project team
MAP AS-IS PROCESSES 1. Review admin and operations business requirement 2. Identify processes to be redesigned and create As-Is Processes Model 3. Identify key performance indicators
DESIGN TO-BE PROCESSES 1. Create to-be process models 2. Stimulate and cost to-be processes 3. Identify to-be processes to deployed
IMPLEMENT NEW PROCESSES 1. Determine fit of existing systems and document needed extensions 2. Identify new systems to support remaining automation gap 3. Implement new tobe processes
CONTINUOUS IMPROVEMENT 1. Initiate ongoing key performance indicators and review against target objectives 2. Continue business process improvements
Figure 4: BPR Life cycle
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Project Planning This phase begins with establishing management consensus on the scope of the BPR Project. In addition, customer-driven objectives are identified to establish quantifiable and qualitative goals for the project. A detail Project Work Plan in Gantt chart format should be created that identifies the tasks to be completed, deliverables to be produced, and named resource assignments. This plan is dynamic and will continue to be refined throughout the project. Project teams will be identified and assembled.
Map As-Is Processes Before the Project Team can proceed with developing new business processes, a clear understanding of existing workflows needs to be achieved. While arguments can be made against analyzing the current enterprise, most organizations, need to develop a common understanding on how the business works to establish a baseline for future improvements and avoid repeating old mistakes. In addition, confirmation must be made that current business process's support defined functional business requirements. There is a real risk in modeling current processes if they do not properly support the operational and administrative requirements. “As-Is” Process mapping will involve a high-level review of business to evaluate and possibly redesign the organization’s core business processes. While a historical perspective on how we once accomplished our work is important, its value comes later in the project when we develop alternative approaches to how we can best perform our jobs. The focus in this phase must remain the current business processes. After mapping core processes, a decision needs to be made regarding
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which ones need to be redesigned, and in what order. Generally, these choices will be based on three criteria: (1) Dysfunction, e.g., which processes are not functioning at optimal levels; (2) Importance, e.g., which are the most critical and influential in terms of customer satisfaction; and (3) Feasibility, e.g., which processes are most likely to be successfully redesigned. At the same time, a balance needs to be maintained between the processes selected for improvement and available resources to redesign and implement them in a timely manner.
Design To-Be Processes The purpose of this phase is to produce one or more alternatives to the current business process that satisfy our customer-driven goals. One approach is to “benchmark” the performance of business processes and the way these are performed against relevant peer organizations to obtain ideas for improvement. Another approach is to conduct “brainstorming” workshops with appropriate personnel to develop new approaches on how we conduct our business. Innovative practices can be adopted from anywhere or anyone, no matter what source. Having identified potential improvements to existing processes, the development of To-Be Process models is accomplished by developing activity diagrams that illustrate the improved workflow. It is important for the Project Team to simulate each process, and conduct an Activity-Based Costing (ABC) analysis to determine the inherent time and cost factors. It must be noted that this modeling activity is an iterative process. Following the completion of the To-Be Design a Scope of Work estimate will be completed for process slated for implementation to provide a better
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understanding of the effort and resources required to implement the new and/or redesigned process. Implement New Processes The implementation stage is where the project will meet the most resistance, and hence it is by far the most difficult one. It will be important to develop a comprehensive transition plan to support an introduction of the redesigned process. This plan must align the organizational structure, information systems and the business policies and procedures with the redesigned processes. Implementations of information systems that are required to support the newly designed business processes are critical to the success of the BPR project. The process models created in the “Map As-is Processes” phase will be mapped to those created during The Design To-Be Processes phase and an initial list of change requirements generated. Using prototyping and simulation techniques, a transition plan will be developed and validated to guide the implementation of the new processes.
Continuous Improvement Any given part of our business cannot be redesigned overnight. An important part in the success of this project will be a continued effort to improve business operations. Important to the success of each new process deployed is for the Project Team to conduct a post-implementation review to determine how much more customers, both internal and external, are informed, and how much more commitment is shown by the management. This can be achieved by conducting customer surveys and focus group discussions with those initially not directly involved with the change but who have a vested interest in the outcome.
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CHAPTER 3 PREVIOUS STUDIES ON BPR FACTORS & PERFORMANCE
Table 2, 3, 4, 5 and 6 summarise the previous empirical and case studies that were conducted in the financial services industry regarding BPR and performance improvement in organizations. The empirical study’s independent variable is the BPR factors while the dependent variable is organizational performance. BPR is the performance improvement indicator for financial and non-financial, as shown by some authors in the table. Terziovski, Fitzpatrick & O'Neill (2003) argued that the key challenges for successful implementation of reengineering projects are changing attitudes and culture, ensuring extensive communication and dealing with resistance to change from middle management. Brandon et al. (1999) argued that the extent to which benefits are derived is related to the company performance and that the level of the potential problems encountered during reengineering is inversely related to the extent to which project goals/objectives were accomplished to derive benefit and favourable impact on company performance.
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Table
2
Summary of Studies on BPR Factors and Performance in Banks and Financial Services Setting Authors Cheng & Chiu, (2008)
Type of Research & BPR Factors (I.V) Empirical Survey Strategic alignment Management commitment Change management Customer focus BPR Project management Use of IT
Measurement (DV)
Findings
Perceived measure of overall quality; Value for money; Customer satisfaction; Customer retention; Market share; Sales growth and Profitability Perceived measure of financial performance and customer service management performance
Customer focus is the only factor that is significantly related to performance. Other BPR factors such as change management, IT is not significant with performance.
Khong & Richardson, (2003)
Empirical Survey Change management and culture Management competence Organizational structure BPR project management IT infrastructure
Terziovski, Fitzpatrick & O'Neill, (2003)
Empirical Survey BPR strategy factors Top management commitment Use of IT Process redesigns Customer focus BPR as part of continuous improvement culture Qualitative - Case study approach
Performance measurement indicators includes: ROE, Cost, and income ratios.
The study identified: BPR strategy and customer focus as the most significant predictors, while other is not.
e-fund, ATM debit card, disbursement and service charge
Longitudinal Case study approach
Assesses the impact of BPR implementation of the business organization performance of First bank Plc.
The organization achieved successful reengineering efforts that led to business transformation, improvement in new product, services and customer service's management. The study revealed that the First bank of Nigeria reengineering project had a significant effect on organizational performance improvement and use of ATM facilitated cash withdrawal and improved customer service management.
Shin & Jemella, (2002)
Sidikat & Ayanda, (2008)
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Change management system and culture, management of risk and BPR Project management are found to be significantly correlated to customer service management performance of Malaysian banks and finance houses.
Table 3 Summary of Studies on BPR Factors and Performance in Banks and Financial Services Setting Authors
Type of Research & BPR Factors (I.V)
Measurement (DV)
Findings
Siyanbola (2011)
Empirical Survey Use of IT Change management
Profitability Increase market share Operational efficiency
The study revealed that UBA & UBN adopted a mixture of management strategies (BPR and advanced use of IT). Use of IT was found to be at the advanced level unlike other banks. Furthermore, the change management tools by the bank were employed.
Anayo, (2005)
Case study/Longitudinal approach
Assess the overall impact of reengineering in terms of profitability, customer service delivery and sustained customer banker's relationship.
Bob, (2004)
Case study/Longitudinal approach
Assessing the impact of BPR on performance of banks in Nigeria. Case study of UBA, First bank, Zenith bank, and Standard Trust bank.
The study revealed that adoption of BPR improved the financial performance of STB limited, now United Bank for Africa Plc. The study concluded that implementation of BPR would result in the achievement of remarkable success whereas adoption of other management tools does not yield in dramatic outcomes. The banks operational performance greatly was improved in terms of profitability, efficiency and effectiveness.
Therefore, reengineering has become the weapon for corporate organizations that are seeking for improvement in their performance and intent on achieving cost leadership strategy in its operating industry and environment. Moreover, the suitability of the reengineering method to the organizational context is of great significance. While the process reengineering could benefit manufacturing and service firms, there should be a distinction in its implementation to suit the unique situation of the firm (Shin & Jemella, 2002). They argued that organizations achieved successful reengineering efforts that led to business transformation, 61
improvement in new products, services and customer services and flow of information as a result of the process reengineering efforts. Sidikat and Ayanda (2008) argued that the reengineering process remains an effective performance improvement method for organizations striving to operate as effectively and efficiently as possible in the short run, while achieving the strategy for organizational growth and performance in the long run. Bob (2004); Anayo (2005) found that banks operational performance has greatly improved in terms of cost reduction, profitability, efficiency and effectiveness of service delivery. Khong and Nair (2006) argued that the driving factors for customer service management, which are significantly related to perceived business performance, are market research, customer satisfaction, customer survey, service delivery and handling. This shows that customers in the advanced countries are more enlightened about their rights and sophistication (consumerism), hence, for the banks and financial institutions to be competitive, attention should be given to the customer's service research, management, operations and marketing (Chen, 1999).
Khong and Richardson (2003) argued that CSFs of BPR in terms of change management and culture, management of risk and BPR project have a positive effect on customer service's management and business performance. IT infrastructure has a positive effect on customer service but no effect on business performance. The change management system and culture have no effect on customer service, but customer service management has a positive effect on business performance. A change management and culture can provide a good setting for fundamental change as a result of BPR implementation through the active involvement of people in redesigning the process for change (Dawe, 1996;
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Jarrar & Aspinwall, 1999). In addition, the management of risk asset and BPR project management have positive effect on customer service management. Banks and Financial service firms in USA have reported that reengineering had led to an improvement in customer service (Wood, 1996).
Cheng and Chiu, (2008) argued customer focus has a relationship with performance of commercial banks in Hong Kong. However, they observed that project management and IT usage appeared to be less important in banking than the manufacturing industry. This may be because the service industry requires heavy investment in people and technology. Project management skills and adequate IT infrastructures are the basic requirement in the smooth operation of banks. Unlike in the manufacturing field, project management is a core skill for workers in the service industry to handle their work. In a service-driven industry, customer focus is the only factor that is significantly related to firm performance.
In a similar situation, Terziovski et al., (2003) advocated customer focus to be the focal point in process innovations in banks. Process innovation in terms of redesigning of redesigning core customer focused business processes and using customer feedback is significantly related to the organization's ability to satisfy customers. Organizations were also more likely being able to satisfy customers if BPR had been implemented in a proactive manner. There was, however, a statistically significant relationship between cycle time reduction and focusing to redesign efforts on core-customer focused on business processes. This indicated that IT in BPR acts as an enabler (Attaran, 2004; Terziovski, et al., 2003; Bhatt, 2000).
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In addition, previous studies on BPR factors and performance in another setting have been reviewed and summary of the previous studies on BPR factors and performance in organization of other sectors is presented in Table 4.
Table 4 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector Authors Wang, Chan & Pauleen, (2010)
Type of Research & BPR Factors (I.V) Empirical Study: Combining BPR and SCM disciplines.
Zellner (2011)
Review of literature on Business Process Improvement
Willmott (1994)
Review of BPR literature
Measurement (DV) The supply-chain operation’s reference (SCOR) model is the framework developed by experts and explains the SCM practice and BPR.
The outcome can assist in implementation of multinational supply chain projects by identifying the gaps and linking them to the channel of entities.
Overview of business process improvement approaches and their actual improvement contribution
The study found that BPI approaches usually do not actually state the level of improvement, and some do not have a methodological structure for re-application. The study highlighted BPR cursory treatment of the human dimension in radical organization change and reviewed issues that are not clearly linked with reengineering of work processes.
Chamberlin A case study of BPR (2009) implementation in Local Government organization in UK
Currie & Willcocks, (1996)
Qualitative Case study
Findings
The study found that the organizations are not ready for a radical change. The senior managers do not understand the BPR concept and its implications. Process redesigns and innovation by using IT as an enabler
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Reengineer core processes to be heavily dependent on IT to deliver the anticipated largescale improvement in financial performance.
Table 5 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector Authors
Type of Research & BPR Factors (I.V)
Ozcelik, (2009)
Longitudinal approach: BPR Project management
Abdolvand, Albadvi & Ferdowsi, (2008)
Empirical Survey Leadership, Collaborative working Top management commitment Change management Use of IT
Brandon, Brans ford, Guimaraes & Tor, (1999)
Longitudinal Approach Sales growth Market share Profit Personnel development Political/Public affairs Product development A case study research on BPR critical success factors in higher education.
Ahmad, Francis & Zairi, (2007)
Tennant & Wu, (2005)
Case study research focused on Warwick Manufacturing Group.
Measurement (DV)
Findings
ROA; ROE, firm size, market share
Firm size, IT budget, advert expenditure, and market share are positively associated with all four performance measures. Positive and Leadership, collaborative Negative BPR working environment, top readiness indicators management commitment, were assessed. supportive management and use of IT have positive relationship with readiness while, resistance to change as a negative factor decreases the readiness. Impact of BPR in Business process changes to terms of ROE, the greatest extent; customer profit, cost satisfaction, time reduction, reduction improve employee morale, and service quality.
To achieve a maximum benefit of BPR for long-term and short-term benefits, all elements such as organization structure, empowerment training, and IT system should be considered
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The study found seven factors to be critical to BPR implementation success. The factors are team work and quality culture, quality management system, reward, change management, less bureaucratic and participative, IT/IS, effective project management and adequate financial resources Strategic approach, company target, continuous improvement, motivation
Table 5 Summary of Some Selected Previous Studies on BPR in Organizations from another Sector
Devaraj & Kohli, (2003)
Type of Research & BPR Factors (I.V) A mixed method of qualitative and quantitative study longitudinal approach in health care
Philipp, Susanne &Gregory, (1991).
Literature review: Analysing the degree of BPI techniques.
Neghab, Sharif & Imani, (2009)
Presented a model on the relationship between organisational culture and BPR.
Devaraj & Kohli, (2000)
A longitudinal study conducted on IT in healthcare organisations.
Authors
Measurement (DV)
Findings
A Triangulation analysis using three measures of IT usage IT usage is significantly related to revenue and quality in health, but the effect occurs after time lags.
The study posited that drivers of IT impact are not on IT investment, but the actual usage of IT. This is attested in a longitudinal setting of a healthcare system.
The study provides over 300 techniques from various improvement methods. Furthermore, an evaluation scheme was developed to analyse the usability of BPI techniques and gives suggestions on how to select a suitable technique for certain improvement over the situation. The study provided a quantitative model to evaluate the organizational capability for BPR with respect to organisational culture.
The study outlines future research direction on BPR and commented: The literature in BPR implementation is rife with anecdotal evidence and short on rigorous empirical evidence of performance impact of BPR. There is a definite need to better measure BPR implementations through objective measures, and to relate BPR to organizational performance in the context of other variables that also affect performance
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Currie and Willcocks (1996) observed that globalization led to intense competition that became a threat from new entrants into the financial service market. He added that the existing financial institutions became pushy for superior performance. Tennant and Wu (2005) argued that the main reasons for organizations to apply for the reengineering technique were external competitive pressure, internal cost reduction, and productivity improvement. They further highlighted the potential problem area during reengineering implementation to include the people issues and over-reliance on IT based technology hence, Neghab et al., (2009) provided a quantitative model to evaluate the organizational capability for BPR with respect to organizational culture.
Brandon, Bransford, Guimaraes and Tor (1999), asserted that absence of established BPR theory capable of producing a result significant for business practice has led to a model based on developed constructs. They added that organizations were not emphasizing some of the most important goals and objectives recommended in reengineering literature. They argued that the lack of organizational emphasis to achieve the desired objectives is the major reason for many reengineering projects not having been fully accomplished.
Therefore, reengineering has become the weapon for corporate organizations that are seeking for improvement in their performance and intent on achieving cost leadership strategy in its operating industry and environment. Ozcelik (2009) found that functionally focused reengineering projects, on average; contribute more to performance than those with broader cross-functional scope.
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CHAPTER 3 INFORMATION TECHNOLOGY CAPABILITY
Introduction This part provides a review of IT capability literature starting with the IT capability concept and measurement; role of IT capability in business process operations of banks, IT capability as moderating variable, dynamic capability, RBV perspectives and relationship in this study. Among the IT dimensions of IT capability are IT knowledge and IT operation (Bhatt & Grover, 2005; Tippins & Sohi, 2003).
Definition and concept of IT capability The concept of IT capability was introduced by Ross, Beath and Goodhue (1996), who defined IT capability as the firm’s ability to assemble, integrate and deploy IT based resources. Heijden (2000) pointed out that the measurement of IT capability covers relationships in the IT department with the rest from the business. Bharadwaj (2000) broadened the explanation of the accepted views of organizational IT capabilities to an organization’s IT function. Bharadwaj (2000) defined IT capability as the ability of a firm to mobilize and deploy IT based resources in combination with other resources and capabilities. Those IT-based resources is IT enabled resources (consist of technical and managerial IT skills); intangible IT-enabled resources (such as knowledge, assets, customer orientation) and synergy – the sharing of resources and capabilities across organizational divisions. Therefore, capabilities reflect the ability of the firms to combine resources to promote superior performance (Amit & Schoemaker, 1993).
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Tippins and Sohi (2003) defined IT capabilities as the extent to which an organization is equipped with IT objects, IT knowledge as well as effective IT operations. A high level of IT knowledge enables the smooth implementation of the organization’s strategy, develops reliable and cost effective systems within the organization, and anticipates customer needs (Bhatt & Grover, 2005). Clark (1997) noted that IT experienced in combination with other IT elements directly determines an organization’s ability to rapidly develop and deploy more innovative techniques to enhance performance.
Researchers and practitioners have addressed a variety of IT-related variables. For example, Li et al. (2006), and Tippins and Sohi (2003) classified IT capability into three dimensions: IT knowledge, IT operations and IT objects. A highly skilled project team should be much better equipped to manage the project of knowledge management. Human IT resources include technical IT knowledge. IT knowledge concerns the extent to which a firm possesses a body of technical knowledge about objects, such as computer-based systems (Tippins & Sohi, 2003). IT knowledge encompasses professional qualification, expertise and skills, such as programming, systems analysis and design, and competencies in emerging technologies. IT operations include IT functions, coordination and interaction with user community. Hence, IT operations were conceptualized as the extent to which an organization utilizes IT to manage market and customer information. The computer-based hardware, software and support staff is referred to as the objects.
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The role of IT capability in improving performance
The role of IT capabilities in enhancing organizational performance is well established in the literature. Various IT studies suggested that IT capabilities provide a basis of gaining competitive advantage and enhancing organizational performance (e.g., Santhanam & Hartono, 2003; Bhatt & Grover, 2005). An extensive body of IT capability's literature agrees that IT capabilities are resources to facilitate an effective collection and utilization of information (e.g., Bharadwaj, 2000). Floyd et al., (1990) contend that IT capabilities enhance service reliability, reduce transaction errors and increase consistency in performance. Further contentions are that capabilities can contribute to enhancing service quality through better customized or individualized services, and in creating knowledge links for identifying and sharing organizational expertise (Quinn et al., 1994).
Tippins and Sohi (2003) argued that an IT capability, which is in a form of IT competency, enhances performance through an elimination of inefficiency, reduction of long-term cost, improve service reliability and reduce transaction errors. Bharadwaj (2000); Ross, Beath and Goodhue (1996); Li, Chen and Huang (2006) focus on the importance of IT capability as well as the relationship between IT spending (IT investment) and productivity/performance with the moderating effect of IT capability. IT capabilities by themselves are ineffective at providing a basis for sustainable competitive advantage because the capabilities can be duplicated. Thus, the impact of IT on firm’s performance cannot be measured directly, but can only be quantified by examining the indirect effect.
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In this study, the term IT capability is adapted from the study conducted by Tippins and Sohi (2003). The study used IT knowledge, IT objects and IT operations among the dimensions of measuring IT capability. The BPR factors encompass both tangible and intangible elements of resources. Therefore, this study uses IT knowledge and IT operation as the main components of measuring IT capability. The third component IT object was taken care in IT infrastructure is part of BPR factors as an intangible resource. These dimensions demonstrate co-specialized resources in that firms cannot utilize the IT architecture effectively without sufficient knowledge and operations.
Therefore, IT capability can provide the ability to understand the existing operations. It is also one of the most considered in bringing changes into the business process. Michael Hammer recommends companies to redefine their process first and then automate. IT can play a critical role in the development of BPR efforts, as follows:
1. IT makes it possible to use new ideas and higher standards of technology in order to develop a strategic vision and help to make the business process better before it is designed. 2. The communication technology through IT capabilities helps in breaking down geographical and organizational barriers that make the acceptance of process change and provide a useful understanding of a company’s strengths, weaknesses, opportunities and threats. IT also helps to track information.
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3. For a firm to manage a process that can be adapted from other company's practices outside its industry. The company should combine its team members experience to set a standard that other companies can be compared with. 4. IT staff needs to broaden their knowledge in non-technical areas to achieve effective teamwork in an organization. 5. In order to have a flexible organisational design the firms existing difficult structures must be changed to ensure the operation of BPR cross-functional teams against departmental activities. 6. To gain market share and achieve a competitive advantage, the agreement between companies and collaboration between suppliers and distributors takes place at the initial stage of BPR before process design.
The contradictory role of IT as an enabler in BPR One of the most straightforward assertions about BPR is that IT is a key enabler of the process redesign. It is IT that permits companies to re-engineer business processes; a company that cannot change the way it thinks about IT cannot reengineer (Hammer & Champy, 1993). Most other BPR proponents also adopt an essentially technical model of organizational change in which IT basically drives the re-engineering effort (Grey & Mitev, 1995; Jones, 1994). These arguments acknowledge the technological determinism inherent to BPR; technology determines not only the work structure, but also the organizational structure, culture, management styles, and beliefs (Grey & Mitev, 1995).Thus, out of fashion, organizational designs can be changed through the use of advanced, enabling
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technologies that support new business processes that respond to changing market needs.
However reasonable and straightforward this argument seems; it has also become a source of controversy. Rather than being a simple enabler of new organizational processes. IT can also disable an organization’s ability to change. When an organization revises its basic business processes using IT, it introduces a new structure that may become even more difficult to change in the future. Since the technical backbone of automated processes exists as software routines, a later change in the process will require a reconstruction of the software application and its various links to other systems. While all changes require reprogramming of some sort, either to human or machine components, software programs are often virtually inaccessible to the persons nearest to the application.
Given the inevitability of business change, hard-wired business processes that are built today may seriously constrain later efforts to redesign them. BPR may have already produced the organizational structures and processes that will be considered old-fashioned tomorrow, and those processes may be more difficult to change because today’s software conventions will probably also be considered out of fashion tomorrow. Lucas and Olson (1994) provided a clear analysis of this inconsistency in their examination of IT’s effects on organizational flexibility. They argued that technology provides the capability for more flexible organizational structures by allowing a greater variety at the time and place of work while increasing the speed of response.
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However, they note that IT also constrains flexibility by embedding routines into software programs that are not easy to change. Resolving the contradiction of IT as an enabler or not in BPR is not easy. Gill (1995) argued that managers should not over program their organizations in search of dramatic productivity gains but to ensure greater flexibility. Lucas (1996) recommends a commitment to continuous investment in new technology, thereby keeping any programmed routines from becoming hardened in the organization.
IT capability measurement
The measurement of the IT capability in this study is based on IT knowledge (skills) and IT operations (Tippins & Sohi, 2003). The measurement concepts are defined as follows:
IT knowledge
Knowledge is information combined with experience, context, interpretation, and reflection that an organisation possesses that is difficult to be measured (Davenport, De Long, & Beers, 1998). IT Knowledge is defined as a set of principles and techniques useful to bring about change towards desired goals. In this study, IT knowledge is referred as the extent to which organisation acquires a body of technical knowledge about infrastructure or objects such as a computer-based system. Technical knowledge could be expressed as contextually based to know how. IT knowledge is distinguishable as a subset of the more general conception of knowledge. 74
Additionally, employees can be encouraged to adapt to the new IT, assimilate IT knowledge and apply it in their daily routine, which is beneficial to the improvement of organizational performance (Shao et al., 2008). According to the knowledge-based view (KBV), systems of knowing refer to structures of interaction among team members for sharing their perspectives, pooling of knowledge, and development of shared understanding. It is suggested that systems of knowing provide forums for top management team members who exchange their strategic IT and business knowledge, and blend them together to foster higher levels of IT diffusion within the organization. In this study, IT knowledge was measured based on: 1) IT knowledge among the operation's staff, 2) the staff of IT department are qualified for the job, 3) professional qualification of the IT network engineers, 4) the calibre of computer expertise hired as an organization consultant, 5) the proactiveness of the IT staff for innovation and product development, 6) the IT staff attends training courses regularly.
IT operations
Technical operations, or techniques, made of activities that are undertaken in order to achieve a particular goal. Technical operations are a manifestation of technical knowledge that results in technical operations or skills. For this study, IT Operations are the extent of activities within the organization that utilizes IT to manage market and customer information required to meet goals. These activities are underpinned by skills that encapsulate the knowledge within the firm. When IT operations are able to monitor and manage IT resources and services from a real-
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time business outcome perspective, it can align IT operations with business priorities. As a result, IT operations can streamline business processes and optimize resources to help manage costs, increase efficiency to manage productivity and increase revenue, and help ensure service availability to enhance customer satisfaction, rather than simply focus on technology.
IT operations can translate raw IT monitoring data into a useful business impact analysis. IT operations should be able to: 1) link branch's operation through WAN to the central office; 2) the organisation technology based links via LAN is efficient 24/7; 3) Measure the effectiveness of service's providers for availability network connection link and minimal down time on the system such as payment processing response time); 4) the organization has computerise all operational processes 5) the IT policy is in line with regulatory guideline and 6) The organization IT operations monitor customer activities. Table 7 provides a summary of some selected previous studies of the relationship between IT and organisational performance.
IT has been studied for its role in creating both initial competitive advantage and long-term sustained competitive advantage (e.g. Barney, 1991; Feeny & Ives, 1990). Powell and Dent-Micallef (1997) found that IT alone cannot produce a sustained
competitive
advantage,
but
to
leverage
on
other
intangible,
complementary human and business resource to gain sustained competitive advantage. From RBV perspective, IT-related advantages may result from development of capabilities that other competitors find difficult to copy.
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Table 6 Summary of Some Selected Previous Studies on IT and performance Authors Input Output Findings Aral & Weill IT Market valuation, IT investments only lead to (2007) investment Profitability, cost performance if IT investments are allocation innovation consistent with the firm's strategy. Furthermore, firm's IT capabilities enhance the effect of IT assets and broaden the impact. Bartel, IT Productivity growth Service Assurance in a valve Ichniowski, investment (operational efficiency manufacturing plant, IT investment & in leads to increase in performance of Shaw (2007) Manufacturing plant), the great number of products. number of customized. Furthermore, the IT related new products machines required labor with higher skill levels of specialization. Barua et al. (1995)
IT capital
Measures of operational Performance (Capacity utilization, inventory turnover, inferior quality, relative price, ROA and market share
Bharadwaj (2000)
IT capital
ROA, COGS/Sales, SG&A/Sales, OPEXP/Sales
Bharadwaj et al. (1999)
Market valuation of IT investment
The ratio of the market The coefficient on IT spending value of a firm's assets ranges between 1.7 to10.3 in five, to the replacement cost single year regressions. of those assets. Market value of a firm's
Bresnahan, Brynjolfsson, & Hitt, (2002
Labor, IT Sales-material billed Capital, NonIT capital
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IT investments affect intermediate measures such as inventory turnover but there is no evidence as to the benefits for the firm performance as measured by ROA.
ROE, Increasing IT capability increases a firm's competitive advantage. High IT capable firms have higher profitability ratios and lower OPEXP/Sales in all four years that the study covered. COGS/Sales were found to be lower in two out of four years.
The combination of three related innovations- 1) information technology (IT), 2) complementary workplace reorganization, and 3) new products and servicesconstitute a significant Skill-based technical change affecting labor demand in the United States.
Table 7 (Continued) Authors Brynjolfsson and Hitt, (2000)
Input IT investment
Output Labor productivity, MFP growth
Findings IT investment increases both labour productivity and MFP growth. Specifically, the impact of IT investment on MFP growth is maximized after a lag of 4 to seven years.
Brynjolfsson& Yang, (1999)
Market value of computer capital
Market capitalization
One dollar of computer capital is valued at ten times one dollar of conventional capital.
Brynjolfsson et al. (2000)
IT investment
Market capitalization
Spending on IT brings about the increase in the market value of the firm. Market valuation effects are greatest for firms that have high levels of investment in both IT and organizational capital.
Brynjolfsson& Hitt, (2003)
IT Stock
MFP and output contribution in shortterm and long-term years
Chari, Devaraj, & David, (2007 Chatterjee, Pacini, & Sambamurthy, (2001)
IT investment
Performance (Tobin's q)
In short-run, the returns on computer investment are comparable to the cost, while in long-run the return is not only the output but also the MFP. IT investment enhances the firm's performance related to international diversification.
IT investments in infrastructure IT applications IT investment announcement
Stock returns and. IT investment announcement
Investments in IT infrastructure are more likely to capture a competitive advantage over the firm compared to the investments in IT applications.
Share price reaction
IT investment
Firm performance
Letwongsatien (2001)
The effect of IT management
Firm performance
Santhanam & Hartono, (2003)
IT capability on firm Performance
Wade Hulland (2004)
The resourcebased view and information systems research
There are significant abnormal returns on stock value and trading volume associated with IT investment announcement. IT investment coupled with the BPR positively and significantly impacts performance. The effect of capabilities on the higher level of firm competencies which are directs responsible for firm performance. The study confirms Bharadwaj (2000). Furthermore, found that firm with superior IT capability shows superior firm performance. Literature review on application of RBV in information system research
Chatterjee, Pacini, & Sambamurthy (2002) Devaraj & Kohli (2002)
&
IT capability organizational performance
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and
Table 7 (Continued) Authors Nakata & Zhu (2006)
Input IT customer orientation
Output IT capabilities and customer orientation
Findings The study found that IT capability can help firm to be more customers focused.
Song, Benedetto & Nason (2007)
Capabilities and financial performance: the moderating effect of strategic type
IT capability and financial performance
The study found that IT capability increase financial performance.
Table 6 shows the recent studies on IT capabilities performed on the basis of RBV both direct (e.g., Bhatt & Grover, 2005; Powell & Dent-Micallef, 1977). In a valve manufacturing plant, IT investment leads to increased productivity of products. Furthermore, the IT related new machines required labor with higher skill levels and specialization (Bartel, Ichniowski, & Shaw 2007). IT investments only lead to performance if IT investments are consistent with the firm's strategy. Firm's IT capabilities enhance the effect of IT assets and broaden the impact (Aral & Weill, 2007). IT investments affect intermediate measures such as inventory turnover but there is no evidence as to the benefits for the firm performance as measured by ROA (Barua et al. (1995). IT investment increases both labour productivity and MFP growth. Specifically, the impact of IT investment on MFP growth is maximized after a lag of four to seven years (Brynjolfsson and Hitt, 2000). IT investment enhances the firm's performance related to diversification (Chari, et al., 2007). Investments in IT infrastructure are more likely to capture a competitive advantage to the firm compared to the investments in IT applications Chatterjee, et al., 2001). There are significant abnormal returns on stock value and trading volume associated with the IT investment announcement Chatterjee, et al., 2002).
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On the indirect relationship between IT capability and firm performance Pavlou & El-Sawy, (2006); Tippins & Sohi, (2003) views the linkage between IT capabilities and firm performance increasing. IT capability increases as a firm's competitive advantage improved. High IT capable firms have higher profitability ratios and lower operational cost (Bharadwaj, 2000). The effects of capabilities on the higher level of firm competencies are directs, responsible for firm performance (Letwongsatien (2001). The study confirms Bharadwaj (2000). Also, found that firm with superior IT capability shows superior firm performance (Santhanam & Hartono, (2003). IT capability can help firm to be more customers focused (Nakata & Zhu 2006) and increase financial performance Song et al., 2007).
IT service capability maturity model
According to Niessink, Clerc and Vliet (2004), the IT Service capability maturity model consists of five (5) maturity levels, which contain key process areas. For an organization to reside on a certain maturity level, it needs to implement all the key processes for that level and lower levels. The main focus is the maturity of the service organization, not the maturity of individual services, projects or organizational units. The model covers the service-delivery process with primary objectives:
1. To enable IT service providers to assess their capabilities with respect to the delivery of IT services. 2. To provide IT service providers with direction and steps and further improvement of their service delivery.
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The IT Service CMM fulfills the above objectives by measuring the capability of the IT service processes of organizations on a five level ordinal scale. Each level prescribes certain key processes that have to be in place before an organization resides on that level. Key processes implement a set of related activities that, when performed collectively, achieve a set of goals considered important for enhancing service process capability. Hence, organizations can improve their service capability by implementing these key processes. More formally, we define the IT service process capability as the range of expected results that can be achieved by following a service process. IT service process performance represents the actual results achieved by following an IT service process. The IT service process maturity is the extent to which a specific process is explicitly defined, managed, measured, controlled and effective. The IT Service CMM focuses on measuring and improving the IT service process maturity of IT service organizations. An organization that scores high IT Service CMM scale will be able to:
1.
Deliver quality IT services, tailored for the needs of its customers.
2.
Do so in a predictable, cost-effective way
3.
Combine and integrate different services, possibly by different service providers, into a consistent service package.
4.
Continually improve service quality in a customer-focused way.
In order to understandIT S-CMM, it is necessary to see the definitions of the various levels and to understand the structured nature of these definitions. The five levels of the IT Service CMM are shown in Table 8.
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Table 7 Five Levels of the IT Service Capability Maturity Model Level Optimizing Managed
Management Process Change Management Quantitative Process Management
Enabling Technology Change Management
Delivery Problem Prevention Service Quality Management
Service Delivery
Financial Service Management Defined
Integrated Service Management
Organization Process Focus Organization Service Definition Organization Process Definition Training Programme Intergroup Coordination Resource Management Problem Management
Repeatable
Service Commitment Management Service Delivery Planning Service Tracking and Oversight Subcontract Management Ad-hoc processes
Configuration Management
Initial
Service Request and Incident Management Service Quality Assurance
The key process areas are grouped under three process categories:
1.
The first group concerns the management of services.
2.
The second category deals with enabling the delivery process by support processes and standardization of processes.
3.
The third category consists of the processes that result in the consistent, efficient delivery of services according to the appropriate quality levels.
The key process areas on the IT Service CMM
For an organization to reside on a certain maturity level, it needs to implement all key processes for that maturity level – and those for lower levels. The term key
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process merely means that these processes are seen as the key to reach a certain maturity level. There might be more – non-key – processes, but these are not strictly necessary to reach the next maturity level. Below we present the key process areas for each of the maturity levels of the IT Service CMM:
Initial level
The IT service delivery process is characterized as ad-hoc and occasionally even chaotic. Few processes are defined, and success depends on individual efforts or heroics.
Repeatable level The basic service management processes are established. The necessary discipline is in place to repeat earlier successes on a similar service with similar service levels. The seven key process areas of the S-CMM at the Repeatable level are: 1. Service commitment management The main purpose of Service Commitment Management is to ensure that the service commitments between the service provider and customer, and, hence, the actual services delivered, are based upon the IT service needs of the customer. The service commitments specify (among other things) the results from the services to be delivered. These results should contribute to fulfill (parts of) the IT service needs of the customer. The activities within this key process area are targeted at ensuring that the service commitments are based on the IT service needs, and stay in line with possibly changing IT service needs. This is
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enforced by periodic and event-driven evaluations of the service commitments with respect for the IT service needs, and by periodic and event-driven evaluations of the actual services delivered.
Service delivery planning The key process area Service Delivery Planning has as its main purpose to plan the delivery of services specified in the service commitments. The servicedelivery planning includes the planning of service delivery activities and other service-related activities, estimation of resources needed, expected workload, effort and costs; the service-delivery schedule; identification of risks, and plans for service facilities and support tools. In addition, planning data needs to be recorded so that it can be used in the planning of future services.
2. Service tracking and oversight The main purpose of the Service Tracking and Oversight key process area is to provide information about the actual service delivery. This information is to be used to report actual service levels to the customer and to monitor the actual service delivery and take corrective actions as soon as possible.
Subcontract management The key process area Subcontract Management describes the activities that a service provider – the prime contractor– should implement when (part of) a service, to be delivered to a customer of the prime contractor, is subcontracted to a third party – the service subcontractor. The prime contractor and the service subcontractor negotiate service commitments between each other. The
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prime contractor remains responsible for the service to be delivered to the customer.
Configuration management The main purpose of the Configuration Management key process area is to establish control over all IT components that are needed to deliver the services.
Service request and incident management The main purpose of the key process area Service Request and Incident Management is to identify record, track, analyses, and resolve service requests and incidents that occur during service delivery. Both service requests and incidents are events that – if not resolved – eventually will cause the IT service provider to break its service commitments. Service requests are requests by the customer for certain service activities to be performed. Note that these activities should fall within the bounds of the service commitments.
For example, the customer asks for an extra workplace to be installed. Incidents are events that need to be resolved in order to meet the service commitments. For example, if a system goes down it has to be restarted before the maximum downtime is exceeded. Service requests and incidents are always concerned with one or more IT components.
Service quality assurance The main purpose of the key process area Service Quality Assurance is to provide management with the appropriate visibility into the processes being used, and the services delivered. The independent service quality assurance
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group reviews and audits working procedures, standards, and service delivery activities to see that they comply with the applicable procedures and standards. The results of these reviews and audits are reported to the involved groups and individuals and to senior management. Senior management is responsible for acting upon the results from the service quality assurance activities.
Defined level
The IT service processes are documented, standardized, and integrated into standard service processes. All services are delivered using approved, tailored versions of the organization’s standard service processes. At level three, an organization standardizes its processes and uses tailored versions of these standard processes to deliver the IT services. This results in more predictable performance of the processes, and, hence, it increases the ability of the organization to draw up realistic service level agreements. Each of the levels three key process areas fall into one of the three process categories: management, enabling or delivery.
The first category – service management – is concerned with the tailoring of the standard service processes to the customer and the service level agreement at hand. Furthermore, the actual service processes need to be integrated with each other and with the third party service processes (Integrated Service Management).
The second category – enabling – deals with making standard processes available and usable. The organization develops a set of standard services and describes these services in the service catalogue (Organization Service Definition). The
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organization develops and maintains standard processes for each of these standard services. Usually, organizations will provide several services to one customer at the same time. Hence, not only the service processes them, but also the integration of these processes has to be standardized as much as is feasible (Organization Process Definition). To coordinate process efforts across services and organizational units and over time, organizational support is institutionalized (Organization Process Focus).
In addition, to teach people how to perform their roles and how to work with the standards, a training program needs to be put in place (Training Programme). Furthermore, means are established for the different groups involved in the service delivery to communicate efficiently and effectively (Intergroup Coordination). The underlying problems of events occurring during different service deliveries are analysed (Problem Management) and resources are negotiated before making service commitments, and monitored during the service-delivery resources management. The third category – service delivery – concerns the actual delivery of the services from the customer using the tailored service processes (Service Delivery). The level three key process areas are described as follows:
Organization service definition Purpose: Develop and maintain a set of standard services in the organization and collect information related to the delivery of these standard services. The description of the standard services is called a service catalogue. This service catalogue contains a specification of the services in terms of benefits for the customer. The service catalogue also includes the service levels that the
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provider can guarantee and the price of the services. The decision as to what service to include in the catalogue is based on issues external to the IT Service CMM, such as marketing research or contractual obligations (in case of inhouse IT service providers). The service catalogue is continuously updated with experience from the actual delivery of services.
Organization process definition Purpose: Develop and maintain a usable set of service process assets that improve the process performance across services, and provide a basis for cumulative, long-term benefits to the organization. This key process area covers the actual development and maintenance of the standard process used to deliver the services defined in the service catalogue.
Organization process focus Purpose: Establish organizational responsibility for service process activities that improve the organization’s overall service process capability. This key process area covers the activities needed to assess, develop, maintain and improve the organization’s service processes, which are resources and coordinated across current and future services. A process improvement group is established to coordinate the service process activities.
1. Integrated service management Purpose: Integrate the service and management activities into a coherent, defined service process that is derived from the organization’s standard service process. The service planning is based on this tailored service
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process and describes how its activities will be implemented and managed. The service planning takes the organization-wide capacity and availability of resources into account. Cooperation is planned with third parties that also deliver IT services or products to the customer. Note that these third parties can be external providers or organizational units of the customer itself. An example of this could be the customer having their own helpdesk, which relays reports of hardware failure to the service provider. Procedures need to be put in place concerning how these reports will be delivered to the service provider and whether the helpdesk or the service provider will inform the user of the status of the report. An example that involves coordination with third parties that deliver products to the customer is software development. Suppose a third party is developing software to the customer who is to be managed and maintained by the service provider. Involvement of the service provider in the development process can ensure that maintenance and management of the software is being sufficiently taken into account during development.
2. Service delivery Purpose: Consistently perform a well-defined service delivery process that integrates all service-delivery activities to deliver correct, consistent IT services effectively and efficiently. Service Delivery involves the performing of service delivery activities using a tailored version of the services defined service processes (which is the output of the Integrated Service Management key process area). Because the service activities
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depend on the particular services being provided, there is no fixed list of activities to be performed.
However, all services should perform the activities as defined as the level two key process areas. The list of activities will be filled in depending on the services at hand. For example, in the case of software maintenance, the general service activities will be extended with the software engineering tasks mentioned in the key process area Software Product Engineering of the Software CMM.
3. Inter group coordination Purpose: Establish means for communication between the different groups involved in delivering the service to the customer.
4. Training program Purpose: Develop the skills and knowledge of individuals, so they can perform their roles effectively and efficiently. Because a level three organizations use standard processes, it is necessary to train employees to perform their roles. This is impossible at level two, since standard organization-wide processes are not yet in place.
5. Resource management Purpose: Control of the resources (hardware and software) needed to deliver the services is maintained. Before commitments are made to customers, resources are checked. If not enough resources are available, either the commitments are adapted or extra resources are installed.
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6. Problem management Purpose: Remove problems from the IT that is managed, maintained or operated by the service provider. This key process area implements the organization-wide investigation of events and weak spots that occur during service delivery. Practices like root-cause analysis are used to determine underlying problems. Problems are solved by changing the infrastructure, the processes or the training.
Managed level
Detailed measurements on the IT service delivery process and service quality are collected. Both the service processes and the delivered services are quantitatively understood and controlled. At a level four, organizations gain a quantitative understanding of their standard processes by taking detailed measures of service performance and service quality (Quantitative Process Management) and by using these quantitative data to control the quality of the delivered services (Service Quality Management). There are two levels and four key process areas:
1. Quantitative Process Management Purpose: Control the process performance and costs of the service delivery quantitatively.
2. Service Quality Management
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Purpose: Develop a quantitative understanding of the quality of the services delivered and achieve specific quality goals.
Optimizing level
Continuous process improvement is enabled by quantitative feedback from the processes and from piloting ideas and technologies. At level five, service providers learn to change their processes to increase service quality and service process performance (Process Change Management). Changes in the processes are triggered by improvement goals, new technologies or problems that need to be resolved.
New technologies are evaluated and introduced into the organization when feasible (Technology Change Management). Problems that occur are prevented from recurring by changing the processes (Problem Prevention). The level five key process areas are:
1. Process Change Management Purpose: Continually improve the service processes used throughout the organization with the intent of improving service quality and increasing productivity.
2. Technology Change Management Purpose: Identify new technologies and inject them into the organization in an orderly manner.
3. Problem Prevention
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Purpose: Identify the cause of problems and prevent them from recurring by making the necessary changes to the processes.
IT capability as the moderating variable
A moderator is a subjective (e.g., level of reward) or objective (e.g., sex, race, class) variable that affects the direction and/or strengthens the relationship between an independent or predictor variable and a dependent or criterion variable (Baron & Kenny, 1986). Understanding the moderating effect of the relationship between CSFs of BPR and organisational performance is critical. In organisational performance-related studies, several moderating variables were examined such as time period, industry type, and firm size (Lim, Richardson, & Robert, 2004). Various studies, such as Bharadwaj, (2000); Bhatt and Grover, (2005); Santhanam and Hartono, (2003) argued that IT capabilities enhance organizational performance by providing a basis of gaining competitive advantage. Furthermore, the study of Lim et al. (2004) viewed IT capability as the ability to mobilize and deploy IT based resources that are not directly affected by the investment.
Similarly, Yongmei, Hongjian and Junhua, (2008) argued that, to some extent, the influence of IT investment on tangible and intangible IT resources that affect firm performance is moderated by IT capability. This means no matter amount spent by a firm on IT. Remarkable performance can only be achieved by evolving IT capability. IT capability serves to moderate the relationship between IT resources (human and IT enabled intangible's resources) independent variables and performance. Lin, (2007) argued that IT capability forms the basis of competition
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for firms in information-intensive industries like retailing, banking and high-tech manufacturing. These results confirm the RBV that firms compete based on distinctive core competencies and resources that are valuable, rare, difficult to imitate, and non-substitutable by other resources.
The review of previous studies that focus on a direct relationship between IT, and organizational performance fail to consider those intervening firm capabilities that are improved by IT and, which are true facilitators of performance improvement (Tippins & Sohi, 2003). Other studies have relied on the erroneous assumption that adoption of IT would improve performance (Dewett & Jones, 2001). While IT can improve efficiency, it may not provide the competitive advantages, because the same technology could be adopted by competing organizations. Therefore, Tippins and Sohi (2003) proposed that IT-related benefit can only be realized when the organization develops IT competency and then uses it as a set of co-specialized resources to leverage other complementary resources. Empirical studies include Yongmei, Hongjian and Junhua (2008) who suggested that IT capability was an important moderating variable linking IT investments to firm performance. The model and hypotheses are verified by sample data from leading IT firms in China. Similarly, said, et al., (2009) found that IT capability moderates the relationship between customer-focused strategies and organizational performance by providing a justification for LGAs to invest in terms of resources and commitment, in adopting CF-strategies and IT.
In addition, Shao, Feng, Choudrie and Liu (2010) examined the moderating effect of chief information officers’ (CIO’s) competence on IT investment and
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organization performance. The study re-conceptualized CIO’s competence into six sub-dimensions (includes interpersonal communicative ability, political skills, dynamic leadership, strategic IT knowledge, business knowledge and IT management experience) based on RBV and KBV to explain the phenomenon of the IT productivity paradox. Moreover, Huang et al. (2009) argued that the empirical evidence of Italian banks suggests that the development of IT capability, such as creating an Intranet to serve as a repository and communication tool, can support the redefinition of the overall strategy of the bank. Furthermore, cultural integration of the branch network and a life-long training process can be conducted to sustain the banks' large-scale network (Canato & Corrocher, 2004). Although the financial service industry is one of the early adopters of new information technologies, the effect of IT capability on firm performance is inconclusive in the service sector in general, which is contrary to its manufacturing counterpart (Brynjolfsson, 1993).
Previous studies that examined the relationship between resources (tangible and intangible) and performance includes: e.g., Weber & Pliskin, (1996); Bharadwaj, Bharadwaj, Konsynski, (1999); Terziovski et al., (2003); Szanto, (2005), while, competitive advantage of IT capability was examined by authors like Banker & Kauffman(1991); Bharadwaj, (2000); Floyd & Woolridge, (1990); Mahmood, (1993); Mahmood & Mann, (1993); Brynjolfsson, (1993); Chan, (2000) who reviewed some literature for the study of the effect of IT capability on productivity. They posited that little evidence was available regarding the payoff from IT capability in terms of performance or other related outcomes and produced some inconsistent results. Such inconsistent findings could be further understood with the
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introduction of a moderator variable. In the same vein, Li et al., (2004) argued that IT capability is a moderator than a mediator based on RBV theory of firm performance, since the definition of IT capability means the ability to mobilise and deploy IT based resource, which is not directly affected by IT investment. The effect of IT capability on firm performance has been verified in many studies (Bharadwaj, 2000; Bharadwaj et al., 1999; Santhanam & Hartono, 2003). According to Baron and Kenny (1986), moderators are often introduced when the relationship between the predictor and outcome is unexpectedly weak or inconsistent. The relationship can be demonstrated as shown in Figure 5.
DV
IV
Moderator Variable
Figure 5: Graphical Presentation of a Moderated model In this study, IT capability is introduced as a moderating variable in order to examine the form and/or magnitude of the relationship between BPR factors and organizational performance of Nigerian banks. Hence, this gives way to validate the model in the banking sector.
However, a mediator specifies how a given effect occurs. Sekaran (2003) stated that an intervening variable is one that surface between the time the independent
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variables operate to influence the dependent variable and their impact on the dependent variable. The relationship can be presented as shown in Figure 6.
Mediator Variable
IV
DV
Figure 6: Graphical Presentation of a Mediated model
Baron and Kenny (1986) and Judd and Kenny (1981) have discussed four steps in establishing mediation:
Step 1: Regressing the mediator on the independent variable (the independent variable must affect the mediator. Step 2: Regressing the dependent variable on the independent variable (the independent variable must be shown to affect the dependent variable. Step 3: Regressing the dependent variable on both the independent variable and on the mediator (the mediator must affect the dependent variable. Step 4: To establish that the mediator completely mediates the independent (X) – dependent (Y) relationship, the effect of the independent variables on the dependent variable controlling for the mediator should be zero (full mediation) or become significantly smaller (partial mediation). The effects in both steps 3 and 4 are estimated in the same regression equation.
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CHAPTER 4 UNDERLYING THEORIES There are numbered of theoretical approaches for examining firm resources and business values (performances). The principal theories are transaction cost economics (Williamson 1971, 1981, 1986), the RBV (Wernerfelt 1984; Barney 1986, 1991; Deirickx and Cool 1989) and the relational view (Dyer and Singh 1998) of the firm. In addition, the concepts of dynamic capabilities (Teece and Pisano 1994; Teece et al. 1997), absorptive capacity (Cohen and Levinthal 1990), complementary (Teece 1986) and strategic assets (Amit and Schoemaker 1993), and value chain analysis (Porter 1985) as well as Teece’s (1986) analyses of the appropriability regime are all helpful.
Resource-based view (RBV) theory RBV asserts that organizations can outperform their competitors through developing resources that are unique and diversely distributed (Barney, 1991). These differences lead to variations in firm performance among firms in similar industries (Peteraf, 1993). However, the RBV is voided of a single definition of the term resource (Wade & Hulland, 2004). Many researchers use the term's resources and capabilities interchangeably (Christensen & Overdorf, 2000; Gold et al., 2001).
RBV defines resources as assets, processes, and capabilities. Barney (1991) asserted that firms achieve sustained performance advantages by securing rare resources of economic value that competitors cannot easily copy, imitate, or substitute. As such, firms with these rare resources should be able to leverage them for their own unique firm benefit. A more complete definition of resources is
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offered by Amit and Schoemaker (1993), who suggested that resources were assets that are possessed by a firm through ownership or control, while capabilities refer to an organization's capability to combine resources and adequately exploit them, such as leverage skilled staff and organizational practices to create a uniquely innovative work culture where employees outperform their competitors.
Table 9 summaries, the relevant theories and their implications for the innovative firm with respect to each of the functions as the model defined by Chesbrough and Rosenbloom. There is no single one for one mapping of the theories about the model functions. Rather, there is a good deal of overlap between the key theories and the functions.
Table 8 Summary of Various Relevant Theories of the Firm Performance and their Implication Model Value proposition
Market segment and revenue model
Value chain
Cost structure and profit potential
Relevant Theories RBV
Implications Offering based on value derived from strategic assets/ core competences.
Relational view/appropriability regime RBV
Value proposition designed to avoid appropriability problems. Market segment chosen follows the value proposition to gain maximum value from strategic assets.
Relational view Transaction cost economics
Revenue model designed to gain economic share of relational rents. Optimise level of vertical integration
RBV
Identify a need for complementary assets
Value chain analysis Relational view
Comparative efficiency of individual activities Profit dependents on share of value
Value chain analysis
Comparative efficiency of individual activities
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Continued Table 9: Summary of Various Relevant Theories of the Firm Performance and their Implication Model Value network
Competitive strategy
Relevant Theories Transaction cost economics
Implications Cost and risk reasons for alliance formation
RBV
Access complementary assets
Dynamic capability
Adjust (build/acquire) external competences environments.
Absorptive capacity
Increase's capacity within the firm to gain from alliances
RBV
Development of strategic assets
Appropriability regime
Decision to access complementary assets.
Relational view
Preserve adequate share of relational rents
Transaction cost economics
Considerations of transaction integration versus contract or alliance
internal and to dynamic
or
acquire
The RBV suggests that the value proposition would be based on the most costly offering that the firm can make in accordance with its crucial assets. The relational view suggests that the offering will not be the product of a single firm but be a joint product developed by the alliance or value network. Any relational rents generated will need to be shared between the participants of the alliance or network. The market segment is substantially decided by the value proposition which targets the firm’s offering to a particular group of consumers.
On the other hand, transaction cost economics would be concerned with opportunism and asset specificity in predicting whether such assets would be accessed through alliances or integrated. Value chain analysis would suggest that
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the efficiency of activities in the value chain would deliver competitive advantage through lower cost structure and therefore, higher profit potential.
The empirical test of RBV theory started in the field of strategic management (e.g., Mahoney & Pandian, 1992) and was followed by studies in other management disciplines (e.g., Barney, 2001; Fahy & Smith, 1999; Foss, 1998; Priem & Bulter, 2001) including information systems (e.g., Bharadwaj et al., 1998; Ray et al., 2004; Ravichandran & Lertwongstien, 2002; Santhanam & Hartono, 2003). Bhatt and Grover, (2005); Tippins and Sohi, (2003) started to include IT capabilities in their IT studies and explored the link between various dimensions of IT, such as IT capability, IT infrastructure and IT business experience on organizational performance. The findings from their study showed that IT capabilities enhance organizational performance (e.g., Bhatt & Grover, 2005; Powell & Dent-Micallef, 1997; Santhanam & Hartono, 2003). In addition, findings from IT study conducted by researchers, such as (Adam, 1993; Bharadwaj, 2000; Floyd & Wooldridge, 1990; Quinn et al., 1994; Santhanam & Hartono, 2003) revealed that IT capabilities provided a basis of gaining competitive advantage and enhance organizational performance.
The RBV literature points out that firms could obtain a sustainable competitive advantage as the basis of unique corporate resources that are valuable, rare, difficult to imitate, and non-substitutable by other resources (Barney, 1991; Conner, 1991). RBV also recognizes that while some resources may lead to performance enhancements, others do not, and that the combination may differ across industries and firms. As such, a key challenge for firms is to identify and leverage those
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resources that directly impact on organizational performance (Wade & Hulland, 2004; Zack et al., 2009). Researchers and practitioners have addressed a variety of IT-related variables. For example, (Li et al., 2006; Tippins & Sohi, 2003) classified IT capability into three dimensions: IT knowledge, IT operations and IT infrastructure. Wixom and Watson (2001) incorporate human IT resources for the following reasons: 1) People are important when implementing a system and can directly affect its success or failure; 2) The skills of the knowledge management development team have a major influence over the outcomes from the project; and 3) Only a competent team can identify the requirements of complex projects. Therefore, a highly skilled project team should be much better equipped to manage the project of knowledge management (Wixom & Watson, 2001). Human IT resources include technical IT skills as well as managerial IT skills. IT skills concern the skills, such as programming, systems analysis and design, and competencies in emerging technologies. The managerial IT skills include abilities such as the effective management of IT functions, coordination and interaction with the user community, and project management and leadership skills (Bharadwaj, 2000).
According to RBV, firms with strong human IT resources are able to integrate the IT and business planning processes more effectively, develop reliable and cost effective applications that support the business needs of the firm, communicate with business units efficiently, anticipate the future business needs of the firm and innovates valuable new-product features before competitors (Bharadwaj, 2000). Previous studies and researchers have developed many theories concerning the competitive advantage of firms. However, the RBV emerged as the perspective that
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facilitated the explanation for the existence of firm specific assets and capabilities that are important in the preparation of firm strategy (Abu Bakar, Hashim, Ahmad, Isa, Dzakaria, 2009).
The RBV is the underlying theory for this study, which explains the relationship between organizational resources and sustaining a competitive advantage for superior organizational performance relative to competitors (Barney, 1991; Fahy, 2000). The RBV perspective views organizations as rent seeking units that develop and deploy resources (assets and capabilities) to realize a competitive advantage (Greenaway & Chan, 2005). Resources have been identified and categorized by various researchers to pursue competitive advantage. For example, Mills, Platts and Bourne (2003) argued that resources are classified as follows: 1) tangible resource, such as financial, organizational, physical and technological resources; 2) knowledge resources, such as skill and experience; 3) system and procedural resources; 4) cultural values and resources; 5) network resources and resources with potential dynamic capability; 6) intangible resources such as innovation, human, and reputation resources. Furthermore, Fahy (2000) classified resources into three categories: tangible, intangible and capabilities. RBV focuses on the organization's ability to develop and deploy its internal resources (Hitt et al., 2001). Resources are input into a firm’s production processes to improve competitiveness and performance.
Similarly, Meyer and Utterback (1992) highlighted the role of technology, R&D, production, manufacturing capacity and marketing capability. Leonard-Barton (1992) pointed out the importance of knowledge and considers organizational
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capabilities to include employees’ skill, learning, technology system, managerial system and the value system within the firm. Capabilities are the firm’s ability to develop and deploy integrated resources for the objective of achieving a targeted goal. Examples of capabilities include: teamwork, organizational culture, trust between management and workers, and IT. Fowler, Wilcox, Marsh and Victor (2000) argued that three types of capabilities exist: information technological capabilities, market driven and integration capabilities. IT capability relates to the operational aspects of firm business processes.
Mills et al. (2003) noted that
research still found that resources are interrelated and sticky bundles even though an effort was made to identify, classify and categorize them accordingly. In a turbulent business environment, it was suggested that firms could establish resource competence rather than focus on the product market (Menor et al., 2001).
How the RBV theory relates to BPR factors and IT capability
An organization’s resources are identified, classified and categorized by various researchers, such as Fahy (2000) into: tangible, intangible and capability. The study focuses’ on intangible resources (BPR factors) and technological capabilities (IT capability) to realize superior organizational performance and the competitive advantage position on the bank. BPR factors are placed in the context of the RBV of the firm by examining how banks can apply IT capability and resources to pursue better performance. As the RBV is an appropriate theoretical framework for addressing performance shortcomings, this study suggests that BPR factors – change management, management commitment, adequate financial resources,
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customer focus, project management, process redesigns, less bureaucratic structure, and IT infrastructures – are intangible resources, while the organisational technological competence is considered as IT capability measured by IT knowledge, IT operations and IT objects (Tippins & Sohi, 2003).
The RBV perspective has the advantage to facilitate classification of resources, enable comparison and provide strategic measurement of resources. Banks superior performance depends on the resources within the organization, such as BPR factors. In relation to that, this study seeks to identify the specific BPR factors that would lead to superior performance. In spite of the importance of RBV in relation to this study, the theory suffers from two major theoretical deficiencies. One is that the RBV, like the industrial economics view, implicitly assumes static equilibrium, without addressing the requirements for continued success in a volatile environment (Mahoney, 1995; Teece et al., 1997). Second, the RBV focuses only on the difficulties and barriers in competing firms imitating, substituting or taking away resources rather than on the complementarities of resources (Amit & Schoemaker, 1993; Mueller, 1996; Powell, 1995).
To address these theoretical gaps, several researchers (Grant, 1996; Teece, 1998; Teece et al., 1997) have suggested that sustainability of competitive advantage by organisation can be tackled by: First, in coping with changing business environment, there is a need to renew, reallocate, continuously identify, upgrade, rejuvenate, reinvent and redefine resources. Hence, the presence of dynamic capability theory is to support RBV. Second, the need to have the ability to create
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an environment in which they can be self-reinforcing and enhancing in value and strength, thus causing sustained major cost disadvantages to imitating firms. IT capability as dynamic capability Teece, Pisano and Shuen (1997); Eisenhardt and Martin (2000); and Pavlou (2004) is the originating authors of the dynamic capabilities (DC) theory concept, which arose from a key shortcoming of the RBV of the firm. DC’s theory further emphasizes the importance of resources, competence configuration, coordination, integration and transformation in generating value for the business, especially when the path to achieving success is not yet clear. The RBV has been criticized for ignoring factors surrounding resources, instead of assuming that they simply exist. Considerations such as how resources are developed, how they are integrated within the firm and how they are released have been under-explored in the literature. The RBV of the firm has been used for many research studies to explore the relationship between capabilities and performance. Investment in IT is very important because it is a source of competitive advantage in the short-term, and then turned to a source of sustained competitive advantage over time (Barney, 1991).
The concept of dynamic capabilities is derived from the RBV, and focuses on resource's reconfiguration and renewal, while RBV focuses on the selection of resources. This study adopts the dynamic capability's theory and conceptualizes IT capability to address the sustainability issues of performance in a turbulent environment. IT capability would help to bridge these gaps by adopting a process approach and act as a buffer between firm resources and the changing business environment. The dynamic resources help a firm adjust its resource mix and
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thereby maintain the sustainability of the firm’s competitive advantage, which otherwise might be quickly eroded. Therefore, while the RBV emphasizes the resource choice or the selection of appropriate resources, dynamic capabilities emphasize resource development and renewal. Wade and Hulland, (2004) argued that IT resources can acquire several characteristics of dynamic capabilities that are helpful to organizations operating in a turbulent environment. Consequently, IT resources would directly lead to the achievement of the remarkable competitive advantage position within an organization. Peppard and Ward, (2004) argued that interrelated attribute of IT capabilities is a union of business knowledge with IT knowledge that is an open IT platform for the effective use of process, technology and working with information. Complementarity theory Barua, Lee and Whinston (1996) proposed the theory of business value based on the
complementarity
theory
originally
from
economics
literature.
The
complementarity theory focuses on factors or resources that are mutually complementary to each other, and the impact of any of the factors or resources would result in a greater increase in the desired outcome. Milgrom and Roberts (1995) proposed that some organizational activities and practices are mutually complementary and so tend to be adopted together, with each enhancing the contribution of the other. Therefore, the impact on a system of complementary practices will be greater than the sum of its parts because of the synergistic effects of bundling practices together. For example, in the context of reengineering, IT allows for the innovative business process for competitive advantage (Brynjolfsson & Hitt, 2003). Adopting the complementarity theory for this study may address the
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first shortcoming of RBV – isolation of resources. RBV fails to adequately consider the fact that resources hardly act alone in creating or sustaining competitive advantage (Chan et al., 2004; Wade & Hulland, 2004). Drawing on the above theories, a research model is proposed to examine the relationship between Dynamic IT Capability, BPR factors and organizational performance as shown in Figure 7.
Summary This chapter provides an extensive review of the literature on BPR factors, IT capabilities and organisational performance. This chapter also discusses the RBV to govern the proposed theoretical framework. BPR factors are more of an intangible resource within the organization that would be used with the influence of IT capability to achieve a remarkable performance. IT capabilities enhance performance through the elimination of inefficiency, reduction of long-term cost, improving service reliability and reduced transaction errors (Tippins & Sohi, 2003). H1 H1
H2 H3
Factors 2 BPR BPR Factors
2.I.T I.TCapability Capability
Figure 7: Conceptual Framework
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Organizational Organization Performance Performance
The chapter also discusses the adoption of dynamic capability's theory and complementarity theory to address the deficiency of RBV. In addition, findings from a previous study indicated that organisation survival in turbulent business environment became a concern. These and many other reasons have made authors to call for an empirical study that can thoroughly relate BPR factors to organisational performance in the context of other variables that also affect performance. This study investigates the relationship between BPR factors and organisation performance dimensions such as operation's cost reduction, customer service management, business operations efficiency and overall performance.
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CHAPTER 5 BPR FACTORS, IT CAPABILITY AND PERFORMANCE
Introduction
Following the review of previous studies in chapter two, BPR factors in this study were adopted as the basis of fit with the environment, according to the proposition suggested by Al-Mashari and Zairi, (1999) and Salimifard, et al. (2010). The study of Khong and Richardson (2003) on BPR in Malaysian banks and finance companies found that the change management system and culture had a positive effect on customer service management. A change in management and culture can provide a good setting for fundamental change as a result of BPR through people involvement in redesigning the process for change (Dawe, 1996; Jarrar & Aspinwall, 1999). In addition, the management of risk and BPR project management have a positive effect on customer service management. Banks and financial service firms in the USA reported that reengineering improves customer service (Wood, 1996). This agreed with many other researchers who found improved customer services as a result of BPR initiatives (Hoffman, 1993; Ryan, 1995; Verespej, 1995; Gianni & Grupe, 1997; Gritzuk, 2000).
Cheng and Chiu (2008) asserted that customer focus has a relationship with performance. This finding is in line with previous studies by Scherr (1993) and Terziovski et al. (2003) who asserted that the customer must be the focal point in the process innovations of BPR initiatives. Hall and Wade (1993) argued that for BPR to be successful, redesigning efforts must be pointed to the area that had the most direct impact on customer value and cost.
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Similarly, Terziovski et al. (2003) agreed that process innovation in terms of redesigning core-customer focused business processes and using customer feedback is significantly related to an organization’s ability to satisfy customers. Organizations were also more likely to be able to satisfy customers if BPR had been implemented in a proactive manner. There was, however, a statistically significant relationship between cycle time reduction and focusing to redesign efforts on corecustomer focused business processes. This is in line with the literature on successful reengineering put forward by Hall et al. (1993). However, there is no apparent relationship between increased use of IT and cycle time reduction of reengineered processes (Terziovski et al. 2003; Bhatt, 2000; Attaran, 2004)
Relationship between BPR factors and organizational performance
The first objective of the study was to examine the relationship between BPR factors and organisational performance. Overall, the results of the correlation analysis show that all the variables between BPR factors and organisational performance were significant except for customer focus and change management. The results of the correlation analysis suggest that BPR factors are related to organisational performance. Multiple regression analysis was conducted to examine the most contributory explanatory variables among the BPR factors that best predict organisational
performance
variables
(cost
reduction,
customer
management, business operation's efficiency and overall performance).
service Four
models of standard regression were developed, and all the models were statistically significant. The result indicates that IT investment, management commitment,
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adequate financial resources, BPR strategy alignment, and change management and customer focus jointly explained 21.3% of the variance of customer service management, 13.2% of the variance of business operation's efficiency, 4.7% of the variance of cost reduction and 15.4% of the variance of overall organization performance. The models suggest that the impact on the BPR factors on customer service management performance is the highest followed by overall performance compared to other performance variables. Three predictor variables, IT investment, management commitment, adequate financial resources were found to be statistically related to customer service management. Adequate financial resources were the strongest contributor predictor that explains the variance of customer service management followed by management competence. Two of the predictor variables, financial resources and management competence, were found to have statistically significant relationships with overall performance and business operations efficiency performance, respectively. Financial resources were the strongest contribution predictor that explains the variance of overall performance and business operation's efficiency, followed by management competence. The adequate financial resources (volume of financial activities) variable was found to have a statistically significant relationship with cost reduction.
Relationship between IT capability and organizational performance
The second objective of the study is to examine the relationship between IT capability and organizational performance. Overall, the results of the correlation analysis revealed that all dimensions between IT capability and organizational
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performance were significant. The results of the correlation analysis suggest that high level of IT capability attributes are related to a high level of organizational performance. This study hypothesized that IT capability has a significant relationship with organizational performance (Hypothesis 1). The results indicate that this hypothesis is fully supported. The variance in organizational performance is explained by IT capability. Specifically, this study found that organizational performance in terms of 1) operation's cost reduction, 2) customer service management, and 3) business operation's efficiency may be enhanced through IT capability. Multiple regression analysis was conducted to examine the contributory explanation of IT capability as a construct that best predicts organizational performance variables (cost reduction, customer service management, operation's efficiency and overall performance).The evidence from this study suggests that IT capability is important to organizations. Indeed, high levels of IT capability are related to a high level of organizational performance.
IT capability in this study refers to the ability to which an organization is equipped with IT infrastructure, IT skills knowledge and experience, as well as effective IT operation's utilization. A higher level of IT experience enables the smooth implementation of the organization’s strategy, develops reliable and cost effective systems for the organization, and anticipates customer needs (Bhatt & Grover, 2005). As stated earlier, based on the mean score, bank managers perceive that their organizations were implementing good BPR practice (M=4.94). The results indicate that IT capability is positively related to organizational performance. In other words, the level of achievement in organizational performance may be dependent on the extent of IT capability. A higher level of IT capability may lead to a higher
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level of organizational performance. To assess organizational IT capability in the form of competency one needs to look beyond specific technology, to three related components: IT objects, IT knowledge and IT operations.
Therefore, the significant results on the relationship of IT capability and organizational performance variables in the Nigerian banking industry sample are consistent with the RBV and confirm previous studies that IT capabilities enhance organizational performance (e.g., Bhatt & Grover, 2005; Powell & Dent-Micallef, 1997; Santhanam & Hartono, 2003). An extensive body of IT capability's literature agrees that IT capabilities are resources to facilitate an effective collection and utilization of information (e.g., Bharadwaj, 2000). Floyd et al. (1990) contend that IT capabilities enhance service reliability, reduce transaction errors and increase consistency in performance. Other researchers argued that capabilities can contribute to improving service quality through better customized or individualized services, and in creating knowledge links for identifying and sharing organizational expertise (Adam, 1993; Quinn et al., 1994).
Moderating effects of IT capability on BPR, IT Capability and Performance
The final objective of the study is to investigate the moderating effect of IT capability on the relationship between BPR factors and organisational performance variables. Specifically, IT capability acts as a moderator, was examined regarding the impact of the relationship between BPR factors and organisational performance variables. Generally, there has been mixed results in the interaction effects of these
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specific IT capability dimensions. The outcomes suggest that the third main hypothesis was partially supported.
In general, the results of the moderating effects of IT capability on the relationship between BPR factors and organizational performance variables support the literature on the RBV that focuses on that it is costly to copy attributes of a firm which are seen as fundamental drivers of performance (Conner, 1991; Bharadwaj, 2000). Researchers have adopted the perspective of RBV in linking IT to the success of knowledge management (Golden al., 2001; Khalifa & Liu, 2003; Lee & Choi, 2003) and to firm performance (Bharadwaj, 2000; Tippins & Sohi, 2003; Li et al., 2006).
Empirical evidence predicts that IT needs to interact with other human and business resources to create IT resources that are valuable, rare and applicable to achieve the initial, short-term competitive advantage. To achieve a long-term advantage, IT resources must be difficult to imitate, and hard to substitute (Wade & Hulland, 2004). This study contributes to managerial implications for managers, especially in a bank setting. Managers are encouraged to invest in terms of time, money, commitment and other resources to implement the BPR strategies. Evidence from this study suggests that organizations should develop IT support in order to further benefit from various strategic activities.
The concept of IT capability was adapted with slight modification from the version of the instrument developed by Tippins and Sohi (2003). The three dimensions of IT capability refer to the extent to which a firm is knowledgeable about and
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effectively utilizes IT to manage information within the firm. Furthermore, the firm possesses IT objects. Cumulatively, the three dimensions of IT capability represent co-specialized resources that provide an indication of the organizational ability to understand and utilize IT tools and processes that are needed to manage customer information. All three dimensions are required to be present in order to achieve IT competency. Hence, IT knowledge, IT operations and IT objects have to be present in order to achieve IT competency in the form of the capability within the organization.
Managerial Implication The findings from this study of the moderator effect of IT capability elements have a number of important implications on the management of the organizations. A key managerial implication from the study is the interaction between BPR factors and IT capability in achieving higher organizational performance. It was found during this study that there were few significant interactions between BPR factors and IT capability dimensions. Organizations should take note of these interactions as they can enhance the performance of the organizations. The findings demonstrated that IT capability moderates the relationship between management commitment, IT investment and customer service management performance. The findings also indicate that IT capability moderates the relationship between management commitment – customer service management performance; customer focus – customer service management performance; and management commitment – overall performance. This suggests that organizations seek to enhance the BPR factor's dimension, and performance need to ensure that IT capability play a strong role in knowledge, operations and object's competence by demonstrating a strong
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knowledge on IT-related programmes to all IT staff across the activities within the organization.
The study has also found that IT capability moderates the relationship of management commitment – business operation's efficiency. Therefore, this study provides some evidence that organizations need to focus on IT capability by demonstrating activities, such as communication network links to branches through WAN and LAN 24/7 with minimal down time.
Finally, IT capability was found to have a moderating effect on the relationship between customer focus and overall performance. IT capability moderates the relationship between adequate financial resources and business operations efficiency performance, Also, between management commitment and customer service management performance. The study suggests that organizations that seek to improve business operations efficiency performance should automate their banking operational services and monitor customer’s transaction activities to be in line with regulator's procedural guidelines. In general, it seems that IT capability is necessary for organizations to enhance the relationship between BPR and organizational performance. This confirms the roles of IT as a capability to turn the fortunes of organizations as a whole by enhancing their competitive advantage. Therefore, management of the organizations should seriously consider integrating BPR factors and IT capability as the study found support for the interaction of these two activities in contributing towards higher organizational performance.
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Theoretical Implication In summary, this study provides evidence that IT capability plays a critical role in moderating the relationship between BPR factors and organisational performance. This finding provides support for the RBV of the firm, which highlights the importance of intangible resources (management commitment, customer focus, change management and IT investment) and capability (IT capability) in explaining organisational performance. Furthermore, this study not only provides evidence of a significant relationship of BPR factors (adequate financial resources, management commitment and performance, but it also provides significant relationship with three (3) dimensions of organizational performance (cost reduction, customer service management and business operation efficiency). Previous literature suggested that re-engineering projects significantly improve the profitability performance of a bank but not for growth or the extent of its financial intermediation (Aregbeyen, 2011). Despite the sound theoretical background and remarkable results, business process re-engineering has not always led to fantastic performance. In fact, Bashein et al. (1994) indicated that only 30 per cent of BPR projects achieved a performance breakthrough. The reasons for large failure could be as a result of the lack of sustained management commitment and leadership, unrealistic scope and expectation, resistance to change, non-encouragement to conceptualization of business process, or non-effective reward systems. It can be concluded that in organizations, not all BPR factors have a direct effect on performance (Bashein et al., 1994). Nevertheless, the study validates that BPR factors are an important determinant of bank performance in Nigeria. The research
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supports that the overall BPR implementation is positively associated with organizational performance.
Moreover, the findings from this study contribute to the empirical research into the relationship between the IT capability and organizational performance of Nigerian banks. It was identified that adopting IT has helped Nigerian banks to streamline the back-office operations by improving both efficiency and cost reduction. Advances in technology also influence the way bank services are delivered with the aim of making it more convenient for customers. For example, many banks in Nigeria now have their branches connected on-line real time (24/7). This clearly reduces the danger of carrying cash. Some banks have ATMs to make cash available to their customers 24/7. Some Nigerian bank's practice e-banking, telephone, and mobile banking, money transfer services through MoneyGram. Western Union Money transfers have enabled the Nigerian Diaspora to send money to their families (CBN, 2008). IT capability (IT operations, IT objects and IT knowledge) enables Nigerian banks to participate more effectively in the international banking arena. For instance, some technologically up to date banks can access international banking networks in order to efficiently affect fund transfers, open, amend, and negotiate letters of credit, and retrieve the up to date status of customer transactions between the banks that joined the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). The results from the study also indicate full support concerning the relationship between IT capability and organizational performance. The findings suggest that IT capability is an important source of competitive advantage for banks in Nigeria.
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CHAPTER 6 MEASUREMENT AND OPERATIONALIZATION OF BPR FACTORS AND IT CAPABILITY
Introduction
Questionnaires are considered one of the most appropriate data collection instruments for survey research (Asika, 1999). Hence, a structured questionnaire, which consists of closed-ended questions, was used. However, in order to ensure the adaptation of the questionnaire, validation was done properly, the researcher conducted face validity before a pilot test of the instrument. The adapted questionnaire measures the influence on the research independent variables: BPR factors – change management; management commitment; IT infrastructure; less bureaucratic structure; project management; customer focus; effective processes redesign, and adequate financial resources, with a moderating factor of IT capability (IT knowledge and IT operations) and dependent variable – organizational performance (financial and non-financial). The six-point type rating scale was used in measuring responses for the questions. A six-point rating scale assists the researcher to compute means and standard deviation responses on variables as well as the midpoint in the scale (Sekaran, 2003). Certain literature has found that a scale between 5 to 7 points is more reliable and valid than shorter or longer scales (Krosnick & Fabrigar, 1997). To prevent the respondents from answering a neutral point for easy choice, the measurement of this study uses a sixpoint rating scale as justified by Krosnick (1991), who argued that respondents
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demonstrate behaviour of either survey optimizing or satisfying. In addition, including a neutral point could lead to a decrease in measurement quality.
However, Dawis (1987); Garland (1991); and Hughes (1969) suggested that the decision lay largely on the preference of the researcher and that there can be no single best method in scale construction; one may be better for one research problem but not good for another. In this study, the use of a 6-point scale was deemed appropriate because it was found to increase the reliability of the measure and reduce social desirability bias among respondents, as respondents are knowledgeable enough to understand the questions and issues being examined by the research.
The questionnaire designed for this study consists of four (4) main sections (Appendix1). Section A consists of questions regarding the degree of BPR factor's implementation (independent variables) and consists of statements about the BPR factors, adapted and modified mainly from the findings of Al-Mashari and Zairi, (1999); Ahmad, Francis, and Zairi, (2007); Salimifard, et al. (2010). Section B includes questions related to the degree of IT capability as the moderating factor consists of statements about the IT capabilities (IT knowledge and IT operations) that were associated with superior operational performance, adapted with modification from previous studies (Tippins & Sohi, 2003). Section C of the questionnaire was the dependent variable (Organizational performance). The respondents were asked about the degree of perceived current organisational performance over the past three years. The instrument to measure organisational
121
performance was adapted and modified from the findings of Hammer and Champy, (1993); Bontis, Chua, and Richardson, (2000); Terziovski, Fitzpatrick, and O’Neil, (2003). Section D: Demographic data asked about the personal and organization background of the respondents. The independent variable consists of BPR factors; the moderating factor variable was IT capability, and the organizational performance as the dependent variable. Specifically, the measurement of each variable for the study is discussed as follows:
BPR factors
The BPR factors (Change management; management commitment; less bureaucratic structure; project management; customer focus; effective process redesigns, adequate resources and IT infrastructure) were adapted from the study suggested by (Al-Mashari & Zairi, 1999; Ahmad et al., 2007; Salimifard et al., 2010). The measurements of these dimensions were adapted from (Al-Mashari & Zairi, 1999; Herzog et al., 2007; Cheng & Chiu, 2008). BPR factors variables were assessed using a six-point rating scale of instrument with five factors containing 44 measurable items. The respondents are required to answer the questions of their current organization potential BPR factors on a scale of 1=Strongly Disagree to 6=Strongly Agree. The specific dimensions of the BPR factors are discussed in the following paragraph.
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Change management
The change management measure focuses on the degree of continually renewing an organization’s direction, structure and capability to serve the ever-changing needs of external and internal customers. Managers or leaders manage the potential impact of change to make people accept it in order to implement change. Change management includes all human and social related changes and the organization’s cultural adjustment technique, employee’s motivation, empowerment, effective communication, people’s involvement, training and education of employees, needed by management to facilitate the insertion of newly designed processes and structures into working practice and to deal effectively with resistance. This dimension is measured by nine items. The list below briefly presents all the items for the change management construct:
1.
Employee’s motivation to hard work through an effective reward system to encourage improvement of staff productivity.
2.
The organization recognizes human involvement in implementation of a BPR.
3.
The organisation trains and educates employees in the newly introduced operational processes.
4.
There is openness by the management for employees within the organisation to accept changes for improvement.
5.
The organisation has the effective communication system of updating employees on reengineering implementation.
6.
The employees have clearly understood the norms, values and organizational culture.
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7.
The organisation has a flexible structure that empowers core process owners for effective service delivery.
8.
The employee accepts positive changes easily for organisational goal achievement.
9.
The employee empowerment initiatives encourage improvement of staff productivity in the organization.
BPR project management
The project management measures the extent of the alignment of the BPR project strategy with the corporate strategy, effective use of consultant, effective planning and project management techniques as well as adequate identification of BPR value and performance. This factor is measured by four items. The list of activities below briefly presents the items of measurement for the BPR project management:
1.
The organization has aligned the BPR strategy with corporate policy.
2.
The organization BPR project is clear to all staff.
3.
The organizations reengineering effort is towards the key business process.
4.
The organization establishes the performance improvement goals for process's key performance indicators (KPI).
Top management commitment
The management commitment measures the extent to which top managements are committed to ensuring that employees contribute in achieving dramatic
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organizational improvement to the business process within the organization. This dimension is measured by eight items. The list of activities below briefly presents the items of the measurement for the degree of top management commitment: 1.
The top management set strategic plans and activity for customer satisfaction through the process reengineering projects.
2.
The top management was committed to ensuring employee contribution towards the organization achievement of the remarkable improvement through the business process redesign.
3.
The top management normally initiates the BPR in the organization.
4.
The top management encourages changes to maintain a competitive advantage in the organization.
5.
The top management accepts consultant positive recommendations on restructuring for implementation throughout the organization.
6.
The top management considers the BPR as a method to improve operational process performance for the organization.
7.
The key personnel within the organization are capable of carrying out related changes.
8.
The top management considers the business process re-engineering (BPR) approaches to improve competitiveness of the organization.
Customer focus
The customer focus measures the focus on the external orientation based on customer research, competitive analysis, analysis of customer requirements on
125
products/services, and firms that are able to meet customer demand to achieve a competitive advantage over their competitors. This dimension is assessed by four items. The list of activities below briefly presents the items of measurement for the customer focus construct: 1.
External orientation based on customer research, competitive analysis and benchmarking.
2.
Learning from customers and competitors
3.
Measurement of customer's requirement and expectation
4.
Define the process in terms of customer value
IT infrastructure
IT infrastructure: this dimension is measured by the organization’s extent of expenditure on IT infrastructure, personnel, IS integration, maintenance, computers and software. Effective reengineering of legacy information systems, the effective use of software tools that contributes to the success of BPR project. This dimension is assessed by five items. The list of activities below briefly presents the items of measurement for the IT infrastructure construct:
1.
The organization aligns I.T infrastructure and BPR strategy.
2.
The organization builds an effective I.T infrastructure.
3.
The organization has a sufficient budget for a purchase of an updated hardware and software for operational processes.
4.
The organization achieved proper integration of I.T.
5.
The organization makes effective use of software tools.
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Effective process redesigns. The effective process redesigns measure focuses on the degree of the appropriate level of process knowledge, documentation of existing processes, selection of core processes, identification of process gaps and evaluation of effectiveness of current processes by making use of software tools to visualize and analyses them. This dimension was assessed by five items. The list of activities below briefly presents the items of measurement for the effective process redesign to construct: 1.
The organization documentation process is clear to all employees.
2.
The organization core processes were redesigned for efficient service delivery.
3.
The organization has periodically evaluated the process gaps of operational processes.
4.
The organization uses appropriate IT software for operational processes.
5.
The organization processes were identified for appropriate redesign.
Adequate financial resources
The adequate financial resource's measure focuses on the availability of sufficient financial resources or adequate capital base funding to the organization. The recapitalization of the bank's share capital, adequate shareholder fund for the banks to conduct their business effectively, strong capital base to provide a cushion lending, level of customer deposits, savings, short-term and tenured fund. This
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dimension is assessed by six items. The list of activities below briefly presents the items of measurement for the adequate financial resources construct: 1. The organization is financially sound to conduct its transactions. 2. The organization’s strong capital base provides a cushion for its risk assets. 3. The organization’s reserve is sufficient for growth. 4. The organization has a high volume of demand deposit as a cheap fund. 5. The organization’s volume of deposit is in a tenured fund. 6. The organization has attractive financing products to its customers.
Less bureaucratic (flatter) structure
Less bureaucratic (flatter) structure: It measures the extent on the organization structure that encourages creativity and innovativeness. The less bureaucratic and more participative style of management to an organization is better and the more likely to avoid failure of BPR implementation. Therefore, the need for a less bureaucratic and more participative organization is obvious (Ahmad et al., 2007). McAdam (2003) suggested that organizations could implement less bureaucracy to avoid failure of BPR implementation. This dimension is assessed by five items. The list of activities below briefly presents the items of measurement for a less bureaucratic structure (flatter structure) construct:
1.
The organization's structure encourages creativity for a new way of adding value to customers.
2.
The organization structure is less bureaucratic for innovation of customer service.
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3.
The organization’s structure is flexible for enhancement of performance.
4.
The organization employees actively participate to meet customer demands.
5.
The flattened organization structure offers equal involvement of employee’s representation in the decision-making processes.
IT capability
The measurement of this dimension was adapted from Tippins and Sohi (2003). IT capability variables are assessed using a six-point rating scale of instrument with two dimensions containing 12 measurable items. The respondents are required to assess their organization on the perceived performance of IT capabilities on a scale of 1=Strongly Disagree to 6=Strongly Agree. The specific dimensions of the IT Capabilities are discussed in the following section.
IT knowledge
IT knowledge is referred as the extent to which organisation acquires a body of technical knowledge about infrastructure or objects such as the computer-based system. Technical knowledge could be expressed as contextually based know how. In this study, IT knowledge was measured by six items. The list of the activities below briefly presents the items of measurement through the use of IT knowledge constructs: 1.
The organization operation's staffs are knowledgeable on I.T operations.
2.
The organization staffs of I.T department are qualified for the job.
3.
The organization I.T networking engineers are professionally qualified. 129
4.
The organization has an excellent of computer expertise as consultants.
5.
The organization I.T staffs are proactive in e-banking innovation.
6.
The organization I.T staffs attend training courses regularly.
IT operations
For this study IT, Operations are the extent of activities within the organization that utilizes IT to manage market and customer information required to meet goals. These activities are underpinned by skills that encapsulate the knowledge within the firm.
When IT operations are able to monitor and manage IT resources and
services from a real-time business outcome perspective, it can align IT operations with business priorities. As a result, IT operations can streamline business processes and optimize resources to help manage costs, increase efficiency to manage productivity and increase revenue, and help ensure service availability to enhance customer satisfaction, rather than simply focus on technology. This dimension is measured by six items. The list of the activities below briefly presents the items of measurement through the use of IT operation's constructs: 1.
The organization operations are linked to branches through WAN.
2.
The organization technology based links via LAN is efficient 24/7.
3.
The organization computer link system down time is minimal.
4.
The organization has computerized all its banking operational service.
5.
The organization I.T policy is in line with regulatory guidelines.
6.
The organization I.T operations monitor customer activities.
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Organizational performance
Organizational performance measures the extent of the managers’ perception on the organizational performance (increase/decrease) measured by subjective and objective indicators (financial and non-financial). The non-financial (subjective) indicators range from customer services, effective operations and service delivery, while the financial (objective) indicators included the financial growth and ratios. The performance measurement was adopted from various sources. The respondents were required to rate their organization over the last three years indicating the extent of perceived performance based on a scale: 1=Decreased Significantly (DS); 2=Decreased (D); 3=Slightly Decreased (SLD); 4=Slightly Increased (SLI); 5=Increased (I) and
6 = Increased Significantly (IS). This dimension was
measured by 10 items based on the perception of managers on the performance within the organization as explained in the subsequent sections.
Non-financial performance measures
The non-financial performance indicators used in this study are: 1. The level of our customer satisfaction with our services 2. The reactivation of inactive account records 3. The customer service delivery in our branches 4. The customer relationship management in our branches 5. The brand name of our organization in the business environment 6. The transaction cycle time measure through SLAs in our branches 7. The operating cost of doing business in branches
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8. The zero error of operational processes 9. The market share in retail, consumer corporate banking services 10. The market share in public sector business
Financial performance measures
The financial performance indicators used for this study are: 1. The number of our performing loan 2. The yearly profit before tax performance 3. The number of non-performing loans 4. The organization deposit liability growth 5. The number of recovered bad loan 6. The fee-based income on transaction services 7. The volume of current and saving account customers 8. The volumes of a tenured fund/fixed deposit. 9. The financial performance targets achievement by branches. 10. The level of operating cost
The measurements of financial and non-financial performance in this study were the perceived subjective measures of financial and non-financial performance within the organization. Financial performance indicators were: profitability, success rate of new service (product) introduction, after-tax ROI, sales growth, and after-tax return on assets (Sun, 2000; Bontis, 1998; Bontis, Chua & Richardson, 2000; Khong & Richardson, 2003). The non-financial performance indicators used
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for this study include: customer satisfaction (Khong & Richardson, 2003), cost and cycle time reduction, quality service and process speed (Hammer and Champy, 1993; Market research), and customer relationship (Bontis, 1998; Bontis, Chua & Richardson, 2000; Khong & Richardson, 2003). Table 10 summarizes the measurement instrument's dimensions of the independent, moderating and dependent variables.
Table 10 Summary of Measurement Instrument Variables, Sources, and Number of Items Construct
Dimensions
BPR factor
No. of item 9
Definition
Sources
Change Management
This study defines change management as the extent of all human, social related changes and cultural adjustment technique needed by management to facilitate the introduction of newly designed processes and structures of the systems, working and to deal effectively with resistance.
Al-Mashari and Zairi (1999); Ahmad, Francis and Zairi (2007); Cheng and Chiu (2008); Terziovski, Fitzpatrick and O’Neil (2003)
BPR Project management
This study defines project management as the extent of alignment of strategy with corporate strategy, effective use of consultant, effective planning and project management techniques and adequate identification of project values and bank performance measurement.
Same as above
4
Top management commitment
This study defines management commitment as the extent of top management commitment to ensure that employees contribute towards the successful achievement and remarkable improvement in the organizational performance of the bank.
Same as above
8
Customer focus
This study defines customer focus as the extent of research conducted on customer related to their requirements, value, satisfaction, competitive analysis and benchmarking for improvement of performance of organization.
Same as above
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4
Table 10 (Continued) Construct
Dimensions
Definition
IT Infrastructure
This study defines IT infrastructure as the extent of the organization’s expenditure incurred on IT infrastructure, IT personnel training, IT consulting, IS maintenance, computers and software, effective alignment of IT infrastructure and building an effective IT infrastructure, proper IS integration, effective reengineering of legacy IS, increasing IT function as competency, and effective use of software tools. This study defines the process redesign as the extent of the organization to create or redesign processes that have a direct impact on customer value and cost on the operational system of a bank.
Process redesigns
Same as above
No. of item 5
Same as above
5
Sources
Same as above Adequate Financial resources
This study defines adequate financial resources as the extent of monetary resources available to meet the budgetary allocation for successful implementation of projects for improvement of the performance of a bank.
Less Bureaucratic Structure (Flatter Structure)
This study defines a flatter structure as the extent of organizational structure that encourages creativity and innovativeness. The less bureaucratic and more participative organization the better, which would avoid failure of BPR implementation.
Same as above
This study defines IT capability attributes as the extent to which cumulatively the IT knowledge, IT operations and IT objects' dimensions of IT competency represent cospecialized resources that provide an indication of the organization’s ability to understand and utilise IT tools and processes that are needed to manage market and customer information.
Tippins and Sohi (2003)
IT knowledge is referred as the extent to which a firm possesses a body of technical knowledge about objects such as computer-based systems.
Tippins and Sohi (2003)
IT Capability
IT knowledge
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6
5
6
Table 10 (Continued) Construct
Organisation Performance
Dimensions
Definition
IT operations
IT operations refer to the extent to which a firm utilises IT to manage market and customer information.
Tippins and Sohi (2003)
IT objects
IT objects refer to computer-based hardware, software and support personnel.
Tippins and Sohi (2003)
This study defines organizational performance as the level of bank performance (increase/decrease) in terms of both financial and nonfinancial performance indicators.
Sun (2000); Bontis (1998); Khong & Richardson (2003); Bontis, Chua & Richardson, (2000); Hammer & Champy, (1993).
Organisational performance refers to the organisational effectiveness and represents the results of the organization’s activities or focuses on the achievement of objectives (Hammer & Champy, 1993; Henri, 2004). Total items
Sources
No. of item 6
20
78
Validity test of instrument measures
Exploratory factor analysis (EFA) is generally used to discover the factor structure of a measure and to examine its internal reliability. EFA is often recommended when researchers have no hypotheses about the nature of the underlying factor structure of their measure. Exploratory factor analysis has three basic decision points: (1) decide the number of factors, (2) choosing an extraction method, (3) choosing a rotation method. Exploratory factor analysis (EFA) was used instead of CFA because the extensive studies conducted on BPR literature is based primarily on qualitative case study and there is a lack of rigorous wide ranging empirical research covering all aspects of BPR (Herzog et al., 2007). Furthermore, EFA and CFA are similar in the sense that
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1. Exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) are two statistical approaches used to examine the internal reliability of a measure. 2. Both are used to investigate the theoretical constructs, or factors, that might be represented by a set of items. 3. Either can assume the factors are uncorrelated, or orthogonal. 4. Both are used to assess the quality of individual items.
5. Both can be used for exploratory or confirmatory purposes
A pilot study was conducted prior to the main research study. The objective was to get feedback and use it in adjusting and improving data collection, the questionnaire and the techniques used in analyzing data. The pilot study was performed to achieve the following specific purposes:
1. To enable the researcher to establish contact with organizations before the real data collection process of the main study 2. To determine the validity and reliability of the constructs 3. To foresee any challenges that may arise during the main study data collection.
A pre-test of the questionnaire was conducted in order to enable testing of the alternative wordings and question sequences to determine which format best suits the respondents. The purpose of the pre-test was to alert the researcher to potential problems that may be caused by the questionnaire. Thus, pre-tests were conducted to answer questions on the questionnaire, such as the following: 1) Can the questionnaire format be followed by the researcher/interviewers? 2) Does the 136
questionnaire flow naturally? 3) Can respondents answer the question easily? 4) Which alternative form of question's works best? Pre-testing also provides the means to test the sampling procedure, whether efficient or not. Therefore, the benefit of conducting a pre-test of the questionnaire is to improve the validity and reliability of the instrument measures. Zikmund (2000) highlighted that the aim of conducting validity is to ensure that the instrument measure what it is supposed or intended to measure.
Discriminant validity can be defined as the degree to which a construct can be established as truly being the difference from other constructs in the model (Byrne, 2010). A detailed review of the extant literatures as shown that there are two main methods through which researchers can statistically measure the discriminant validity of their data set, i.e. AVE (as suggested by Fornell and Larcker, 1981) and comparing chi-square of a model through its nested model(Hair et al., 2006).
To assess discriminant validity of the data set, this study made used of the average variance extracted (AVE) procedures as described by Fornell and Larcker (1981). In that study, they suggested that the squared multiple correlations between any two or more constructs as calculated for each item that measures it should be less than the calculated average variance extracted (AVE) that is measuring the item (John and Reve, 1982). Reliability test analysis of construct There are various types of reliability test; the most common method used in many study is internal consistency reliability (Litwin, 1995). The Cronbach’s coefficient alpha test was conducted to measure the internal consistency reliability. A pilot
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study was conducted with banks to test the reliability of the instruments. A total of 100 respondents participated in the pilot study, and the result from the study is summarized in Table 11.
The result from the pilot study indicates that Cronbach’s alpha of the variable's ranges from 0.609 to 0.890. The generally agreed lower limit for Cronbach’s alpha may decrease to 0.60 in exploratory research (Hair, et al., 2010). Since the results on the reliability were more than 0.60, none of the items were dropped from this pilot study. The reliability results have shown that the dimensions of BPR, as listed in Table 11 are appropriate for use in further research. Further reliability analysis was performed after factor analysis in the actual study based on larger sample size.
Table 11 Summary of the pilot test reliability analysis of constructs Number of items
Cronbach’s Alpha
Change Management
9
.744
BPR Project Management
4
.609
Top Management Commitment
8
.828
Customer Focus
4
.751
IT Infrastructure
5
.830
Process Redesign
5
.740
Financial Resources
6
.725
Less Bureaucratic Structure
5
.748
IT Capability
12
.824
Organisation Performance
20
.890
Constructs
Data analysis method Preliminary analysis of data checks for normality and outliers was performed before reliability analysis. The data was analyzed using Statistical Package for the
138
Social Science (SPSS) software. Six methods of data analysis were used for the main study using the SPSS software. These analyses included: 1. Cleaning and screening of data 2. Descriptive statistics 3. Factor and Reliability analysis 4. Pearson Correlation analysis 5. Multiple regression analysis 6. Hierarchical regression analysis
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CHAPTER 7 DISCUSSION AND CONCLUSION
Introduction
This chapter discusses the research findings and offers recommendations from the study. In addition, the chapter recapitulates the study's implications in terms of theoretical and practical contributions to the organization, limitations to the study and suggestions about future research.
Recapitulation of study
The main objective of this study was to investigate the relationship of three main variables – BPR factors, IT capability and organizational performance. The study had two broad objectives. First, to determine the extent of BPR factors related to organisational performance. Second, to investigate the level of IT capability that moderates the relationship between BPR factors and organisational performance. By studying this relationship, the organisational performance may be improved. This framework was supported by the RBV, which states that organisational performance is influenced by organisational resources, such as intangible resources and capability. In this case, BPR factors were the intangible resources while IT was the organisational capability.
The study used the survey method to achieve the desired objective of the research and consider the whole organization as the unit of analysis. The population of this
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study included the commercial banks, microfinance banks and primary mortgage banks in Nigeria. Data were collected from bank managers, senior managers and the top executive management within the organization. The survey method strategy using hand delivery of questionnaire survey approach was used to collect the data with regard to manager’s perception of the organizational performance. A total of 560 questionnaires were distributed. Only 417 useable questionnaires were collected representing a response rate of 74.46 per cent of the total questionnaire distributed and 50 per cent of the sample size required.
Factor analysis was conducted for the three main variables. The results from the analysis showed that nine (9) factors emerged from BPR variable factors. Summated scale was used to categories the emerged factors into 6 latent construct for the modified framework (Hair et al., 2010). The BPR factors were categories and renamed in line with Al-Mashari and Zairi (1999) classification: 1) change management, 2) BPR strategy alignment, 3) management commitment, 4) customer focus, 5) IT investment, and 6) adequate financial resources. On IT capability three (3), factors emerged after analyses, which were summated as dimensions of IT capability in line with Tippins & Sohi (2003). The factors/dimensions were renamed as IT knowledge, IT operations, and IT objects. The three dimensions cumulatively are required to be present in order to achieve competency of the organisational IT Capability. The factor analysis of organisational performance produced three factors, which were named in line with the procedure of naming factors having the highest loading in factor analysis criterion. The three (3) named factors/variables of performance are 1) cost reduction, 2) customer service management, and 3) business operation's efficiency. The data was then analysed
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using Pearson’s correlation, standard regression and hierarchical regressions in order to achieve the objectives of the study. The results from this study have established the important role of adequate financial resources and management commitment in moving the organizations towards excellence. Adequate financial resources have been proven in this study, as one of the most important variables that contributed to higher organizational performance. Stakeholders in the organization should recognize the important role that personnel and investment in IT play within the organization. Placing the right person who is committed to managing the organization by providing a conducive atmosphere and working environment for excellence. The role of management competence is not only to coordinate but also to provide effective control by creating a clear vision, mission, and transparent system in the organization.
Overall discussion of findings
This section presents the overall discussion on the findings based upon the three (3) broad objectives of the study.
Relationship between BPR factors and organizational performance
The first objective of the study was to examine the relationship between BPR factors and organisational performance. Overall, the results of the correlation analysis show that all the variables between BPR factors and organisational performance were significant except for customer focus and change management. The results of the correlation analysis suggest that BPR factors are related to 142
organisational performance. Multiple regression analysis was conducted to examine the most contributory explanatory variables among the BPR factors that best predict organisational
performance
variables
(cost
reduction,
customer
management, business operation's efficiency and overall performance).
service Four
models of standard regression were developed, and all the models were statistically significant. The result indicates that IT investment, management commitment, adequate financial resources, BPR strategy alignment, and change management and customer focus jointly explained 21.3% of the variance of customer service management, 13.2% of the variance of business operation's efficiency, 4.7% of the variance of cost reduction and 15.4% of the variance of overall organization performance. The models suggest that the impact on the BPR factors on customer service management performance is the highest followed by overall performance compared to other performance variables. Three predictor variables, IT investment, management commitment, adequate financial resources were found to be statistically related to customer service management. Adequate financial resources were the strongest contributor predictor that explains the variance of customer service management followed by management competence. Two of the predictor variables, financial resources and management competence, were found to have statistically significant relationships with overall performance and business operations efficiency performance, respectively. Financial resources were the strongest contribution predictor that explains the variance of overall performance and business operation's efficiency, followed by management competence. The adequate financial resources (volume of financial activities) variable was found to have a statistically significant relationship with cost reduction.
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The mixed results between the individual dimensions of the BPR factor and performance variables of this study suggest that the second hypothesis to the study was partially supported. The statistically significant results on the relationship of BPR factors and organizational performance of banks in Nigeria is consistent with some studies, including (Aregbeyen, 2011; Altinkemer, Ozcelik, & Ozdemir, 2011; Ozcelik, 2010; Shin & Jemella, 2002; Terziovski, et al., 2003; Sidikat & Ayanda, 2008), who found that the implementation of BPR positively affects firm performance on average and long-term strategy. Larger BPR projects are associated with more negative returns for a short period from the project initiation than functionally focused projects. Terziovski et al. (2003) concluded that BPR practices have a significant and positive effect on profitability and customer service management. Although the results of the present study indicate mixed results, the overall model suggested that BPR factors were significant and jointly explains the variance of organization performance variables. The evidence from this study suggests that a high level of BPR factors is related to a high level of organizational performance. However, the individual dimensions of BPR factors that contribute strongly to the specific performance variables, such as financial resources with customer service management need to be taken into consideration by organizations that wish to implement BPR.
Furthermore, the non-significant results concerning the relationship between BPR variables and organizational performance in the Nigerian banking industry are in line with some studies (Al-Mashari, 2001; Guimaraes, 1999). It is possible for a firm to observe a drop in performance and productivity during the initial phase of BPR project, because of the high cost of purchasing new equipment, hiring
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qualified personnel, training existing employees to handle new roles, and engagement of BPR consultants. This study hypothesized that BPR factors have a significant relationship with organizational performance (Hypothesis 1). The results demonstrate that this hypothesis is partially supported. In other words, the outcomes indicate that the variance in organisational performance is explained by some of the BPR factors. Hence, the findings imply that organisational performance could be enhanced through BPR. Specifically, this study found that organisational performance in terms of: 1) Operations cost reduction may be achieved through adequate financial resources in terms of generation of high volume of financial activities in the form of high turnover debit transactions, large balances of deposits in cheap fund accounts, recovery of non-performing loans, and effective management of sub-standard and doubtful loans; fee based activities and off balance sheet transactions; 2) Customer service management may be improved through effective customer relationship management in branches, the organization's brand name/goodwill, and efficient customer service delivery; 3) Business operation's efficiency may be improved by reduction in operational error in customer transaction, and efficient business operations that would enable the organization to capture a sizeable market share or create a niche in a target market for retail, consumer and corporate banking segment of the mass market. The specific results from the relationship between BPR factors and organisational performance are discussed in the following sections.
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BPR factors and overall performance Hypotheses 1A (1 to 6) posits a significant relationship between BPR factors and overall performance. In this study, overall performance reflects the level of bank performance in terms of operation cost reduction, customer service management and business operations efficiency performances. This study found that bank managers in Nigeria perceive that their banks are witnessing a fairly good level of performance (M=4.94). In relation to overall performance of banks, this study found that only two BPR factors, adequate financial resources (in terms of volume of financial activities and strong capital base), and management commitment had significant relationships with the overall performance of banks. The other four BPR factors, namely, change management, customer focus, project management, and IT investment are not significantly related to the overall performance of the banks.
First, in this study, financial resources refer to the extent of availability of sufficient financial resources or adequate capital base funding to the organization available to provide a cushion for the risk of lending. Madubueze (2007) reported that Nigerian banks were directed by the Central Bank of Nigeria to meet the minimum of about USD$190 million from an average capital base of USD$10 million for the purpose of meeting the international standard, become players on international scale, and improve the profitability and operational efficiency of banks. As mentioned earlier, based on the mean score, bank managers perceive that their organizations have adequate financial resources (M=4.85). The results indicate that adequate financial resources are positively related to the overall performance of banks. In other words, the level of achievement in overall performance may depend on the extent of
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adequate financial resources. A higher level of financial resources may lead to a higher level of overall performance of banks.
This finding is consistent with Tarawneh, (2006) who found that financial performance of Omani commercial banks was strongly and positively influenced by financial adequacy of the bank. Banks require a strong capital base or a huge amount of money to adequately provide a cushion for the risk of lending to entrepreneurs without collateral. This is in line with Salimifard et al., (2010) who argued that banks required adequate amount of funding for it business. Financial resources of banks in this study are determined by the increase of market share of total deposit liabilities, both demand and tenured fund generation, through the improvement of service delivery by making use of technology to redesign operational processes (Martin, 1988). Demirguc-Kunt & Huizingha, (1999); Kosmidou, (2008) argued that highly capitalized banks have higher net interest margin and are more profitable. Similarly, in non-banking sector, Ahmad et al., (2007); Kotnour, (2001) argued that organization needs adequate financial resource budget in implementation of BPR.
Second, management commitment has been found to have a positive significant relationship with overall performance of banks. This finding means that a higher level of management commitment would result in a higher level of the overall performance of the bank. Management commitment in this study has proven to be significant with organizational performance, which is consistent with the findings from a study conducted by Cheng and Chiu (2008) who reported that employees required management’s wholehearted support for the drive for change. Affective
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commitment was posited to have a positive impact on performance, while continuance commitment will have no effect or a negative impact on performance (McKenna, 2005; Meyer & Allen, 1997). Employees with high affective commitment tend to work harder and perform better than those with weak commitment. Management commitment is the most evident managerial practice that directly affects the success within the organization (Hammer & Stanton, 1995; Holland & Kumar, 1995; Guimaraes & Bond, 1996). This indicates the extent of top management commitment to ensure that employees contribute markedly to organizational performance.
Another important finding is related to customer focus. In this study, the term customer focus refers to the external orientation based on customer research, competitive analysis, analysis of the customer requirements on products/services and firms that are able to meet customer demand and to achieve a competitive advantage over competitors (Cheng & Chiu, 2008). Based on previous research on customer-focused strategy it was hypothesized to have a positive relationship with organizational performance (Cheng & Chiu, 2008; Tang & Zairi, 1998). This study found insignificant relationships between customer focus and the overall performance of banks. Therefore, the hypotheses related to these relationships are not accepted. These findings are inconsistent with previous studies on customer focus strategies. The current findings demonstrate that customer focus does not directly influence the overall performance of banks in Nigerian setting. The finding is in agreement with studies conducted by Adeyinka, (2011) who found that a customer service activity in Nigerian banks is pervasive issue. The problems faced by banks in delivering effective services to customers includes: insufficient legal
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system, high provision for non-performing loans, high lending rates, poor management, political instability, high pricing of financial services, higher risks and low profitability. These negative effects limit the number of prospective customers who patronize banking services. Similarly, studies conducted by Anderson et al., (1994); Ittner & Larcker, (1998); Scharitzer & Kollarits, (2000) have indicated that there is no absolute relationship between customer satisfaction and profitability. Empirical evidence showed that high level of customer loyalty does not lead to increase profitability (Reinartz & Kumar, 2002). This result suggests that long life customers are not necessarily profitable in a contractual setting, and that short term duration customers might actually be more profitable. Thus, the current findings indicated that the importance of managing the most problematic customer who does not generate enough business turnovers on their account operations as the volume and value of their transactions are too low. Alternatively, it might suggest that banks should adopt retention strategy designed to keep their major profitable account relationships. In addition, the insignificant relationship between customer focus and performance relationship might be as a result of the weak inter-correlation values between variables. This could cause an insignificant result in the multiple regressions (Sekaran, 2003). Moreover, possible explanation could be associated with the global competitive issues faced by the banking industry. These findings are consistent with a study conducted by Pereira, Harrison and Poole (1997).
However, Douglas and Judge (2001) suggested the need to examine the moderating effects of related factors on the strength to the association between customer service strategies in TQM and performance. Said et al. (2009) examined the role of IT in
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enhancing the relationship between customer focus and service quality performance in Local Government Authorities. Hence, the findings from this study for the moderating effect of IT capability on the relationship between customer focus and overall performance are significant and in agreement in the findings by Said et al. (2010). Furthermore, the findings support the TQM studies related to customerfocused studies (e.g., Hendricks & Singhal, 2001; Kaynak, 2003).
Fourth, the findings on change management indicate an insignificant relationship with the overall performance of banks. In other words, any improvement in change management
factors,
such
as
reward
and
motivation,
communication,
empowerment, reward, training and education, may not result in a substantial influence on the overall performance of the banks. Previous research conducted by Cheng and Chiu (2008), found that change management factor (communication of change) was not significant with firm performance. This is in agreement with current study that found insignificant relationships between change management and the overall performance of the bank. Therefore, the hypotheses related to these relationships are not accepted. These findings are consistent with previous studies on change management strategies performance relationship (Cheng & Chiu, 2008). The non-significant result from the relationship between change management factors (such as communication, reward system, training and education) and performance in the present study is in consistent with some literature, such as AlMashari and Zairi (1999), who reported that problems in change management factors such as communication, as a result of hiding uncertainties, the poor links between BPR team and personnel, lack of motivation and reward, fear of job security, job loss, and skepticism about BPR, results in BPR failure factors. The
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present study found the relationship between change management factors such as communication and organizational performance not significant. The finding is in line with, a survey conducted by the Cambridge Small Business Centre (1992) in the UK, that found the change management factor (training) was not related to performance. Furthermore, Storey and Westhead (1994), after examining previous research on the relationship between change management factor (training) and small business performance, concluded that the link of the change management factors such as training and performance was not significant. Finally, Marshal, Alderman, Wong and Thwaites (1995) suggested that change management factor such as management training projects have little effect of the performance of small firms. The weak inter-correlation values between variables could cause an insignificant result in the multiple regressions (Sekaran, 2000).
Fifth, the project management (strategy alignment) factor, which is important in BPR implementation in manufacturing and banking industry and widely quoted in BPR literature, was found to be non-significant with the performance of banks in Nigeria. This implies that different industrial sectors have different sets of skills and knowledge. In the manufacturing sector, project management is a core skill and knowledge. For bankers, who are involved in various projects as part of their daily routine, unlike those working in manufacturing, project management is not recognized as a critical success factor of implementing BPR in the banking industry.
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Based on previous research, project management strategy was hypothesized to have a positive relationship with organizational performance. However, this study found insignificant relationships between project management and the overall performance of the bank. Therefore, the hypotheses related to these relationships are not accepted. The current findings demonstrate that project management does not influence the overall performance of banks. These results indicate that organization BPR strategy had not been aligned with corporate policies, the project was not clear to all staff. Organization restructures their processes instead of redesign to start on clean slate. However, weak inter-correlation values between variables could cause an insignificant result in the multiple regressions (Sekaran, 2003).
BPR factors and operation's cost reduction
Hypotheses 1B 1 to 6 posit significant relationships between BPR factors and operation's cost reduction. Cost reduction reflects the level of expenses/extent of reduction in cost to provide services on least cost to make a return to the organization. Operation cost reduction refers to the ability of the bank to reduce the level of its operating expenses at various cost centres, reduction in payment of interest expense on tenured fund, provision of non-performing loans as well as effective cost containment strategy in branches and subsidiaries. The findings indicate that managers perceive their services, and cost containment strategy is performing well (M=4.98). Furthermore, the findings show that an adequate financial resource is significantly related to operation's cost reduction. The
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organization strong capital base provides a cushion for a loss that may arise from bank’s risk assets. The bank focus on high-volume demand deposit as cheap funds (current account and savings) instead of the tenured fund enables the improvement on financial cost savings. The recapitalization of banks has enabled them to diversify their portfolio of investment that cushions their operating cost. However, other variables, such as change management, project management, management commitment, IT investment and customer focus, have no significant relations with operations cost reduction performance. This means that investment in IT and initiating a change management project involve a high capital outlay that may involve high cost for the organization either inform of capital expenditure or recurrent expenses. IT investment involves heavy capital expenditure to be written off over a period. Change management project requires sufficient budget for training, settlement of benefit and entitlement to employees that may be affected by the change and, etc.
BPR factors and customer service management
Hypotheses 1C 1 to 6 posit a significant relationship between BPR factors and customer service management performance. Customer service management refers to the ability to deliver promises that have been made to customers, reliability of the original promise to customer and keeping him informed (Khong & Richardson, 2003). This definition implies that customer service management measures the extent on the relationship management in branches, organizational goodwill or brand name and the customer service delivery. Generally, the managers perceive
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their organizations are satisfactory in terms of the customer service management dimension (M=4.95). This study found that three (3) BPR factors have significant relationships with customer service management. These variables include financial resources, management commitment and IT investment.
First, this study has revealed that IT investment is significant with customer service management performance. In other words, high IT investment enhances customer relationship, brand name and service delivery. IT investment when combined with other resources (BPR factors) would improve productivity by reducing costs and improving quality service as well as operational efficiency performance. This finding is compatible with studies, such as Devaraj and Kohli (2000), who reported that IT investment contributes to a higher level of performance. Similarly, this statistical result supports the findings from several studies that evidenced a positive relationship between IT investment and organizational performance (Brynjolfsson & Hitt, 1996; Vandenbosch & Huff, 1997; Mitra & Chaya, 1996).
Moreover, Brown, Gatian and Hicks, (1995) found that the stock market reacts favourably to announcements about firm investment in IT. Firms with a heavy investment in IT are found to be more productive and more profitable. Furthermore, evidence from the banking industry suggests that the level of impact of IT on bank performance depend on the extent to which firms support their IT investment with BPR (Hunter, Bernhardt, Hughes, & Skuratowicz, 2001; Murnane, Levy, & Autor, 1999).
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Second, there is a positive significant relationship between management commitment and customer service management. In this study, management commitment reflects the level of management commitment to plan activities for customer satisfaction through the process reengineering to the remarkable performance achievement. Top management within the organization encourages changes to improve the competitive advantage thereby enhancing customer service management performance (Hammer & Stanton, 1995; Holland & Kumar, 1995; Guimaraes & Bond, 1996. Top management is responsible for every single activity on all levels within the organization (Singh & Kant, 2008). Top management should provide a clear direction or vision in order to help BPR team members to be directed towards the desired results (Sung & Gibson, 1998).
Finally, this study found a non-significant relationship between change management, customer focus, BPR strategy alignment and customer service management performance. The insignificant relationship between customer focus and customer service management could be the banks did not find a new way of adding value to customer service. The bank does not conduct a customer survey to get the feedback on their service. Studies conducted by KPMG on on-line customer services by Nigerian banks revealed that most banks in Nigeria have a timid approach to on-line customer services whilst others are not sure of what to do (KPMG, 2009). Almost all the banks do not allow customers to make on-line application for bank product and services. Majority of the banks does not have help desk software within their website where users can submit query and track progress. This does not give the customer sense of logging a request. Hence, poor customer relationship management could lead no high number of inactive accounts
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at the bank that would be translated to non-customer service management performance.
Previous studies conducted by Bandara, Indulska, Chong, and Sadiq (2007) argued that, lack of connectivity between organization corporate policy and BPR strategy is one of the reasons for failure in organization. Furthermore, studies by Wu (2002) and Tomasko (2003) reported that the lack of a proper strategy to connect with organizational goals in terms of operations, would affect the output in quantitative terms. Terziovski et al. (2003) reported results that show organizations implemented BPR reactively as a quick fix does not achieve significant performance outcome. Therefore, the non-significant relationship between BPR strategy alignment and customer service management performance found during this study was in agreement with previous studies (KPMG, 2009; Bandara et al., 2007; Wu, 2002; Tomasko, 2003 and Terziovski et al., 2003).
BPR factors and business operation's efficiency
Hypotheses 1D 1 to 6 posit significant relationships between BPR factors and business operation's performance. Business operation's efficiency reflects the reduction in error for operational processes in customer transaction, and efficient business operations that enable banks to capture a sizeable market share of the target market for retail, consumer and corporate banking segment of the mass market. Managers perceive that their organizations are good (M=4.74). This study found that two BPR factors such as financial resources, management commitment and IT investment have significant relationships with business operation's
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efficiency. However, BPR strategy alignments, change management, customer focuses in this study were found to have an insignificant relationship with business operation's efficiency. Therefore, the hypotheses related to these factors, and business operation's efficiency was not accepted. The non-significant results could be attributed to the weak inter-correlation values between the variables and business operation's efficiency in the multiple regressions (Sekaran, 2000).
Relationship between IT capability and organizational performance
The second objective of the study is to examine the relationship between IT capability and organizational performance. Overall, the results of the correlation analysis revealed that all dimensions between IT capability and organizational performance were significant. The results of the correlation analysis suggest that high level of IT capability attributes are related to a high level of organizational performance. This study hypothesized that IT capability has a significant relationship with organizational performance (Hypothesis 1). The results indicate that this hypothesis is fully supported. The variance in organizational performance is explained by IT capability. Specifically, this study found that organizational performance in terms of 1) operations cost reduction, 2) customer service management, and 3) business operations efficiency may be enhanced through IT capability. Multiple regression analysis was conducted to examine the contributory explanation of IT capability as a construct that best predicts organizational performance variables (cost reduction, customer service management, operations efficiency and overall performance).
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Four models of regression were developed and all the models were statistically significant. The results demonstrate that IT capability explains 19% of the variance of customer service management, 12% variance of business operations efficiency, 5.4% variance of cost reduction and 16% variance of overall organizational performance. The model indicates that the relationship of IT capability on customer service management is the highest followed by overall performance, then business operations efficiency and cost reduction performances. IT capability as a predictor was found to have a statistically significant association with overall performance and is statistically significant with three other (3) dimensions of performance (cost reduction, customer service management and business operations efficiency performance). The evidence from this study suggests that IT capability is important to organizations. Indeed, high levels of IT capability are related to a high level of organizational performance.
IT capability in this study refers to the ability to which an organization is equipped with IT infrastructure, IT skills knowledge and experience, as well as effective IT operations utilization. A higher level of IT experience enables the smooth implementation of the organization’s strategy, develops reliable and cost effective systems for the organization, and anticipates customer needs (Bhatt & Grover, 2005). As stated earlier, based on the mean score, bank managers perceive that their organizations were implementing good BPR practice (M=4.94). The results indicate that IT capability is positively related to organizational performance. In other words, the level of achievement in organizational performance may be dependent on the extent of IT capability. A higher level of IT capability may lead to a higher level of organizational performance. To assess organizational IT capability in the
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form of competency one needs to look beyond specific technology, to three related components: IT objects, IT knowledge and IT operations.
Therefore, the significant results on the relationship of IT capability and organizational performance variables in the Nigerian banking industry sample are consistent with the RBV and confirm previous studies that IT capabilities enhance organizational performance (e.g., Bhatt & Grover, 2005; Powell & Dent-Micallef, 1997; Santhanam & Hartono, 2003). An extensive body of IT capabilities literature agrees that IT capabilities are resources to facilitate an effective collection and utilization of information (e.g., Bharadwaj, 2000). Floyd et al. (1990) contend that IT capabilities enhance service reliability, reduce transaction errors and increase consistency in performance. Other researchers argued that capabilities can contribute to improving service quality through better customized or individualized services, and in creating knowledge links for identifying and sharing organizational expertise (Adam, 1993; Quinn et al., 1994).
Moderating effects of IT capability
The final objective of the study is to investigate the moderating effect of IT capability on the relationship between BPR factors and organisational performance variables. Specifically, IT capability acts as a moderator, was examined regarding the impact of the relationship between BPR factors and organisational performance variables. Generally, there has been mixed results in the interaction effects of these specific IT capability dimensions. The outcomes suggest that the third main hypothesis was partially supported.
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In general, the results of the moderating effects of IT capability on the relationship between BPR factors and organizational performance variables support the literature on the RBV that focuses on that it is costly to copy attributes of a firm which are seen as fundamental drivers of performance (Conner, 1991; Bharadwaj, 2000). Researchers have adopted the perspective of RBV in linking IT to the success of knowledge management (Gold et al., 2001; Khalifa & Liu, 2003; Lee & Choi, 2003) and to firm performance (Bharadwaj, 2000; Tippins & Sohi, 2003; Li et al., 2006).
Empirical evidence predicts that IT needs to interact with other human and business resources to create IT resources that are valuable, rare and applicable to achieve the initial, short-term competitive advantage. To achieve a long-term advantage, IT resources must be difficult to imitate, and hard to substitute (Wade & Hulland, 2004). This study contributes to managerial implications for managers, especially in a bank setting. Managers are encouraged to invest in terms of time, money, commitment and other resources to implement the BPR strategies. Evidence from this study suggests that organizations should develop IT support in order to further benefit from various strategic activities.
The concept of IT capability was adapted with slight modification from the version of the instrument developed by Tippins and Sohi (2003). The three dimensions of IT capability refer to the extent to which a firm is knowledgeable about and effectively utilizes IT to manage information within the firm. Furthermore, the firm possesses IT objects. Cumulatively, the three dimensions of IT capability represent co-specialized resources that provide an indication of the organizational ability to
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understand and utilize IT tools and processes that are needed to manage customer information. All three dimensions are required to be present in order to achieve IT competency. Hence, IT knowledge, IT operations and IT objects have to be present in order to achieve IT competency in the form of the capability within the organization.
BPR factors - IT capability- overall performance IT capability in this study refers to the ability to which an organization is equipped with IT infrastructure, IT skills knowledge and experience, as well as effective IT operations utilization. A higher level of IT experience enables the smooth implementation of the organization’s strategy, develops reliable and cost effective systems for the organization, and anticipates customer needs (Bhatt & Grover, 2005). As stated earlier, based on the mean score, bank managers perceive that their organizations were implementing good BPR practice (M=4.94). In other words, the level of achievement in organizational performance may be dependent to the extent of IT capability. A higher level of IT capability may lead to a higher level of organisational performance. To assess organizational IT capability in the form of competency one needs to look beyond specific technology, to three related components: IT objects, IT knowledge and IT operations. IT capabilities are resources to facilitate an effective collection and utilization of information (e.g., Bharadwaj, 2000). Floyd et al. (1990) contend that IT capabilities enhance service reliability, reduce transaction errors and increase consistency in performance. Other researchers argued that capabilities can contribute to improving service quality through better customized or individualized services, and in creating
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knowledge links for identifying and sharing organizational expertise (Adam, 1993; Quinn et al., 1994).
This study adapts with little modification the conceptualized IT competence (IT knowledge, IT operations and IT objects) from Tippins and Sohi (2003), as the organizational IT capability that banks should possess to achieve organizational performance. Hypotheses 2A, 1 to 6 posit that IT capability moderates the relationship between BPR factors and overall performance. This study found that IT capability only partially moderates three (3) BPR factors, i.e., 1) change management, 2) management commitment, and 3) customer focus. This finding indicates that management commitment has both a direct and indirect significant effect on the overall performance of banks. The indirect effect is via IT capability. This finding also entails that banks that have excellent management competence would also need a strong IT capability that would lead to a higher level of performance. The prior studies by Shao, Feng, Choudrie, and Liu (2010) have suggested that the interaction between the chief information officer competence and top management team moderate the relationship between IT investment and organizational performance. This also explains the experience of the IT productivity paradox based on the RBV and knowledge-based view. Empirical research shows that the CIO’s strategic IT knowledge and business knowledge, as well as the interaction with top management team members, has a significant influence on the distribution and integration of IT within the organization (Armstrong & Sambamurthy, 1999; Smaltz & Sambamurthy, 2006).
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The moderating effect of IT capability on the relationship between IT investment, and the customer service management is consistent with previous literature, which suggested that IT payoff and RBV literature provides a theoretical rationale for how IT capability moderates the relationship between IT investment and firm performance (Yongmei, Hongjian, & Junhua, 2008). To some extent, the influence that IT investment has on human-IT resources and IT-enabled intangibles also affects firm performance. However, these relationships are moderated by the IT capability, implying that no matter how much a firm spends on IT, enhanced performance will not occur without advancing IT capability. The moderating effect of the relationship between management commitment and overall performance was demonstrated in Figure 8.
Org. Performance
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IT Capa bility high
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Management Commitmen
Figure 8: The moderating effect of IT capability on the relationship between management commitment and overall performance
The figure shows that generally, the greater the emphasis on IT capability, the higher the level of overall performance. When the level of management
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commitment is low to moderate, the impact of less emphasis on IT capability on the relationship between management commitment and overall performance is positive and less than organization that focused on high IT capability. However, the differential impact is almost the same when the level of management commitment is moderate to high. The maximum performance is attained if the organization's emphasis more IT capability with high level of management commitment.
In a similar way, the moderating effect of IT capability on the relationship between customer focus and overall performance support the literature, which suggested that IT capability in combination with customer focus strategies enhance an organization’s ability to rapidly develop and deploy more innovative customerfocused
techniques or processes to enhance performance (Clark, Cavanaugh,
Brown & Sambamurthy, 1997). An empirical study by Said, Hui, Taylor and Othman (2009) also reported that a high level of IT capability enables organizations to perform services with greater speed, more accuracy and more convenient ways for customers. This finding is consistent with the argument put forward by Barney, Wright, and Ketchen (2001) who suggest that the synergy between two or more resources will create a sustainable competitive advantage. The impact of IT capability on the relationship between customer focus and organizational performance is displayed in Figure 9. The figure 9 indicates that overall the greater the IT capability the lower the overall performance. When the level of customer focus is low to moderate, those organizations with less emphasis on IT capability appear to have been higher level of overall performance. However, when the level of customer focus is moderate to high, those organizations with less emphasis on IT
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capability experience a significant reduction in overall performance. The lowest
Org. Performance
overall performance is achieved when there is high level of customer focus.
51 50.9 50.8 50.7 50.6 50.5 50.4 50.3 50.2 50.1
IT Capabi lity high med low
low
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Customer Focus
Figure 9: The moderating effect of IT capability on the relationship between customer focus and overall performance
The moderating effect of IT capability on the relationship between change management and overall performance was in line with study conducted by Hong and Kim (2002); Ahmed, Zbib, Arokiasamy, Ramayah and Chiun (2006) findings that reported resistance to change were related to achievement of predetermined goals and user satisfaction. Furthermore, a change management initiative was found to moderate the relationship between resistance and user satisfaction. When Change management is high, it means that the users are not very happy with the changes imposed on them. This in turn will lead to lower performance. This indicates that managing the change effectively by acknowledging resistance as natural and expected, giving importance to employee's concern, having regular and open communication, get everyone's participation, and promote skills and development are some of the ways to lower the organizational resistance. Employees are not
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really resisting the change, but rather they may be resisting the loss of jobs, loss of pay, or loss of comfort. The impact of IT capability on the relationship between change management and overall performance is illustrated through Figure 10.
IT Capabi lity high
51 Org. Performance
50.8
50.6 50.4
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Change Management
Figure 10: The moderating effect of IT capability on the relationship between change management and overall performance As it can be seen from the figure 10, there is a relationship between change management and overall performance regardless of high or low IT capability attributes. There is a significant differential impact between low and high IT capability when the level of change management is low to moderate. The highest overall performance is achieved when the level of change management is high while adopting greater emphasis on IT capability attributes.
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BPR factors - IT capability-operations cost reduction performance.
In general, Figure 11 shows a positive relationship between change management and operational cost reduction performance. Those with the high focus on IT capability perform better than those with less focus on IT capability. The best performance is attained when the level of change management is high while giving high focus on IT capability attributes.
26.8 IT Capa bility
OPS Cost Reduction P
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Figure 11: The moderating effect of IT capability on the relationship between change management and operation's cost reduction Performance
BPR factors - IT capability-customer service management performance
Figure 12 shows the results at the level of IT investment are low to moderate; there is a negligible increase on overall performance and differential impact for those
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organizations that give priority to IT capability compared to those with less focus on IT capability. However, when the level of IT investment is moderate to high, the differential impact is higher. Overall high focus on IT capability is associated with high overall performance.
CSM Performance
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IT Capa bility
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IT Investment
Figure 12: The moderating effect of IT capability on the relationship between IT investment and customer service management performance
Figure 12 depicts the moderating role of IT capability on the relationship between management commitment and customer service management performance. When the level of management commitment is low to moderate, the impact of management commitment on customer management performance is positive for those organizations that emphasize less IT capability. Similarly, those organizations with higher IT capability have a positive relationship with customer service management performance. When the level of management commitment is moderate to high, the impact of both less and high IT capability are positive. Furthermore, the
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highest customer service management performance is achieved when the organization put high priority on IT capability, while adopting high level of management commitment.
CSM Performance
16.8
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IT Capa bility
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low
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Management Commitmen
Figure 13: The moderating effect of IT capability on the relationship between management commitment and customer service management performance
BPR factors - IT capability-business operations efficiency performance
Figure 13 shows that when the level of management commitment is low to moderate, the impact of management commitment on business operation efficiency performance is better good for those organizations operating with IT capability attribute compare to those organizations operating with less IT capability attributes. However, when the level of management commitment is moderate to high, the impact of management commitment on business operation's performance is greater
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for those organizations with less emphasis on IT capability compare to those organizations that have the high emphasis on IT capability attributes. The maximum business operations efficiency performance is achieved when the IT capability attributes are high, with higher level of management commitment. The overall findings from the study prove that links between IT capabilities on the relationship between BPR factors and organizational performance have been established for the study. This linkage provides a new empirical contribution to
Biz OPS Efficiency Performance
academic knowledge and practitioners.
55 54.5 54 53.5 53 52.5 52 51.5 51
IT Capability high med low
low
med
high
Management Commitment
Figure 14: The moderating effect of IT capability on the relationship between management commitment and business operations efficiency performance
The challenge for academia is to carry out more research on multi-disciplines to establish the links for the benefit for the industry and society as a whole. As for practitioners, in the search for organizational excellence, organizations should not be dependent on a particular management technique, but rather, multi management techniques are essential to organizational survival and success. The following section discusses the implications from the study.
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Implications of the study The results from this study have provided several implications to practitioners and academicians. These implications also serve as recommendations to managers and a contribution to the body of knowledge for academia. The following implications are categorized into managerial and theoretical implications.
Managerial implications Several studies have identified IT capability as a strong source that provides a basis of gaining competitive advantage and enhancing organizational performance (Adam, 1993; Bharadwaj, 2000; Floyd & Wooldridge, 1990; Quinn et al., 1994; Santhanam & Hartono, 2003). Furthermore, a large number of studies (e.g., Banker & Kauffman, 1988, Carroll & Larkin, 1992; Clemons & Row, 1988; Clemons & Row, 1991 as cited in Wade & Hulland, 2004) found that complimentary resources must be present to mediate/moderate the relationship. Empirical evidence predicts that IT needs to interact with other human and business resources to create IT resources that are valuable, rare and applicable to achieve the initial, short-term competitive advantage. To achieve a long-term advantage, IT resources must be difficult to imitate and hard to substitute (Wade & Hulland, 2004). Only a few studies (e.g., Sager, 1998; Venkatraman & Zaheer, 1990 as cited in Wade & Hulland, 2004) found that strategic IT has no impact on performance. This study contributes to managerial implications for managers, especially in the bank setting. Managers are encouraged to invest in terms of time, money, commitment and other resources to implement the BPR strategies. Evidence from this study suggests that
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organizations should develop IT support in order to further benefit from various strategic activities.
The overall results from this study confirm that BPR factors (adequate financial resources, management commitment and IT investment) contribute towards organizational performance. Thus, Nigerian banks should strive to associate the implementation of BPR with IT capability. Special attention needs to be given to specific factors of BPR that are associated with a particular organizational performance variable. To improve service management performance, organizations need to focus on personnel commitment and customer relationship management. Customer focus plays a vital role in getting feedback on customer service delivery, and the value-added services required to meet the demand for new/improved products and services. BPR is a management approach to improve customer service by redesigning of processes with a view to enhancing both the efficiency and effectiveness in customer service (Cheng & Chiu, 2008).
Therefore, establishing long-term customer relations through superior service is critical for banks to remain competitive. In this study, the moderating effects of IT capability have a significant positive association between customer focus and overall performance. Hence, Nigerian banks wishing to improve the overall performance should consider implementation of IT capability with BPR. However, management commitment to the organizational activities is crucial for overall performance achievement. Thus, top management should accept the BPR consultant’s positive recommendations on restructuring of processes for operational
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performance improvement, and that key personnel within the organization should be assigned to handle tasks appropriately.
Similarly, IT investment and change management are important factors for Nigerian banks to consider in order improve overall performance. Organizations that focus on IT investment are found to be more productive and profitable (Brown et al., 1995). Staff motivation through an effective reward system has an important role in encouraging employees to accept changes like re-engineering approach without fear (Al-Mashari & Zairi, 1999). In this study, management commitment, customer focus, IT investment and change managements were significantly related with overall performance. Hence, Nigerian banks should consider the investment in strategic IT and motivate employees appropriately.
In achieving business operations efficiency performance, organizations should focus on training and education of employees on newly introduced operational processes, empower core process owners and encourage initiatives for staff productivity. Training and education are an important component of successful BPR implementation (Zairi & Sinclair, 1995). Organizations that undertake reengineering projects may have to increase the training budget by 30-50 per cent as both front and back office staff with IT-related skills and expertise would benefit from education and training (Tower, 1994). It is critical to educate people in ITrelated innovations for competitive advantage, the potential of IT in re-shaping the business and leadership of empowered organization (Bruss & Roos, 1993).
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Previous studies have acknowledged that organizations that are IT oriented towards efficient and effective service delivery for competitive advantage indirectly enhance organisational performance (Kintana, Alonso, & Olaverri, 2003; Yongmei et al., 2008; Shao et al., 2010; Said et al., 2009). The overall results of the present study confirm that IT capability dimensions contribute towards organisational performance. Nigerian banks should strive to become technologically oriented banks to achieve competitive advantage and enhance organizational performance. Organizations should consider IT capability as a competence within the organization to achieve the competitive advantage. The present study identified IT capability as a competence that contributes towards customer service management performance and overall performance. Among the IT skill-knowledge that can contribute to organizational performance are proactive in e-banking innovation and regular training courses for IT staff.
Organizations should consider IT capability (IT knowledge, IT operations and IT object) as a competency that has been found to be positively associated with customer service management performance and operation's efficiency performance. Some of the IT operation's activities include communication links to the branch network online real time 24/7 through wide area network (WAN) and local area network (LAN) with the minimal system down time. IT Object complements the IT operation's activities by providing comprehensive procedures and detailed requirements for operational transactions. The detailed operational procedures provide an explanation of the computerization of operational services and IT objects.
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The findings from this study of the moderator effect of IT capability elements have a number of important implications on the management of the organizations. A key managerial implication from the study is the interaction between BPR factors and IT capability in achieving higher organizational performance. It was found during this study that there were few significant interactions between BPR factors and IT capability dimensions. Organizations should take note of these interactions as they can enhance the performance of the organizations. The findings demonstrated that IT capability moderates the relationship between management commitment, IT investment and customer service management performance.
The findings also indicate that IT capability moderates the relationship between management commitment – customer service management performance; customer focus – customer service management performance; and management commitment – overall performance. This suggests that organizations seek to enhance the BPR factor's dimension, and performance need to ensure that IT capability play a strong role in knowledge, operations and object's competence by demonstrating a strong knowledge on IT-related programmes to all IT staff across the activities within the organization.
The study has also found that IT capability moderates the relationship of management commitment – business operation's efficiency. Therefore, this study provides some evidence that organizations need to focus on IT capability by demonstrating activities, such as communication network links to branches through WAN and LAN 24/7 with minimal down time.
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Finally, IT capability was found to have a moderating effect on the relationship between customer focus and overall performance. IT capability moderates the relationship between adequate financial resources and business operations efficiency performance, Also, between management commitment and customer service management performance. The study suggests that organizations that seek to improve business operations efficiency performance should automate their banking operational services and monitor customer’s transaction activities to be in line with regulator's procedural guidelines. In general, it seems that IT capability is necessary for organizations to enhance the relationship between BPR and organizational performance. This confirms the roles of IT as a capability to turn the fortunes of organizations as a whole by enhancing their competitive advantage. Therefore, management of the organizations should seriously consider integrating BPR factors and IT capability as the study found support for the interaction of these two activities in contributing towards higher organizational performance.
Theoretical implications
In general, this study found empirical evidence for the theoretical relationships posited in the research framework. This study has three main hypotheses; one hypothesis is fully supported, while the other two hypotheses are partially supported. The theoretical contributions to the study are discussed as follows.
This study found empirical evidence to support the resources-based view. The resources-based view suggests that the performance of a firm is influenced by its internal resources. In the context of this study, BPR factors (Change management,
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BPR strategy alignment, Management commitment, IT investment, Customer focus, adequate financial resources) were regarded as resources. This study found that adequate financial resource and management commitment are significantly related to overall performance while IT investment was significantly related to customer service management. Particularly, this study found that resources in terms of IT investment, adequate financial resource and management commitment are the significant predictors of bank performance in Ngerian banks.
Second, this study adds further to the role of IT capability as a moderator in the relationship between BPR factors and the organizational performance of banks. In other words, this study found evidence that banks performance can be explained by BPR factors and IT capability. Specifically, the BPR factors that have been moderated by IT capability include: Change management, Management commitment, Customer focus and IT investment.
Previous studies have made no specific attempt to examine the role of IT capability in the BPR – organizational performance relationship, especially in the banking industry. Hence, this study has made an attempt to establish a link in order to assess the moderating effect of IT capability. Although this study is new in terms of identifying the role of IT capability, it is still governed by the RBV (Barney, 2001) and other related research. It is evident that the relationship between change management and overall performance is moderated by IT capability. Furthermore, the relationship between management commitment and overall performance is moderated by IT capability. In addition, the relationship between customer focus and overall performance is moderated by IT capability.
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In relation to the second dimension of organizational performance, customer service management performance, the findings indicate that IT capability moderates the relationship between IT investment, management commitment and customer service management. This result is consistent with the findings that the IT productivity paradox is explained by the revised model with IT investment affecting firm performance through IT infrastructure with influence of IT capability. To some extent, the influence that IT investment has on human-IT resources and IT-enabled intangibles also affects firm performance. However, these relationships are moderated by the IT capability, implying that no matter how much a firm spends on IT, enhanced performance will not occur without advancing IT capability (Yongmei, Hongjian & Junhua, 2008).
The third dimension of organisational performance, cost reduction, shows that IT capability moderates the relationship between change management and operation's cost reduction. The fourth dimension of organisational performance is business operation's efficiency. This study indicates that the relationship between management commitment and business operation's efficiency is moderated by IT capability.
In summary, this study provides evidence that IT capability plays a critical role in moderating the relationship between BPR factors and organisational performance. This finding provides support for the RBV of the firm, which highlights the importance of intangible resources (management commitment, customer focus, change management and IT investment) and capability (IT capability) in explaining organisational performance. Furthermore, this study not only provides evidence of a
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significant relationship of BPR factors (adequate financial resources, management commitment and performance, but it also provides significant relationship with three (3) dimensions of organizational performance (cost reduction, customer service management and business operation efficiency).
Previous literature suggested that re-engineering projects significantly improved the profitability performance of bank but not for growth or the extent of its financial intermediation (Aregbeyen, 2011). Despite the sound theoretical background and remarkable results, business process re-engineering has not always led to fantastic performance. In fact, Bashein et al. (1994) indicated that only 30 per cent of BPR projects achieved a performance breakthrough. The reasons for large failure could be as a result of the lack of sustained management commitment and leadership, unrealistic scope and expectation, resistance to change, non-encouragement to conceptualization of business process, or non-effective reward systems. It can be concluded that in organizations, not all BPR factors have a direct effect on performance (Bashein et al., 1994). Nevertheless, the study validates that BPR factors are an important determinant of bank performance in Nigeria. The research supports that the overall BPR implementation is positively associated with organizational performance.
Moreover, the findings from this study contribute to the empirical research into the relationship between the IT capability and organizational performance of Nigerian banks. It was identified that adopting IT has helped Nigerian banks to streamline the back-office operations by improving both efficiency and cost reduction. Advances in technology also influence the way bank services are delivered with the
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aim of making it more convenient for customers. For example, many banks in Nigeria now have their branches connected on-line real time (24/7). This clearly reduces the danger of carrying cash. Some banks have ATMs to make cash available to their customers 24/7. Some Nigerian bank's practice e-banking, telephone, and mobile banking, money transfer services through MoneyGram. Western Union Money transfers have enabled the Nigerian Diaspora to send money to their families (CBN, 2008). IT capability (IT operations, IT objects and IT knowledge) enables Nigerian banks to participate more effectively in the international banking arena. For instance, some technologically up to date banks can access international banking networks in order to efficiently affect fund transfers, open, amend, and negotiate letters of credit, and retrieve the up to date status of customer transactions between the banks that joined the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). The results from the study also indicate full support concerning the relationship between IT capability and organizational performance. The findings suggest that IT capability is an important source of competitive advantage for banks in Nigeria.
This study, to the author’s knowledge, is the first empirical research to study the moderating effect of IT capability dimensions of the relationship between BPR factors and organisational performance in Nigeria. Thus, this study adds to the existing knowledge of operations management studies on the combined effect of BPR factors and IT capability and its impact on organisational performance. This study contributes further to the current body of knowledge by investigating individually the effects of IT capabilities on the three (3) dimensions of organizational performance. The results from the study indicate partial support for
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the interaction effect of BPR variables and IT capability implementation. Nevertheless, the overall results indicate that some of the variables of BPR and IT capability interact significantly. Hence, it should be recognized that the role of these two management approaches complemented each other. The present study also combined various past measurement studies in measuring the variables of BPR factors, IT capability and organizational performance. Factor analysis of these measurements has contributed to new factors within the context of the country setting the present study was conducted. Thus, this measurement also adds to the body of current knowledge within the context of future research on BPR factor, IT capability and organization performance variables in Nigeria.
Limitations of the study
This study is subject to several shortcomings that limit interpretation of the findings. One of the limitations to this research is the common method variance (CMV) is a potential problem in behavioural research (Podsakoff et al., 2003). This study adopts Harman’s (1967) single factor analysis to test the common method bias and the design approach to instrument development to reduce common method bias. Future research may collect data from different sources.
Second, limitation to this study is the application of the cross-sectional design for survey research that captures the perceptions of respondents at a point in time. Thus, the study cannot prove causal relationships on a longitudinal basis.
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Third, limitation to the study is the use of subjective self-reported perceptual measures in assessing the studies. Even though an attempt was made to identify the best respondents by contacting the key personnel that provide the best information, the accuracy of self-perception might be strongly influenced by the respondent’s experience in the management of the organizations and frame of reference for the point in time. For instance, perceived biasness may occur if a person with a high reputation strongly believes that their management practices are more advanced compared to other organizations.
Fourth limitation in this study is that, the findings cannot be generalized in a larger context across the cultures of other countries, and business environments may give a different relationship between BPR factors and IT capability on organizational performance. Although, the sample size is adequate, representing 74% of the required sample size.
Directions for future research
To overcome the limitations to the study, this research suggests the need for further investigation. As the survey research to the study was based on cross-sectional design, further work needs to be done to establish the effects of changes over a longer period of time in the aspect of BPR and IT capability. Therefore, future research should consider a longitudinal study to examine BPR and IT capability implementation and how their impact influences organizational performance.
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Since the present study employed the quantitative technique in the design and analysis, the information gathered is limited to the questionnaire's response. The use of qualitative information should be incorporated in future research because this approach provides insights and understanding of the problem setting. The results from the study will be more meaningful if both quantitative and qualitative techniques are employed as both can complement each other.
The use of a single person to answer the questionnaires may result in monoresponse bias. Thus, future research should consider multiple respondents to provide a more balanced perspective of BPR variables, IT capability and organizational performance perspectives.
The sample from the study is limited to Nigerian banks. Future research should consider replicating this study in other cultures or countries, especially on the moderating effect of IT capability dimensions.
In addition, the mediating effect of IT capability should be tested on the relationship between BPR factors and organisational performance. Furthermore, further research also needs to be conducted in other sectors or industries besides banking, such as manufacturing or the construction sector.
This research would help to generalize the findings from this study in a broader context. Alternatively, a cross-cultural comparative analysis would further enhance the understanding of the BPR and IT capability of different cultures.
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Summary
An attempt was made in the present study to investigate the link between BPR factors and IT capability and their effect on organisational performance. The results of the present study establish the important role of IT capability towards competitive advantage and organisational excellence. IT operations, IT objects and IT knowledge is the most important dimensions of IT capability attributes that contribute to higher organization performance. Stakeholders in the organization should recognize the important role that IT operations play in managing the organization. Putting in competent CIO leadership will provide the right culture for organizational excellence since IT has the necessary capabilities to drive strategic competitive advantage and performance. The role of IT capability is not only to coordinate but also to provide the competitive advantages for organizational profitability performance and growth.
The overall findings from the study in broad term have proven that, the relationship between BPR factors, IT capability and organizational performance had been established for the study. Specifically, new factors have emerged after conducting factor analysis such as high volume of financial activities and strong capital base which were considered as the dimensions of adequate financial resources. The BPR factor such as adequate financial resources and management commitment had significant positive causal relationship with organisational performance. Also, adequate financial resources in terms of high volume of activities and strong capital base are significantly related to cost reduction, customer service management and business operation efficiency performance. Similarly, management commitment
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has positive causal relationship with customer service management and operations efficiency performance. Furthermore, IT investments have a significant positive association with customer service management performance. However, change management, customer focus, and BPR strategy alignment had no significant association with organisational performance in the context of Nigerian banks.
IT capability has a significant moderating influence on the relationship between management commitment and organisational performance. A higher level of IT capability has stronger moderating effect on the relationship than low IT capability attributes. In contrast, IT capability does not have any significant moderating influence between financial resources and organisational performance. IT capability has a significant moderating effect on the relationship between customer focus and organisational performance. In addition, IT capability significantly moderates the relationship between IT investment and customer service management. Moreover, IT capability significantly moderates the relationship between change management and organisational performance. However, IT capability does not moderate the relationship between BPR strategy alignment and organisational performance.
Finally, the conceptual model of this research was developed from relevant extant literature which covers the key variables such as BPR factors, IT capability and organisational performance. Attempt was made in chapter three to synchronise and relates the variables in the conceptual model with underpinning theories – RBV, Dynamic capability and Complementarity. This study provides new empirical contribution to academic knowledge and practitioners. To the academia, more research on multi-disciplines needs to be conducted to establish the relationship
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beneficial for the industry and society in general. To the practitioners, the search for organizational performance and competitive advantage should not be dependent on a particular management technique but multiple management initiatives, which are important for survival and success.
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A business process reengineering……12,27 business processes ................................ 13 business system diamond ..................... 32 business transformation ........................ 61 business values ..................................... 98
abandoning ........................................... 31 absence ................................................. 67 accountability ....................................... 38 adapted ............................................... 121 adequate ............................................ 127 adopt..................................................... 72 advanced information technologies ..... 18 advantage ............................... 10, 47, 105 advocates .............................................. 32 alignment ............................................. 30 alignment of project strategy ............... 43 analysis................................................. 12 applying ............................................... 22 arguments ............................................. 20 assertions .............................................. 20 assumptions .......................................... 18 ATMs ................................................. 119 automate ............................................. 117 automation............................................ 39 AVE ................................................... 137
C capitalization ........................................ 49 case studies ........................................... 59 CFA .................................................... 135 change………………………...14, 20, 50 change management…….13, 38, 39, 123 changing market needs ......................... 20 CIGNA ................................................. 17 classless ................................................ 41 clean slate ............................................. 18 commitment.......................................... 22 common goal ........................................ 17 communication ..................................... 40 communication technology .................. 71 companies ............................................. 10 competitive .. 2, 10, 12, 16, 37, 46, 47, 62, 67, 70, 72, 76, 77, 78, 79, 80, 93, 94, 95, 101, 102, 103, 104, 105, 106, 107, 115, 117, 119, 125, 126, 133, 148, 155, 160, 164, 171, 172, 173, 174, 176, 180, 184, 186, 193, 197, 198, 199, 204, 207, 208 complementarity theory........................ 16 Complementarity theory..................... 107 concept ............................................... 106 concept of IT capability...................... 115 Configuration management .................. 85 consumer sovereignty........................... 24 continuous improvement ...................... 36 Continuous Improvement ..................... 58 continuous investment .......................... 22 Continuous process improvement ........ 92 contradiction ......................................... 24 contradictions ....................................... 17 contradictory role ................................. 72 control .................................................. 45 Cookies ................................................. 21
B behavioural scientists ........................... 23 beliefs ................................................... 33 benefit .................................................. 59 benefits ................................................. 12 blank..................................................... 18 BPR .......................................... 12, 14, 17 BPR and BPI ........................................ 27 BPR factors ........................ 122, 146, 161 BPR failure factors............................... 51 BPR Methodology ............................... 53 BPR project management .................. 124 BPR Project management .................... 43 breaking ............................................... 11 business change.................................... 21 business environment ........................... 10 business improvement .......................... 27 business operation's efficiency ........... 156 business performance ........................... 45 business process ................................... 10 Business Process Reengineering .... 10, 12 business process reengineering (BPR) . 35
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core....................................................... 32 core competencies ................................ 44 corporate strategy ........................... 30, 44 cost ....................................................... 10 cost reduction ....................................... 32 cost-efficient possible .......................... 34 critical factor .................................. 42, 43 Cronbach’s alpha ............................... 138 cultural integration ............................... 95 Customer demand ................................ 29 Customer focus ............................ 46, 125 Customer Friendly ............................... 12 Customer requirements ........................ 46 customer service management ..... 62, 153 customer value ..................................... 48 cycle time ............................................. 34 Cycle-time ............................................ 35
enabler .................................................. 20 entrepreneurship ................................... 49 European .............................................. 12 Evaluating process................................ 17 evolutionary.......................................... 37 experimentation .................................... 42 Exploratory factor analysis (EFA) ..... 135 extreme ................................................. 19 F Factors ................................................ 105 Fahy .................................................... 103 failure in reengineering practice ........... 30 failure of BPR ...................................... 50 fallacy ............................................. 18, 19 fantastic outcome.................................. 37 fear........................................................ 53 feedback ............................................... 63 finance theory ....................................... 29 financial ................................................ 59 Financial performance measures .... 132 Financial resources ............................... 48 financial sector ..................................... 14 firms ..................................................... 12 fix ......................................................... 15 flexibility .............................................. 10 flexible.................................................. 72 Ford ...................................................... 17 freedom ................................................ 23 fundamental barrier .............................. 41 fundamental rethinking .................. 10, 30
D Data .................................................... 138 Defined level ........................................ 86 dependent variable ............................... 59 De-regulation/Liberalization ................ 28 design ............................................. 12, 19 Design To-Be Processes ..................... 57 Diaspora ............................................... 16 difficult................................................. 73 Directions ........................................... 182 disabler ................................................. 20 Discriminant validity ......................... 137 Discussion ............................................ 34 downsizing ........................................... 25 downsizing, .......................................... 39 dramatic ............................................... 10 dynamic capability ............................. 106 Dynamic capability ............................ 185 dynamic capability's theory.................. 16
G Gains .................................................... 37 Gateway Management Consulting Incorporated ..................................... 52 general categories ................................. 34 Gill........................................................ 21 globalization ................................... 29, 67
E Economics ............................................ 13 Effective communication ..................... 40 Effective organizational culture ........... 41 Effective process redesigns ................ 127 Effectiveness ........................................ 13 Efficiency ....................................... 13, 35 eliminated............................................. 11 embedding ............................................ 21 empirical .............................................. 59 Empirical evidence............................. 115 employee commitment ......................... 24 empowerment ................................. 22, 41
H Hammer ................................................ 28 hierarchical ........................................... 23 higher.................................................... 79 History .................................................. 11 Human involvement ............................. 42 hypocrisy ........................................ 22, 24 hypocritical ........................................... 23
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key ........................................................ 20 key challenge ...................................... 101 key performance indicators .................. 34 key process ........................................... 82 knowledge-based view ......................... 75 KPIs ...................................................... 34
I Implement New Processes ................. 58 implementation .............................. 18, 19 Implications........................................ 171 improve customer service .................... 14 improvement indicator ......................... 59 improvements....................................... 15 improving ............................................. 11 incisive criticism .................................. 23 inconsistent results ............................... 95 increase profit....................................... 30 independent variable ............................ 59 in-depth knowledge .............................. 38 information and communication technologies ..................................... 30 information technology ........................ 20 Information Technology ...................... 10 Initial level ........................................... 83 innovation ............................................ 10 Innovative banking............................... 14 intangible ............................................. 95 Integrated service management ............ 88 i Inter group coordination ...................... 90 intervening ........................................... 96 involvement.......................................... 44 irony ..................................................... 24 IT 16 IT capability ........................... 15, 68, 129 IT competency ..................................... 70 IT infrastructure ..................... 46, 71, 126 IT investment ................................. 70, 79 IT knowledge ............................... 69, 129 IT Knowledge ...................................... 74 IT monitoring ....................................... 76 IT operations .......................... 69, 75, 130 IT service capability maturity model ... 80 IT Service CMM .................................. 81 IT service providers ............................. 80 IT skills ................................................ 68
L labour approach .................................... 31 Lack of proper strategy ........................ 51 lead time ............................................... 10 lean management .................................. 35 legacy ................................................... 46 legislation ............................................. 13 Less bureaucratic (flatter) structure ..... 49, 128 Limitations ......................................... 181 liquidity ................................................ 28 long-term .............................................. 49 M Managed level ...................................... 91 management of risk asset ..................... 63 management scholars ........................... 14 management tool .................................. 15 Managerial.......................................... 171 Managerial Implication ................... 116 managerial IT skills ............................ 102 manufacturing ...................................... 11 manufacturing operations ..................... 11 Map As-Is Processes ........................... 56 maturity ................................................ 80 measure ................................................ 33 measurement ........................................ 74 mediator................................................ 97 merger and consolidation ..................... 28 metric.................................................... 34 middle management staffs .................... 37 moderate ............................................... 19 moderating effect.................................. 94 Moderating effects...................... 114, 159 moderating variable .............................. 93 moderators ............................................ 96 Money transfer ..................................... 16 motivation ............................................ 40 Motivation ............................................ 12 multidimensional .................................. 33 multiplicative level ............................... 36
J Japan .................................................... 11 JIT ........................................................ 35 job rotation ........................................... 39 Joseph Juran ......................................... 11 K
N Kaizen .................................................. 27
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Negligence ........................................... 30 new mechanism.................................... 39 new products ........................................ 13 Nigeria ............................................... 119 No clear concept of a process .............. 52 Non recognition of BPR benefit........... 53 non-financial ........................................ 59 Non-financial performance measures 131
Process Change Management............... 92 process orientation ............................... 36 process redesign ................................... 20 Process redesigns.................................. 47 processes ........................................ 12, 20 production floor level ........................... 13 profitability ........................................... 14 progressive ........................................... 14 project implementation......................... 38 project leader ........................................ 25 project management ............................. 63 Project Planning ............................. 54, 56 proponents ............................................ 20
O obliterate .............................................. 18 online ................................................... 47 online real time .................................... 16 open ...................................................... 40 operating efficiency ............................. 22 operational processes ..................... 14, 15 operation's cost reduction................... 152 Opposition and lack of commitment from top management ............................... 53 Optimizing level................................... 92 organization.................................... 10, 16 Organization process ............................ 88 Organization service .......................... 87 organization’s culture norms................ 41 organizational commitment ................. 25 organizational performance 112, 122, 157 Organizational performance............... 131 Over dependence on IT systems .......... 53 Overall ............................................... 142 over-program........................................ 22 oversight............................................... 84
Q Quality .................................................. 10 Quality ............................................ 34, 35 quality improvement methodology ...... 27 Quantitative Process Management ....... 91 Questionnaires .................................... 120 R Radical change ............................... 19, 20 radical performance improvement method ............................................. 30 radical redesign .................................... 10 radical redesigns ................................... 15 Radical Transformation ........................ 28 RBV perspective .................................. 76 RBV theory relates to BPR factors and IT capability ................................... 104 reasonably ............................................ 19 recapitalization ..................................... 48 Recapitulation .................................... 140 Receptivity to Change .......................... 41 redesigned processes ............................ 25 reduce ................................................... 24 reengineering ........................................ 17 Reengineering the Corporation’ .......... 12 Regressing ............................................ 97 regulation dimensions .......................... 13 relational view .................................... 100 Relationship........................................ 111 Reliability ........................................... 137 rents .................................................... 100 Repeatable ............................................ 83 reprogramming ..................................... 21 researchers ............................................ 17 resistance, ............................................. 38 Resolving.............................................. 74 Resource management.......................... 90
P paradox........................................... 20, 21 paradoxically ........................................ 20 Pearson’s correlation .......................... 142 people ................................................... 32 perceived ............................................ 121 performance ................................... 14, 22 performance improvement ................... 28 personnel reductions ............................ 40 Peter Drucker ....................................... 12 planning ............................................... 15 politics, ................................................. 13 positive attitude .................................... 25 positive effect ....................................... 62 practitioners.......................................... 53 pre-test ............................................... 136 previous ................................................ 59 Problem Prevention.............................. 92 problems............................................... 59
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resource-based vie ................................ 16 Resource-based view (RBV) theory .... 98 resources ........................................ 68, 98 Resources ........................................... 103 responsive ............................................ 50 restructuring ................................... 33, 39 Reward and motivation ........................ 39 rewards ................................................. 22 rhetoric ................................................. 18 risk ....................................................... 48
Tangible................................................ 95 target..................................................... 12 Taylor's ................................................. 11 technical ............................................. 102 Technical operations ............................ 75 technological change ............................ 13 technology ............................................ 21 Technology ........................................... 28 Technology Change Management ........ 92 temporary ............................................. 26 The Principles of Scientific Management .................................... 11 the quality movement ........................... 35 theoretical ............................................. 98 Theoretical.......................................... 176 Theoretical Implication.................... 118 time based............................................. 35 timeliness.............................................. 34 Timeliness ............................................ 35 Top management commitment ..... 44, 124 top managers ........................................ 25 top-down approach ............................... 53 Total Quality Management................... 11 TQM ..................................................... 36 TQM and BPR...................................... 37 Training and education ......................... 43 Training program.................................. 90 transaction cost ................................... 100 TRANSFORMATION ......................... 27 transition path ....................................... 54 trust....................................................... 41
S Scientific Management ........................ 11 service .................................................. 10 Service delivery ............................ 84, 89 Service quality assurance .................. 85 Service Quality Management ............... 91 Service request and incident management ......................................................... 85 Service tracking ................................... 84 setting ................................................... 64 shapes ................................................... 33 simple ................................................... 20 sine qua non ......................................... 25 Six-sigma ............................................. 27 skeptical ............................................... 24 skeptics................................................. 23 Specific commitment ........................... 38 speed, ................................................... 32 split....................................................... 31 sticky bundles..................................... 104 Stimulating ........................................... 41 straightforward ..................................... 20 Strategic Alignment ............................. 38 Strong ................................................... 38 structure ............................................... 43 structures .............................................. 33 Subcontract management .................. 84 success factors...................................... 30 Suitability ............................................ 30 Summary ............................................ 184 Summary of the BPR Success Factors51 super economic power ......................... 11 superior performance ........................... 67 sustained improvements ....................... 10 SWIFT ................................................. 17 systematic programme ......................... 26 systems ................................................. 22
U U.S.A .................................................... 12 understanding ....................................... 26 Unrealistic objectives ........................... 52 V Validity............................................... 135 Value chain analysis ........................... 100 value orientation; .................................. 29 volatile .................................................. 10 W weapon ................................................. 67 wholeheartedly ..................................... 26 widespread............................................ 23 workers ................................................. 22 workflow .............................................. 12 Wrong scope of process objectives ...... 52
T
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