CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter reviews relevant literature related to digital transformation and organizational
efficiency in the banking sector. The chapter includes conceptual literature, theoretical
literature, empirical studies, identified research gaps, and the conceptual framework of the
study. The purpose of the review is to provide a better understanding of how digital
transformation influences organizational efficiency, particularly within the Ethiopian
banking context. The review also supports the variables and objectives presented in
Chapter One of the study.
2.2 Conceptual Literature Review
Digital transformation has become one of the most important developments in the modern
banking industry. Financial institutions across the world are adopting digital systems to
improve service delivery, reduce operational costs, and remain competitive. In Ethiopia,
banks are increasingly investing in digital technologies to respond to changing customer
expectations and government-led financial modernization strategies.
2.2.1 Digital Transformation
Digital transformation refers to the integration of digital technologies into organizational
operations, services, and decision-making processes. According to Vial (2019), digital
transformation involves the use of technology to improve business performance and
customer experience. In the banking sector, digital transformation includes mobile banking
applications, online banking platforms, automated transaction systems, digital payment
solutions, and computerized workflows.
Commercial banks use digital transformation to improve efficiency and increase customer
satisfaction. Services such as mobile banking and online banking reduce the need for
customers to physically visit branches. In Ethiopia, many banks have introduced mobile
applications to improve accessibility and convenience for customers. Bank of Abyssinia’s
Apollo app is one example of such technological advancement aimed at improving banking
accessibility and operational efficiency.
2.2.2 Organizational Efficiency
Organizational efficiency refers to the ability of an organization to achieve its objectives
using minimum resources while maximizing output and service quality. In the banking
industry, efficiency is commonly measured through service delivery time, operational cost
reduction, employee productivity, customer satisfaction, and error minimization.
According to Daft (2020), efficient organizations are able to coordinate resources effectively
while maintaining service quality and operational stability. In digital banking environments,
organizational efficiency is highly influenced by the quality and reliability of digital systems.
Effective implementation of technology can reduce transaction delays, minimize manual
errors, and improve employee performance. However, poor infrastructure, system
downtime, and low digital literacy can negatively affect efficiency outcomes.
2.2.3 Digital Transformation in the Banking Sector
The banking sector is one of the industries most affected by digital transformation. Around
the world, banks are using technology to automate services, improve customer experiences,
and increase operational performance. Technologies such as mobile banking, internet
banking, cloud computing, artificial intelligence, and automated customer support systems
have changed the way banking services are delivered.
In developing countries like Ethiopia, digital banking adoption has increased significantly in
recent years. The National Bank of Ethiopia has encouraged financial institutions to expand
digital payment systems and improve financial inclusion. Despite these efforts, challenges
such as poor internet infrastructure, low customer awareness, cybersecurity concerns, and
system interruptions continue to affect the effectiveness of digital banking systems.
2.3 Theoretical Literature Review
This study is guided mainly by the Technology Acceptance Model (TAM). The theory helps
explain the relationship between technology adoption and organizational performance in
the banking sector.
2.3.1 Technology Acceptance Model (TAM)
The Technology Acceptance Model (TAM) was developed by Davis (1989) to explain how
users accept and use technology. The model suggests that two major factors influence
technology adoption: perceived usefulness and perceived ease of use. Perceived usefulness
refers to the extent to which users believe that technology improves performance, while
perceived ease of use refers to how simple and convenient the technology is to use.
TAM has been widely applied in studies related to digital banking and information systems.
Many researchers use the model to examine customer acceptance of mobile banking
applications and online financial services. Although the model is useful in explaining
adoption behavior, it gives limited attention to how technology affects operational efficiency
after implementation.
This study uses TAM as a theoretical foundation while extending the discussion toward
organizational efficiency outcomes such as service quality, productivity, operational cost
reduction, and workflow improvement at the branch level.
2.4 Empirical Literature Review
Several studies have examined digital transformation and banking efficiency in both
international and Ethiopian contexts. These studies provide useful findings related to digital
banking adoption, operational performance, and customer service improvement.
2.4.1 International Empirical Studies
A study conducted by Nguyen (2021) in Vietnam found that digital banking systems
improved transaction speed and reduced operational costs within commercial banks. The
study also indicated that customer satisfaction increased due to easier access to banking
services.
Similarly, Kaur and Malik (2022) examined the impact of digital transformation on
employee productivity in Indian commercial banks. The researchers concluded that
computerized banking systems reduced employee workload and improved workflow
efficiency. However, they also identified challenges related to technological adaptation and
system maintenance.
Another study by Smith (2020) in the United Kingdom revealed that digital transformation
improved customer service quality and reduced operational errors. Nevertheless, the study
emphasized that stable infrastructure and customer digital literacy were important for
successful implementation.
2.4.2 Empirical Studies in Ethiopia
In Ethiopia, digital banking research has increased in recent years due to the expansion of
financial technology services. Alene (2023) studied digital finance practices in Ethiopia and
identified challenges such as poor infrastructure, low public awareness, and technological
limitations. The study indicated that although digital banking services are growing, their
effectiveness still differs across banks and branches.
Berhanu (2024) examined digital transformation in the Ethiopian banking industry and
found that mobile banking and online systems contributed positively to operational
efficiency. However, the study mainly focused on industry-level analysis and did not
specifically investigate branch-level operational realities.
Other Ethiopian studies have focused mainly on customer adoption of digital banking
services rather than organizational efficiency outcomes. As a result, there remains limited
branch-specific evidence regarding how digital transformation affects operational efficiency
within suburban banking environments like the Bank of Abyssinia Bole Arabsa branch.
2.5 Research Gap
The reviewed literature reveals several gaps that justify the current study. First, most
previous studies focus heavily on technology adoption and customer acceptance rather than
operational efficiency after implementation. Second, many Ethiopian studies provide broad
industry-level discussions without examining specific branch-level experiences. Third,
previous studies commonly rely on either qualitative or quantitative methods instead of
combining both approaches. Finally, there is limited research focusing on suburban banking
environments where infrastructure limitations and customer digital literacy may influence
the effectiveness of digital systems.
Therefore, this study seeks to fill these gaps by examining the role of digital transformation
in improving organizational efficiency at the Bank of Abyssinia Bole Arabsa branch using a
mixed-methods approach.
2.6 Conceptual Framework
The conceptual framework of the study explains the relationship between digital
transformation and organizational efficiency. Digital transformation is treated as the
independent variable and includes mobile banking systems, online banking platforms,
computerized transaction systems, and digitized internal workflows.
Organizational efficiency is the dependent variable and is measured through service
delivery time, operational cost reduction, employee productivity, service quality, and error
reduction. The framework also recognizes the influence of moderating variables such as
internet reliability, customer digital literacy, and employee technical skills.
The framework supports the study objectives and research questions by illustrating how
digital technologies are expected to improve operational efficiency at the branch level.
REFERENCES
Alene, T. (2023). Digital finance in Ethiopia: Practice, challenges and prospects. Addis Ababa
University.
Berhanu, M. (2024). Digital transformation in Ethiopian banking industry: Challenges and
drivers. Ambo University.
Daft, R. (2020). Organization theory and design (13th ed.). Cengage Learning.
Davis, F. D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of
information technology. MIS Quarterly, 13(3), 319–340.
Kaur, P., & Malik, S. (2022). Digital transformation and employee productivity in commercial
banks. International Journal of Banking Studies, 8(2), 44–58.
National Bank of Ethiopia. (2021). National digital payments strategy (2021–2024).
Nguyen, T. (2021). The impact of digital banking on operational efficiency in Vietnam.
Journal of Financial Technology, 6(1), 21–34.
Smith, J. (2020). Digital transformation and customer service quality in commercial
banking. International Banking Review, 12(4), 88–101.
Vial, G. (2019). Understanding digital transformation: A review and a research agenda.
Journal of Strategic Information Systems, 28(2), 118–144.