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EFFECT OF THE BUSINESS PROCESS RE-ENGINEERING FACTORS AND

INFORMATION TECHNOLOGY CAPABILITY ON ORGANIZATION
PERFORMANCE

Thesis · October 2012

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 EFFECT OF THE BUSINESS PROCESS REENGINEERING
FACTORSAND INFORMATION TECHNOLOGY CAPABILITYON
ORGANIZATION PERFORMANCE

By

KABIRU JINJIRI RINGIM

Thesis Submitted to
Othman Yeop Abdullah Graduate School of Business,
Universiti Utara Malaysia,
in Fulfillment of the Requirement for the Degree of Doctor of Philosophy
June 2012

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 PERMISSION TO USE

In presenting this thesis in partial fulfillment of the requirements for a postgraduate

degree from Universiti Utara Malaysia (UUM), I agree that the Library of this
university may make it freely available for inspection. I further agree that
permission for copying of this thesis in any manner, in whole or in part, for
scholarly purpose may be granted by my supervisor(s) or, in their absence, by the
Dean of Othman Yeop Abdullah Graduate School of Business where I did my
[Link] is understood that any copying or publication or use of this thesis or parts
of it for financial gain shall not be allowed without my written permission. It is also
understood that due recognition shall be given to me and to the Universiti Utara
Malaysia (UUM) in any scholarly use which may be made of any material in my
thesis.

Request for permission to copy or make other use of materials in this thesis in
whole or in part should be addressed to:

Dean of Othman Yeop Abdullah Graduate School of Business

Universiti Utara Malaysia
06010 UUM Sintok
Kedah Darul Aman

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 ABSTRACT

The main objective of this study is to examine the effects of the business process
reengineering (BPR) factors on the Nigerian banks organisational performance.
Additionally, this study also investigates the moderating effect of information
technology (IT) capability in the relationship of BPR factors and the organisational
performance. BPR factors are operationalised by change management, BPR
strategy alignment, customer focus, management commitment, IT investment, and
adequate financial resource. The IT capability dimensions include IT knowledge, IT
operations and IT objects. Data was sent and collected through a hand-delivery
method. A proportionate stratified random sampling was used for sample selection.
560 questionnaires were sent to banks’ managers but 417 of them were returned;
giving a response rate of 74%. The findings were as follows: first, the findings
show that fully supported relationships were found between IT capability and
organisation performance. Second, the results showed that BPR factors such as
adequate financial resources and management commitment were significantly
related to overall organisational performance. Specifically, adequate financial
resource's dimension was significantly related to cost reduction, customer service
management and operations efficiency. Next, management commitment was found
to be significantly related to customer service management and operation
efficiency. Meanwhile, IT investment was significantly associated with customer
service management. Other dimensions of BPR factors such as change
management, customer focus, and BPR strategy alignment were found insignificant
to the banks’ performance. Third, upon investigating the moderating effects of IT
capability on the relationship between BPR factors and organisational performance,
the results revealed mixed supports for the interaction effects of IT capability
attributes. The outcome of this study provides important insights to both managers
and researchers for further understanding on the effects of BPR factors and IT
capability on organisational performance. The necessary suggestions on new area
of research were recommended for future researchers.
.

Keywords: Business process reengineering factors, Information technology

capabilities, Organisational performance, Banks, Nigeria.

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 ABSTRAK

Objektif utama kajian ini ialah untuk mengkaji kesan faktor-faktor perekayasaan
proses perniagaan (BPR) terhadap prestasi organisasi bank-bank Nigeria. Selain itu,
kajian ini juga menyiasat kesan moderator keupayaan teknologi maklumat (IT) di
dalam hubungan antara faktor-faktor BPR dengan prestasi [Link]-faktor
BPR dioperasikan melalui pengurusan perubahan, strategi penjajaran BPR,
berfokuskan pelanggan, pengurusan komitmen, pelaburan IT dan sumber kewangan
yang [Link] keupayaan IT termasuk pengetahuan IT, operasi IT dan
objek [Link] telah dihantar dan dikumpulkan melalui pendekatan penghantaran
secara serahan [Link] rawak strata berkadaran telah digunakan dalam
pemilihan sampel. Sebanyak 560 soal selidik telah dihantar kepada pengurus-
pengurus bank, tetapi hanya 417 yang telah dipulangkan, yang menjadikan kadar
respons sebanyak 74%. Hasil kajian adalah seperti berikut: pertama, keputusan-
keputusan menunjukkan sokongan penuh terhadap hubungan di antara keupayaan
IT dan prestasi organisasi. Kedua, keputusan menunjukkan faktor-faktor BPR
seperti sumber kewangan yang mencukupi dan komitmen pengurusan mempunyai
hubungan yang signifikan kepada prestasi organisasi secara menyeluruh. Secara
terperinci, dimensi sumber kewangan yang mencukupi mempunyai hubungan yang
signifikan terhadap pengurangan kos, pengurusan perkhidmatan pelanggan, dan
kecekapan operasi. Seterusnya, komitmen pengurusan didapati mempunyai
hubungan yang signifikan kepada pengurusan perkhidmatan pelanggan dan
kecekapan [Link] pelaburan IT didapati mempunyai hubungan yang
signifikan dengan pengurusan perkhidmatan pelanggan. Dimensi-dimensi lain
kepada faktor-faktor BPR seperti pengurusan perubahan, berfokuskan pelanggan,
dan strategi penjajaran BPR adalah tidak signifikan kepada prestasi bank. Ketiga,
setelah meneliti kesan moderator dalam hubungan di antara faktor-faktor BPR
dengan prestasi organisasi, keputusan menunjukkan sokongan yang bercampur
dalam kesan interaksi terhadap sifat-sifat keupayaan [Link] kajian ini dapat
memberikan pandangan penting kepada pengurus dan penyelidik untuk pemahaman
lanjut tentang kesan faktor-faktor BPR dan keupayaan IT terhadap prestasi
[Link]-cadangan yang diperlukan untuk penyelidikan lanjutan telah
diusulkan untuk penyelidik-penyelidik yang di masa akan datang.

Katakunci: Faktor-faktor perekayasaan proses perniagaan, Keupayaan teknologi

maklumat, Prestasi organisasi, Bank-bank, Nigeria

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 ACKNOWLEDGEMENTS

In the name of Allah, Most Gracious, Most Merciful. Praise and peace be upon His
beloved our Prophet Muhammad (SAW), his family and his companions from
whom, and by the will of [Link] escape darkness into enlightenment. It was in
this spirit that I set out to undertake the current study, and the quest for self-
actualization provided the additional push that kept me going and finally sees this
thesis come to its expected conclusion, Alhamdulillah.

I am greatly indebted to so many wonderful people for their contributions and

assistance in so many ways. Specifically, I would like to thank my supervisors Dr.
Mohd Rizal Razalli and Dr. Norlena Hasnan, who had assisted, guided and renders
their best supervisory know how throughout the entire process of completing my
thesis.

I would also like to acknowledge the support and contribution of others who have
contributed directly or indirectly in one way or another, to the completion of this
thesis. I am sorry for not being able to detail them here, butsame, I seek the
magnanimity of Allah to bestow on all of them with His blessing and bountiful -
jazakumullahukhairan kathira.

A special dedication to my wife, Binta Bala and lovely children Ayman

Muhammad, Nana-Aisha and Ummita-Suwaiba and to my brothers and sisters in
Islam for their love, cares, constant assurances, patience and understanding. Last
but not least, I am presenting this thesis as present to my parents' spirits in their
graves. Amin!

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 TABLE OF CONTENTS

Page
PERMISSION TO USE ii
ABSTRACT iii
ABSTRAK iv
ACKNOWLEDGEMENTS v
TABLE OF CONTENTS vi
LIST OF TABLES xiii
LIST OF FIGURES xvi
LIST OF ABBREVIATIONS xvii

CHAPTER 1 INTRODUCTION 1
1.1 Background of the study 1
1.2 Problem statement 5
1.3 Research questions 8
1.4 Research objectives 8
1.5 Significance of the study 9
1.5.1 Theoretical contributions 9
1.5.2 Practical contributions 10
1.6 Scope of the study 11
1.6.1 Definition of variables 12
1.6.2 Banks and financial institutions 14
[Link] Commercial bank 14
[Link] Microfinance bank 15
[Link] Mortgage bank 15
1.7 Outline of the study 16

CHAPTER 2 LITERATURE REVIEW 19

2.1 Introduction 19
2.2 Organizational performance 19
2.3 Bank performance 20
2.3.1 Overall performance of Nigerian banks 21
2.3.2 Operating cost performance of Nigerian banks 22
2.3.3 Customer service management performance of Nigerian banks 24
2.3.4 Previous studies on bank performance 24

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 2.3.5 Bank process performance improvement method 30
2.3.6 Suitability of reengineering as radical performance improvement
method 32
2.3.7 Organizational performance measurement 33
2.4 BPR factors 39
2.4.1 Change management 44
[Link] Reward and motivation 46
[Link] Effective communication 46
[Link] Creating effective organizational culture 47
[Link] Stimulating receptivity to change 48
[Link] Employee’s empowerment 48
[Link] Human involvement 48
[Link] Training and education 49
2.4.2 BPR Project management 49
2.4.3 Top management commitment 50
2.4.4 Customer focus 52
2.4.5 IT infrastructure 52
2.4.6 Process redesigns 53
2.4.7 Financial resources 55
2.4.8 Less bureaucratic (flatter) structure 56
2.5 BPR failure factors 57
2.5.1 Lack of proper strategy 58
2.5.2 Unrealistic objectives 58
2.5.3 No clear concept of a process 59
2.5.4 Wrong scope of process objectives 59
2.5.5 Non recognition of BPR benefit 59
2.5.6 Over dependence on IT systems 60
2.5.7 Opposition and lack of commitment from top management 60
2.5.8 Previous studies on BPR factors and performance in banks 60
2.5.9 Different between this study and previous study on BPR factors
and performance in banking industry settings 70
2.6 IT capabilities 73

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 2.6.1 Definition and concept of IT capability 73
2.6.2 The role of IT capability in improving performance 75
2.6.3 The contradictory role of IT as an enabler in BPR 77
2.6.4 IT capability measurement 79
[Link] IT knowledge 79
[Link] IT operations 80
2.6.5 IT service capability maturity model 85
2.6.6 The key process areas on the IT service capability maturity model
(IT services CMM) 87
[Link] Initial level 88
[Link] Repeatable level 88
[Link] Defined level 91
[Link] Managed level 96
[Link] Optimizing level 97
2.6.7 IT capability as the moderating variable 98
2.7 Underlying theories 102
2.7.1 Resource-based view (RBV) theory 103
2.7.2 How the RBV relates to this study 109
2.7.3 IT capability as dynamic capability 110
2.7.4 Complementarity theory 112
2.8 Chapter Summary 112

CHAPTER 3 CONCEPTUAL FRAMEWORK 115

3.1 Introduction 115
3.2 Conceptual framework 115
3.3 BPR factors, IT capability and organizational performance 119
3.4 Statement of hypothesis's development 120
3.5 Chapter Summary 124

CHAPTER 4 METHODOLOGY 125

4.1 Introduction 125
4.2 Research design 125
4.2.1 Types of research design 126
4.2.2 Sampling design 127

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 4.2.3 Sampling techniques 129
4.2.4 Proportionate stratified random sampling 130
4.2.5 Estimating expected response rate 131
4.3 Data collection strategy 131
4.4 Measurement instruments and operationalization of variables 133
4.4.1 BPR factors 135
[Link] Change management 136
[Link] BPR project management 137
[Link] Top management commitment 137
[Link] Customer focus 138
[Link] IT infrastructure 139
[Link] Effective process redesigns. 140
[Link] Adequate financial resources 140
[Link] Less bureaucratic (flatter) structure 141
4.4.2 IT capability 142
[Link] IT knowledge 142
[Link] IT operations 143
4.4.3 Organizational performance 144
[Link] Non-financial performance measures 144
[Link] Financial performance measures 145
4.5 Preliminary investigation on BPR implementation in Nigerian banks 148
4.6 Validity test of instrument measures 149
4.7 Reliability test analysis of construct 151
4.8 Data analysis method 152
4.8.1 Cleaning and screening the data 153
4.8.2 Descriptive analysis 153
4.8.3 Goodness of measure 153
4.8.4 Principal component analysis (PCA) 154
4.8.5 Correlation analysis 154
4.8.6 Multiple regression analysis 154
4.8.7 Hierarchical regression analysis 155
4.9 Chapter Summary 156

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 CHAPTER 5 DATA PRESENTATION AND ANALYSIS 157
5.1 Introduction 157
5.2 Response rate 157
5.3 Respondent and organizational background 159
5.4 Goodness of measures: factor analysis of the research instrument 161
5.4.1 Dependent variable – organization performance (OP) 164
5.4.2 Moderating Variable: IT capability (IT Cap) 166
5.4.3 Independent variables: BPR factors 169
5.4.4 Common method variance (CMV) test 175
5.5 Measuring the reliability of the research instrument 176
5.6 Construct Reliability and Validity 178
5.6.1 Convergent Validity 181
5.6.2 Discriminant Validity 182
5.6.3 Face Validity 182
5.6.4 Nomological Validity 183
5.7 Modified framework and restatement of hypotheses 184
5.8 Preliminary analysis 188
5.8.1 Missing data 189
5.8.2 Assessment of outliers 189
5.8.3 Presentation of descriptive statistics for independent variables 190
5.8.4 Bivariate relationship between BPR factors, IT Capability and
Organizational Performance 192
5.8.5 Multivariate relationship between IT capability and organizational
performance 193
5.8.6 Multivariate relationship between BPR factors and organizational
performance 193
5.9 Multiple regression'sanalysis tests for assumptions 194
5.9.1 Normality 194
5.9.2 Linearity 195
5.9.3 Multicollinearity 196
5.9.4 Homoscedasticity 198
5.10 Results of multiple regression (Hypotheses testing) 199

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 5.10.1 Multiple regression analysis results and hypotheses test between
BPR factors and overall performance. 200
5.10.2 Multiple regression analysis results and hypotheses test between
BPR factors and operations cost reduction performance 201
5.10.3 Multiple regression analysis results and hypotheses test between
BPR factors and customer service management performance 203
5.10.4 Multiple regression analysis results and hypotheses test between
BPR factors and business operations efficiency performance 205
5.10.5 Multiple regression analysis results between IT capability and
overall performance 209
5.10.6 Multiple regression analysis results between IT capability and
cost reduction performance 210
5.10.7 Multiple regression analysis results between IT capability and
customer service management performance 212
5.10.8 Multiple regression analysis results between IT capability and
business operations efficiency performance 213
5.10.9 Moderating effect of IT capability on relationship between BPR
factors and organizational performance 215
5.10.10 Interacting effects of IT capability attributes with BPR factors on
overall performance of banks 220
5.10.11 Interacting effects of IT capability attributes with BPR factors on
operations cost reduction performance of banks 221
5.10.12 Interacting effects of IT capability attributes with BPR factors on
customer service management performance of banks 223
5.10.13 Interacting effects of IT capability attributes with BPR factors on
business operations efficiency performance of banks 224
5.11 Chapter Summary 227

CHAPTER 6 DISCUSSION AND CONCLUSION 229

6.1 Introduction 229
6.2 Recapitulation of study 229
6.3 Overall discussion of findings 231

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 6.3.1 Relationship between BPR factors and organizational
performance 231
[Link] BPR factors and overall performance 235
[Link] BPR factors and operation's cost reduction 241
[Link] BPR factors and customer service management 242
[Link] BPR factors and business operation's efficiency 245
6.3.2 Relationship between IT capability and organizational
performance 246
6.3.3 Moderating effects of IT capability 248
6.3.4 BPR factors - IT capability- overall performance 250
6.3.5 BPR factors - IT capability-operations cost reduction
performance. 256
6.3.6 BPR factors - IT capability-customer service management
performance 256
6.3.7 BPR factors - IT capability-business operations efficiency
performance 258
6.4 Implications of the study 260
6.4.1 Managerial implications 260
6.4.2 Theoretical implications 265
6.5 Limitations of the study 270
6.6 Directions for future research 271
6.7 Conclusion 273

REFERENCES 276
APPENDIX 1 QUESTIONNAIRE 299
APPENDIX 2 DEMOGRAPHIC DATA FREQUENCIES 309
APPENDIX 3 RESULTS OF FACTOR ANALYSIS 314
APPENDIX 4 RELIABILITY TEST 330
APPENDIX 5 ASSUMPTION OF NORMALITY 339
APPENDIX 6 BIVARIATE CORRELATION 344
APPENDIX 7 MULTIPLE REGRESSION ANALYSIS 346
APPENDIX 8 HIERARCHICAL REGRESSION IT CAPABILITY –
BPR FACTORS & OVERALL PERFORMANCE 358
APPENDIX 9 POPULATION FRAME OF NIGERIAN BANKS AND
RANDOM SAMPLE SELECTION 367
APPENDIX 10 RESEARCH PROCESS 410
APPENDIX 11 LIST OF PUBLICATION FROM THE WORK 412

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 LIST OF TABLES

Page

Table 1.1 Definition of Major Variables 13

Table 2.1 Summary of Selected Previous Studies on Bank Financial and Non-
financial Performance 26
Table 2.2 Summary of Selected Studies on Organizational Performance
Dimension 38
Table 2.3 Summary of the BPR Success Factors and Causes of Failure 57
Table 2.4 Summary of Studies on BPR Factors and Performance in Banks and
Financial Services Setting 61
Table 2.5 Summary of Some Selected Previous Studies on BPR in
Organizations from Another Sector 65
Table 2.6 Summary of Some Selected Previous Studies on IT and
performance 82
Table 2.7 Five Levels of the IT Service Capability Maturity Model 87
Table 2.8 Summary of Various Relevant Theories of the Firm Performance
and their Implication 104
Table 3.1 Summary of Statement of Direct Relationship Hypotheses
Development 121
Table 3.2 Summary of Statement of Indirect Relationship Hypotheses
Development 122
Table 4.1 Proportionate stratified random sampling 130
Table 4.2 Summary of Measurement Instrument Variables, Sources, and
Number of Items 146
Table 4.3 Summary of the pilot test reliability analysis of constructs 152
Table 4.4 Summary of data analysis against each research objective 155
Table 5.1 Response Rate of the Questionnaires 158
Table 5.2 Results of the Factor Analysis for Organization Performance 165
Table 5.3 Results of the Factor Analysis for IT Capability 168

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 Table 5.4 Results of the Factor Analysis for Business Process Re-engineering
Factors (BPR) 171
Table 5.5 Summary of Reliability Analysis of Major Variables 177
Table 5.6 Constructs Validity and Reliability 179
Table 5.7 Discriminant Validity 183
Table 5.8 Summary of Revised Hypotheses 186
Table 5.9 Descriptive Statistics for Major Variables 191
Table 5.10 Pearson's Correlation between the Constructs 192
Table 5.11 Tolerance and VIF Values 198
Table 5.12 Multiple Regression Result between BPR Factors and Overall
Organizational Performance 201
Table 5.13 Multiple Regression Result between BPR Factors and Operations
Cost Reduction Performance 203
Table 5.14 Multiple Regression Result between BPR Factors and Customer
Service Management Performance 205
Table 5.15 Multiple Regression Result between BPR Factors and Business
Operation Efficiency Performance 207
Table 5.16 Summary of hypothesis testing on the direct effect of BPR factors
on organisational performance 207
Table 5.17 Summary of Hypotheses Testing for the Direct Relationship
between BPR Factors, IT Capability and Organisational
Performance 208
Table 5.18 Multiple Regression Result between IT Capability and Overall
Organizational Performance 210
Table 5.19 Multiple Regression Result between IT Capability Dimensions
and Operation Cost Reduction 211
Table 5.20 Multiple Regression Result between IT Capability Dimensions
and Customer Service Management 213
Table 5.21 Multiple Regression Result between IT Capability Dimensions
and Business Operations Efficiency 214
Table 5.22 Summary of hypothesis testing on the direct effect of IT capability
on organisational performance 215

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 Table 5.23 Hierarchical Regression Results: the Moderating Effect of IT
Capability on the Relationship between BPR Factors and Overall
Performance 221
Table 5.24 Hierarchical Regression Results: the Moderating Effect of IT
Capability on the Relationship between BPR Factors and Cost
Reduction 222
Table 5.25 Hierarchical Regression Results: the Moderating effect of IT
Capability on the Relationship between BPR Factors and
Customer Service Management 224
Table 5.26 Hierarchical Regression Results: the Moderating Effect of IT
Capability on the Relationship between BPR Factors and Business
Operations Efficiency 225
Table 5.27 Summary of hypothesis testing on the in- direct effect of BPR
factors, IT capability and organisational performance 226
Table 5.28 Summary of Hypotheses Testing for the Interaction between BPR
Factors, IT Capability and Organisational Performance 228

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 LIST OF FIGURES

Page

Figure 2.1 Model Framework of Khong & Richardson (2003) 72

Figure 2.2 Model Framework of Cheng & Chiu (2008) 72
Figure 2.3 Graphical Presentation of a Moderated model 101
Figure 2.4 Graphical Presentation of a Mediated model 102
Figure 2.5 Conceptual Framework 113
Figure 3.1 Research Model 118
Figure 5.1 The modified research model to the study 185
Figure 5.2 Residual plot – BPR Factors and Organizational Performance 196
Figure 5.3 Framework for identifying Moderator variables (Adopted from
Sharma, Durand & Gur-Arie, 1981) 217
Figure 5.4 The moderators identified for the study based on typology of
specification variables by Sharma et al. (1981) 218
Figure 6.1 The moderating effect of IT capability on the relationship between
management commitment and overall performance 252
Figure 6.2 The moderating effect of IT capability on the relationship between
customer focus and overall performance 254
Figure 6.3 The moderating effect of IT capability on the relationship between
change management and overall performance 255
Figure 6.4 The moderating effect of IT capability on the relationship between
change management and operation's cost reduction Performance 256
Figure 6.5 The moderating effect of IT capability on the relationship between
IT investment and customer service management performance 257
Figure 6.6 The moderating effect of IT capability on the relationship between
management commitment and customer service management
performance 258
Figure 6.7 The moderating effect of IT capability on the relationship between
management commitment and business operations efficiency
performance 259

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 LIST OF ABBREVIATIONS

24/7 Online –Real Time (24 Hours in a day, 7 days in a week)

AFR Adequate Financial Resources
ATM Automatic Teller Machine
BPI Business Process Improvement
BPR Business Process Reengineering
BSC Balance Scorecard
CBN Central Bank of Nigeria
CIMA Chartered Institute of Management Accountant
CIO Chief Information Officer
CM Change Management
CSF Critical Success Factor
CSM Customer Service Management
EAGLE Efficiency, Accountability, Goal orientations, Leadership,
Effectiveness and staff motivation
EPR Effective Process Redesign
EPS Earnings per Share
FOREX Federal Mortgage Bank of Nigeria
GDP Gross Domestic Product
ICT Information and Communication Technology
IS Information System
IT Information Technology
ITC Information Technology Capability
ITSCMM Information Technology Service Capability Maturity Model
KBV Knowledge Based View
KPI Kay Performance Indicator
LAN Local Area Network
LBS Less Bureaucratic Structure
MFB Microfinance Bank
MMPF Multi-Model Performance Framework
NDIC Nigerian Deposit Insurance Corporation
ONFP Organisational Non-Financial Performance
OFR Organisational Financial Performance
OP Organisational Performance
OPS Operations
PMI Primary Mortgage Institution
POS Point of Sale
RBV Resource-based View
ROE Return on Equity
ROI Return on Investment
SLA Service Level Agreement
SMS Short Message Services
SPSS Statistical Package of Social Science
SWIFT Society for Worldwide Interbank Financial Telecommunication
WAN Wide Area Network

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 CHAPTER 1 INTRODUCTION
CHAPTER 1
INTRODUCTION

1.1 Background of the study

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(Randle, 1995). Innovative banking services and personalized portfolio

management are evolving as the market consolidates due to mergers and

acquisitions of up-to-date 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. Central Bank of Nigeria (CBN) initiated business process

reengineering (BPR) project tagged EAGLES (Efficiency, Accountability, Goal

orientations, Leadership, Effectiveness and Staff motivation). The objective is to

enhance the operations and quality of banks, which include: industry remedial

programmes to fix the key causes of the crisis; risk-based supervision; reforming

the regulatory framework; enhanced customer protection as well as internal

transformation of the bank (CBN, 2009).

On the internal transformation aspect, the CBN in partnership with

PricewaterhouseCoopers conducted a comprehensive assessment of the bank's core

and non-core operations that required fundamental restructuring. The identified

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 areas were customer service delivery, regulatory function of the CBN, performance

management & benchmarking, information technology (IT), customer satisfaction,

human resources and administration and communication effectiveness at all

stakeholder levels (CBN, 2009). In doing so, 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 (Goll & Cordovano, 1993). Allen (1994)

argued that, 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).

BPR is a popular management tool for dealing with rapid technological and

business changes (Ranganathan & Dhaliwal, 2001). It was introduced by Hammer,

as radical redesigns of processes in order to gain significant improvements in cost,

quality, and services(Ozcelik, 2010).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(Siha & Saad, 2008).BPR

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 integrates all departments into a complete process that has been designed to fulfil a

specific business goal (Cheng, Tsai & Xiano, 2006).Successful implementation of

BPR enables organizations to achieve dramatic gains in business performance(Shin

& Jemella, 2002).

BPR helps banks to deal with new economic challenges and change the traditional

processes to improve their customers' satisfaction. BPR(Herzog, Polajnar &

Tonchia, 2007) 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 to the organization cultural norms, and IT

(Ahmad, Francis, & Zairi, 2007; Al-Mashari & Zairi, 1999, Attaran, 2004, Bhatt,

2000; Davenport & Short, 1990; Hammer & Champy, 1993; Khong & Richardson,

2003; Murray & Lynn, 1997).

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

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

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 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 (Dos-Santos, 1995). 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 (Davenport & Short, 1990; Hammer, 1990; Teng, Grover & Fielder,

1994). In Nigeria, liberalization of the banking sector and high-technology

capability has brought revolutionary changes in customer relationship's

management(Aregbeyen, 2011).

IT in banking sector is an important tool that helped to streamline the back-office

operations by improving both efficiency and cost reduction (David-West, 2005).

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

in Nigeria have their branches connected online real time (24/7). Some banks have

ATMs to make cash available to their customers 24/7. Nigerian bank's practice e-

banking, telephone, and mobileservices, Money transfer services through

MoneyGramme, and Western Union Money transfer. These enabled the Nigerian in

Diaspora to send money to their families (CBN, 2008). Moreover, the IT capability

(IT operations and IT knowledge) makes Nigerian banks participate more

effectively in the financial service arena. For instance, some organization can

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 access international banking networks for efficient fund transfers, open, amend, and

negotiate letters of credit, and retrieve up to date status of customer transactions

between the banks that joined the Society for Worldwide Inter-bank Financial

Telecommunication (SWIFT).

1.2 Problem statement

As the world becomes technologically advanced with increased in global

competition in financial service industry, banks are left with no choice but to look

beyond local competition (Randle, 1995).In Nigeria, liberalization of the banking

sector has changed the form of competitive advantage for the industry. New

generation banks emerged. The old generation banks consolidate operations either

by merger, acquisition, raised up capitalization based and reengineer their

operations in order to be able to improve their performance and compete

effectively. The consequences of merger and consolidation of operational process

and an intensified foreign competition in the financial service industry through

liberalization and globalization faced by the organizations led to radical changes in

operations, and services that resulted in conflicting performance Wei & Nair,

2006). Customer focus became a key factor in determining the success as an

organization (Idris, 2011). The bank that has the largest customer base and the

highest customer retention rate is the market leader in the industry. Hence, the

quality of customer service becomes a driving force in ascertaining business

survival in the banking industry (Tang &Zairi, 1998). To survive and excel in this

type of business environment, organisational performances become the main

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 concern for the banks in Nigerian. Implementation of the BPR alone cannot fully

result to sustainable performance of bank’s operating in turbulent business

environment.

Previous studies that examined the BPR factor performance relationships such as

those conducted by Cheng and Chiu, (2008); Khong and Richardson, (2003) have

ignored the specific nature of IT capability, and, also, have not fully considered

important environmental conditions that influence the relationships. The literature

in BPR implementation is widespread with lack of thorough empirical evidence of

BPR impact on performance. Hence, there is a need to relate factors that may

contribute to organizational performance within the context of other variables that

also affect performance (Devaraj & Kohli, 2000).

Using resources based view (RBV) of firm performance; the theory explains the

relationship between organization resources and sustaining competitive advantage

for superior performance relative to competitors (Barney, 1991; Fahy, 2000). The

dynamic capability in form of IT capability was introduced to address the

theoretical limitation of RBV on issues of having sustainable performance in

turbulent business environment (Paulous, 2004). The complementarity theory is

also mentioned to address the inadequacy of RBV for isolation of resources in

creating or sustaining competitive advantage (Dedrick, Gurbaxani, & Kraemer,

2003; Kohli & Devaraj, 2003; Melville et al., 2004). This research is aimed to study

the moderating effect of IT capability attributes to the relationship between BPR

factors and organizational performance of Nigerian banks using survey

questionnaires. When examining the relationship between the reengineering factors

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 such as resources and performance, it was posited that some key moderating

variables that are important issues for the research may exist (Wade & Hulland,

2004). The moderating variable of great interest is the organizations’ IT capability

and its influence on the resources (BPR factors) such as performance, BPR &IT

relationships(Liu, Liu & Hu, 2008).

IT capability is more that of a moderator than a mediator, since definition of IT

capability is the ability to mobilise and deploy IT based resources in combination

with other resources and capabilities (Bharadwaj, 2000). Therefore, a moderator

variable is introduced to see whether the relationship changes strengthen/weaken

with the presence of the moderator. Previous studies such as Yongmei, Hongjian,

and Junhua, (2008); Said, Hui, Taylor and Othman, (2009); Shao, Feng, Choudrie,

and Liu, (2010) used IT capability as a moderating [Link], the

relationship and influence have not been explicitly been explained. The financial

service industry is one of the early adopters of new information technologies

thatmean the effect of IT capability on firm performance is inconclusive in the

sector in general unlike in the manufacturing sector (Brynjolfsson, 1993).Hence,

there is a need to understand the effect of the IT capability attributes to the

relationship between BPR factors and performance, particularlyof Nigerian

[Link] view of the research problem that are presented above, specifically in the

Nigerian context as none of the existing studies to the knowledge of the researcher

provide integration between BPR factors and IT capability, this study seeks to

address the following research questions.

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 1.3 Research questions

Based on above discussions on the research problem, the following questions are

going to be addressed accordingly by the research:

1. To what extent does the BPR factors relate to the organizational performance

of Nigerian banks?

2. To what extent does IT capability affect the organizational performance of

Nigerian banks?

3. To what extent does the level of IT capability moderates the relationship

between the BPR factors and the organizational performance of Nigerian

banks?

1.4 Research objectives

The purpose of the research is to study the effect of BPR factors on the

organizational performance of Nigerian banks with IT capability as the moderating

factor. Thus, the objectives of this study are derived from the above research

questions that this study seeks to answer as follows:

1. To examine the relationship between the BPR factors and the organizational

performance of Nigerian banks.

2. To determine the effect of IT capability attributes on the organizational

performance of Nigerian banks.

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 3. To examine the moderating effect of IT capability on the relationship between

BPR factors and the organizational performance of Nigerian banks.

1.5 Significance of the study

1.5.1 Theoretical contributions

First, the study contributes to the existing body of knowledge by integrating IT

capability and BPR factors in the banking performance relationship in one study.

These two concepts (BPR factors and IT capability) represent the two main

independent research streams. Previous studies independently investigated the link

between BPR and performance (Cheng& Chiu, 2008; Sidikat & Ayanda 2008;

Khong &Richardson, 2003; Terziovski et al., 2003). IT capability and performance

studies (Armstrong & Sambamurthy, 1999; Bharadwaj, Bharadwaj & Konsynski,

1999; Bou-Wen, 2007; Brynjolfsson, 1993; Chan, 2000; Chun & Mooney, 2009;

Gatian, Brown & Hicks, 1995; Gottschalk, 2002; Huang et al., 2009; Lin, 2007; Liu

et al., 2008; Mata, Fuerst & Barney, 1995; Ross & Feeny, 1999; Santhanam &

Hartono, 2003; Sinan & Peter, 2007; Szanto, 2005; Wu, Chen & Sambamurthy,

2008; Yongmei et al., 2008). Thus, this study adds to the existing knowledge of

Management studies of the combined effect of BPR factors and IT capability and

its impact on organizational performance. This research adds value to the

Operations and Management field in that BPR factors to relate directly to business

performance and indirectly through the moderating effects of IT capability

attributes.

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 Second, this study has examined the specific linkages between IT capability

attributes and dimensions of organizational performance. In other words, BPR

factors were examined with regard to the moderating effect of IT capability in

relation to cost reduction, customer service management and business operations

efficiency. Previous research only studied the linkages between BPR and

performance; or, IT capability and performance in general without examining the

specific issues of cost reduction, customer service management and business

operation efficiency performances. Therefore, this study contributes further to the

current body of knowledge by investigating the effects of IT capability on BPR

factors with regard to the dimensions of organizational performance.

Third, this study extends the existing body of knowledge by improving the

understanding of BPR factors and IT capability issues of banking and financial

organizations in Nigeria. Studies on BPR and IT capability are scanty in developing

countries as most research has been conducted in the developed countries such as

the United States and European countries (Al-Mashari, Irani & Zairi, 2001;

Brandon, Bransford, Guimaraes & Tor, 1999; Currie & Willcocks, 1996; Shin &

Jemella, 2002). Thus, this study further extends the current knowledge of the

Operations Management in financial and banking organizations of developing

countries, generally, and Nigeria, specifically.

1.5.2 Practical contributions

This study provides empirical evidence on the relationship between the BPR factors

in the banking business in Nigeria and the moderating effect of IT capability on

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 organizational performance. Thus, the present study will benefit managers, business

practitioners, the Nigerian government and academics by enhancing their

knowledge and understanding concerning the influence of IT capability on the BPR

performance of banking and financial organizations in Nigeria. Both BPR factors

and IT capability are regarded as sources of competitive advantage. The outcome

from this study justifies further investigation and investment on IT.

1.6 Scope of the study

The study focuses on the BPR factors, IT capability and organizational performance

of banks and financial institutions in Nigeria. The adapted BPR factors in banking

are: 1) Change management; 2) Management commitment; 3) Project management;

4) Less bureaucratic structure; 5) Customer focus; 6) Effective process redesign; 7)

Adequate financial resource; 8) IT infrastructure (Salimifard, et al., 2010). The

moderating variable IT capability attribute in this study was adapted from study

conducted by Tippins & Sohi, (2003).

In respect of the organizational performance, this study considers multiple

measurement of performance (Financial performance,non-financialperformance).

The financial performance indicators consist of profit, profit growth performance

target and sales growth. The non-financial performance indicators include: response

to competition, future outlook, and success rate in new-product launch,

organizational performance, customer service management, market research,

customer relationship management, customer satisfaction, operational performance,

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 speed, quality service and process improvement indicators (Sidikat & Ayanda,

2008; Tennat& Wu, 2005; Terziovski et al., 2003; Wei, 2006).

The scope of the organizations surveyed includes commercial banks,

microfinancebanks and mortgage finance institutions in Nigeria. The study focuses

on the organisational level from the management perception of BPR factors, IT

capability and organisational performance. Thus, the sample was limited to the

managers or senior executives within the organization. The study could not identify

the view in the organization from the customer’s perspectives as the management

are in a better position concerning the operations, services, planning and decision-

making process of the organizations. Nigeria was selected, first, because it is a

developing economy that is striving to catch up with other developing nations like

Malaysia, Singapore, and South Africa. In Nigeria, the banking sector’s

contribution to GDP from 2004 to 2009 ranged from 8.0% to 10.5% (CBN, 2009).

The financial service industry is competitive in the Nigerian environment, with

each bank requiring IT and the strategic management approach to improve its

organizational performance (Idowu, Alu & Adagunodo, 2002).

1.6.1 Definition of variables

Three major variables are involved in the study: BPR factors in banking, IT

capability and organizational performance. The operational definitions of these

variables are briefly discussed at Table 1.1.

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 Table 1.1
Definition of Major Variables
Variable Operational Definition
A. BPR factors in This study defines BPR factors as the extent of the few reengineering
banking factors that lead to successful outcomes for reengineering projects.

1. Change This study defines change management as the extent of all human,
Management 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 without resistance.

2. Top This study defines management commitment as the extent of top

Management management commitment to ensure that employees contribute
Commitment towards the successful achievement and remarkable improvement in
the organizational performance of the bank.

3. Project This study defines project management as the extent of alignment of

Management strategy with corporate strategy, effective use of consultant, planning
and project management techniques and adequate identification of
project values and bank performance measurement.

4. Effective Process This study defines the process redesign as the extent of the
Redesign organization to create or redesign processes that have a direct impact
on customer value and cost on the operational system of a bank.

5. 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.

6. Adequate This study defines adequate financial resources as the extent of

Financial monetary resources available to meet the budgetary allocation for
Resources successful implementation of projects for improvement over the
performance of a bank.

7. Less This study defines a flatter structure as the extent of organizational

Bureaucratic structure that encourages creativity and innovativeness. The less
Structure (Flatter bureaucratic and more participative organization the better, which
Structure) would avoid failure of BPR implementation.

8. 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 IT infrastructure,
proper IS integration, reengineering of legacy IS, increasing IT
function as competency, and use of software tools.

B. IT Capability This study defines IT capability attributesasthe extent to which

cumulatively the IT knowledge, IT operations and IT object's
dimensions of IT competency represent co-specializedresources that
provide an indication of the organization’s ability to understand and
utilize IT tools and processes that are needed to manage market and
customer information.

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 Table 1.1 (Continued)
Variable Operational Definition
1. IT knowledge IT knowledge is referred as the extent to which a firm possesses a
body of technical knowledge about objects such as computer-based
systems.
2. IT operations IT operations refer to the extent to which a firm utilises IT to
manage market and customer information.

3. IT objects IT objects refer to computer-based hardware, software and support

personnel.

C. Organizational This study defines organizational performance asthe level of bank

Performance performance (increase/decrease) in terms of both financial and non-
financial performance indicators."
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).

1.6.2 Banks and financial institutions

A bank is a financial institution that acts as a financial intermediary for collecting

deposits and channels those deposits into lending activities. Banks mediate between

those customers with surplus capital and those with a deficit. Banks play a critical

role in the financial system and economy by allocating funds from savers to

borrowers, which enables the overall economy to function in an effective and

efficient manner. Brief discussions on the types of the bank focused upon in the

research are outlined below.

[Link] Commercial bank

A commercial bank is a financial institution that facilitates daily business

transactions and serves as an intermediary channels surplus fund to the

entrepreneurs who need the funds for productive purposes in the economy. Banks

accept deposits from the public, lend money to those who are in need at a premium

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 called interest, and allow depositors to withdraw using cheques, counter tellers and

electronic cards. Banks help in the remittance of funds from one place to another.

Other functions as a bank include issuing credit instruments, such as letters of

credit, traveller’s cheques to customers, underwriting capital issues, safe custody of

valuables, advice and information, ATM and credit cards.

[Link] Microfinance bank

Microfinance banks in Nigeria can be described as the financial services institution

for poor and household low-income earners. It is a unit banking system that acts as

linkage between the informal forms of rural savings, called ASUSU, commonly

practiced by rural and some urban petty traders, as well as small and medium

businesses. Abdulkadir (1989) stated that microfinance banks were formed in order

to improve the banking habit of the rural populist. Microfinance banks extend credit

facilities to rural farmers, artisans and craftsmen within the locality based on their

self-recognition, credit worthiness and guarantees from their social clubs,

cooperatives and societies. This method of lending, practices placing emphasis on

adequate collateral security before such loans are given.

[Link] Mortgage bank

Primary mortgage institutions (PMIs) were considered as retail mortgage banks

operating under the operational and supervisory regulations of the Federal

Mortgage Bank of Nigeria (FMBN). PMIs were motivated to encourage individuals

to open accounts with them and deposit regularly to save towards home purchase

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 and the mortgage of property. However, some Nigerian PMIs were engaged in

direct construction and the sale of houses in order to enhance their profit margin.

Many PMIs were further involved in the consummation of larger transactions

meant for the commercial and investment banking. This, coupled with other

challenges, exposed the PMI’s to severe risk, which led to the non-performance of

the institutions. Nubi (2006) confirmed this in his study findings in that over 80%

of PMIs were engaged in direct construction and outright sales to buyers, 70% of

the risk asset portfolio was short-term facility granted to commercial traders and

local purchase order financing (LPO) to contractors of government agencies. The

high default rate of risky financing, tight liquidity position in the financial service

sector contributed to the dismal performance of the PMIs in the country.

Generally, the primary functions as a bank (commercial, microfinanceor mortgage)

are collecting deposits from surplus customers and lending out to deficit clients.

The products/services for the bank include cheque and savings accounts, debit and

credit cards. The secondary functions as a bank include receiving payment for bills,

money transfer (local and foreign), FOREX, financial advisory services, issuance of

letter of credit, custodianship services, hire purchase and leasing, underwriting,

demand drafts, payment orders, customer’s bank reference letters, instrument

clearing and settlement.

1.7 Outline of the study

This thesis is presented in six chapters. Chapter one generally introduces the whole

work. The chapter is made up of the background of the study; problem statement;

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 research objectives and research questions about the study; significance to the

study; scope in the study; finally, the outline on the study.

Chapter two basically discusses the literature review relating to the concepts of the

three (3) major constructs: organisational performance, BPR factors and IT

capability. The chapter discusses the organisational performance of bank and

review of performance trend in Nigerian banking industry. This section highlighted

the summary of the previous studies on organisational performance banks and bank

process performance improvement methods. Furthermore, the organisational

performance measurements of financial and nonfinancial were discussed. On the

BPR factors, the concept of BPR as strategic management initiative, success and

failure factors were explained. In addition, previous studies of BPR and

organisational performance of banks and financial settings were discussed.

Moreover, the IT capability concept, measurement, model and moderating role of

IT capability were discussed. The relevance ofRBV, dynamic capability and

complementarity perspectives that supports theorganisation performance in

turbulent environment was explained.

Chapter three discusses the conceptual framework to the study, which arises from a

review from the literature, the direct and indirect relationship between the key

constructs and proposed hypotheses of the research.

Chapter four discusses the research methodology employed for the study. It

explains the research settings, sampling technique, strategy and method of data

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 collection, instrument measures, validity and reliability of the data analysis of the

study.

Chapter five presentedthe empirical result, testedhypotheses of the

studyanddescribekey findings of the study. Finally, chapter six provides discussion,

conclusion, limitations to the study and suggestions for future research.

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 CHAPTER 2 LITERATURE REVIEW
CHAPTER 2
LITERATURE REVIEW

2.1 Introduction

The purpose of this chapter is to provide an extensive review from the literature

relevant to the key construct of the study. The first section within the chapter

focuses on the organisational performance which provides an outline of bank

performance, and review of previous studies on bank performance. The different

performance measurement, performance improvement methods and organisational

performance dimensions were reviewed. In addition, the BPR concept and factors

were examined. The chapter next considers IT capability, definition, moderating

role, model, the relationship between IT capability and organizational performance

based on the theory of the RBV. Finally, the chapter provides the reasons for

choosing RBV, dynamic capability and complementarity perspectives as the

underlying theory for the study.

2.2 Organizational performance

The challenges for globalization of financial markets required changes on the part

of the market participants to move beyond local-level to achieve international

competitiveness. The entire banking industry is focusing on major process

performance enhancements and gains in the domestic market share as a catalyst for

successful diversification. Banks are concentrating their efforts on market segments

offering the potential for growth and enhancing performance, resulting in a

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 redirection within the overall financial services' [Link] performance

comprises the actual output of an organization as measured against its inputs.

Performance measures allow companies to focus attention on areas that need

improvement by assessing how well work is done.

2.3 Bank performance

Organization is a structured entity that consists of physical, human, and financial

resources formed to achieve specific goals. Business organization is formed to offer

a variety of products and services for profit motive. Banks like every other

organizationtry to enhance its overall performance by assessing and comparing its

efficiency and effectiveness over a period of time. There are various criteria to

evaluate the performance of banks for successful survival in the period of

globalization and competition. Key indicators to measure organizational

performance includes: profitability, liquidity, management performance, leverage,

market share, productivity, innovation, quality of goods and services, human

resources (Dess & Robinson, 1984). Banks are concentrating their efforts on market

segments offering the potential for growth and enhancing performance, resulting in

a redirection within the overall financial services' sector. Innovative banking

services and processes were evolved as the market consolidates due to mergers and

acquisitions. This dual trend towards specialization and consolidation is forging

banks that will be able to compete in international and global markets. Performance

enhancement efforts are aimed at a complete realignment of internal processes. In

addition to cost containment strategies, focus is now on improving customer service

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 delivery. Organization processes must be efficient, and be more customer-friendly.

Attempts are being made to transfer approaches like process reengineering

initiatives that have proven effective in other industries, particularly manufacturing,

to the financial sector.

2.3.1 Overall performance of Nigerian banks

The history of the Nigeria banking system is complete with growth and burst cycles

in the number of operating banks and their branches. The total asset of all the banks

operating in Nigeria increased within a year after consolidation. An assessment of

the level of capitalization, intermediation activities improved significantly and the

leverage ratio decline (CBN, 2008; Somoye, 2008). However, the profit

efficiency/asset utilization has not been impressive, the industry return on equity

(ROE), and asset utilization ratios declined. Thus, the consolidation has improved

the structure of banks in terms of asset size, deposit base and capital adequacy.

Conversely, the profit efficiency performance has not been impressive. The banks

will need to be more efficient in terms of their ability to generate enough return to

justify the increase in equity base as well as investment in other resources.

The decline in the performance efficiency of Nigerian banks in terms of return on

assets, equity and operating cost requires urgent attention of the banks to re-

strategies for process performance improvement (CBN/BSD, 2008). Sanusi (2010)

argued that the poor performance indices of Nigerian financial institutions were due

to inadequate and inflexible operational processes. This was part of the revelations

of the special audit for all the Nigerian banks conducted jointly by the Central Bank

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 of Nigeria (CBN) and the Nigeria deposit insurance corporation (NDIC) in July

2009, for Commercial banks and in February 2010, for Microfinance banks. Vetiva

Research (2010) reported a quarterly performance of stocks on the Nigerian Stock

Exchange Market for the quarter ended September 2010, which indicated a negative

performance of (-2.49%) for the banking industry stocks compared to another

sector. The weak operational processes of banking services are responsible for the

decimal performance of the sector in Nigeria (Ibenta, 2010; Okpara, 2009).

2.3.2 Operating costperformance ofNigerian banks

The Chartered Institute of Management Accountants CIMA (1982) defines a cost as

the amount of expenditure (actual or notional) incurred on, or attributable to, a

specified activity. The implication of this definition is that when cost is incurred,

the intention is to derive a benefit. If the benefit is immediate, the cost translates

into expenditure, if, however, the benefit is for future, the cost translates into an

asset. This explains the difference between cost control and expenditure control in

Management. Banks in Nigeria incur two broad types of costs: interest expense and

operating cost (Madubueze, 2007). This is as a result of the financial intermediation

nature of business in banking. Interest expense represents the amount banks paid

for borrowing money from various customers, especially depositors. Many factors

determine the quantum of interest expense. These include the quantity of money in

supply, the demand for money, regulatory policy, competition for deposits and even

the length of time a bank is going to keep or utilize the money it is borrowing. It is

the rate of interest in the economy that determines the interest expense of the bank.

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 Operating cost is made up of other costs that exclude finance charges or interest

costs: expenses, such as staff or personnel salaries, depreciation, fees, and

administrative costs, such as repairs and maintenance, rent and rates, traveling and

insurance [Link] operating cost for Nigerian banks is driven by a

combination of factors, such as the state of infrastructure in the economy; the level

of inflation into the economy, insufficient skilled and competent human capital,

adoption of new modern technologies for banking operations and insecurity across

the country. The effect of the increasing cost of doing business in Nigerian banks is

high (Ogubunka, 2010). Ogubunka (2010) reported that a cost trend in the Nigerian

banking industry isa reflection of the cost pressure on the economy. He argued that

it is evident bank costswere essentially on a growth path signifying banks must

have operated under cost pressure. The bank’s operating cost rose by an average of

37.6% between 2004 and 2008. Noteworthy, under operating cost, is the quantum

rise of 142% in 2007, as against a decline of 9% in 2006.

The average income growth of 43.8% compared with the total cost growth of 37%

evidenced that bank’s income, like their costs showed a pattern with an increase.

While the average growth rate in interest income of 46.4% compared with an

interest cost average of 58.2% indicated that the costs incurred by Nigerian banks

was more bullish than the income (Okpara, 2009).Therefore, for Nigerian banks to

operate efficiently, costs must be minimal. It is necessary to manage the costs to the

economy to reduce its obvious pressure in the cost trend. Reduced cost pressure in

the banking industry will moderate lending rates and operating cost to produce

salutary effects on the economy as a whole (Ogubunka, 2010).

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 2.3.3 Customer service management performance of Nigerian banks

Customer service entails proper and adequate treatment of customers in such a way

that they feel satisfied and fulfilled (Kotler, 2003; Knock, 1992). Before the

commencement of ebanking services by the Nigerian bank, customersspent hours in

long queues to make a transaction of either cash withdraw or deposit into their

account, as the transactions were manually processed (Ojeka& Ikpefan, 2011). The

old generation banks that are the market leaders dictated the pace of product and

services. However, the emergence of Internate and ebanking services as a result of

globalization and deregulation of the Nigerian banking sector by the Central bank

of Nigeria. New generation banks emerged with technological capabilities that

revolutionized the Nigerian banking sector (Agboola, 2008). Different ebanking

channels of services such as Internate banking, mobile banking, and ATM card

transactions were introduced (Agboola, 2008). The development of online banking

services offers opportunities for the banks to reduce the operational costs, retained

and expanded customer base, enjoy customer’s loyalty for convenient shopping,

enhanced competitive advantage, reduce the number of branches and right size the

operational staff (Agboola, 2007).

2.3.4 Previous studies on bank performance

Assessment of bank performance is essential for bank managers, regulators and

customer (depositors and investors). In a turbulent financial environment, bank

performance provides information for the investors and depositors to either retain

or withdraw their investment from the bank. Managers are constantly challenged to

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 improve their deposit or loan activities in order to enhance the profitability

performance of their organization. Tvorik and McGivern (1997) investigated

performance by comparing economic and organizational factors. They concluded

that organisational factors influenced the profitability more than that of the

economic factors. The performance of organizations could be assessed by RBV, as

explored by a number of researchers (Wernerfelt, 1984; Barney, 1986; Prahalad &

Hamel, 1990). Organizational performance could be linked with market orientation,

organization learning, human-resource productivity, quality improvement or any

other component (Day, 1994; Banker & Sinkula, 1999; Santos-Vijande et al.,

2005).

Generally, organizational performance is assessed by the application of financial or

both financial and non-financial measures. There are a number of studies on the

literature that used non-financial measures to evaluate the effectiveness and

performance of organization (Quinn & Rohrbaugh, 1983; Venkatraman &

Ramanujam, 1986). It is suggested that four models, i.e. human relations; internal

process; open system and rationale goal model could represent the organizational

performance (Quinn & Rohrbaugh, 1983). Wheelen and Hunger (1998) argued that

appropriate performance measures depend on the organizations and their objectives,

i.e. profitability, market share and cost reduction.

Financial indicators, such as return on investment (ROI), earnings per share (EPS)

and ROE are used by the number of organizations to measure their progress. ROI is

used to reflect the profitability while corporate performance was measured by

operating cash flows and ROI capital (Hasnan, 2006; Sorenson, 2002). Rashid et

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 al., (2003) measured firm's financial performance using the financial indicators,

such as return on assets, ROI and current ratios. Financial ratios reflect the financial

performance of the organization by an examination of financial statements, as

indicated by profitability, liquidity, leverage, asset utilization and growth ratios (Ho

& Wu, 2006). In today's global, dynamic and competitive environment, banks

should improve and diversify their products and services to meet changing

customers' demands to enhance their performance for successful survival. Table

2.1provides a summary of recent selected studies on bank's performance.

Table 2.1
Summary of Selected Previous Studies on Bank Financial and Non-financial
Performance
Type of Research &
Authors Measurement (DV) Findings
BPR Factors (IV)
Kim, Cha, Empirical survey of The results showed that board
Cichy, Kim data collected in a web- members involvement in strategy
& Tkach, based survey of COOs and the size of the board of
(2011) and GMs directors have a positive
influence on a private club’s
financial performance.
(Khong & Empirical Survey Perceived measure Market research, customer
Nair, (2006) Customer service of business satisfaction, and handling as the
management performance by important key drivers towards
Bontis (1998) successful implementation of
customer service management
Durkin & Literature review and The study indicates the worrying
Bennett, empirical research findings that employees show
(1999) unexpectedly low levels of
internalized commitment.
Farooq Review various studies The measurement The result indicates the absence
(2003) that analyse the indicators of of a competitive environment
structure and inequality include: among the banks, because, all the
performance of Lorenz's curve, variables (deposit, asset, equity,
commercial bank's Gini coefficient, advances, employment
frame work of and Herfindahl distribution) are highly skewed.
organization. index and The profitability performance of
concentration ratio. the banks deteriorated.

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 Table 2.1 (continued)
Type of Research &
Authors Measurement (DV) Findings
BPR Factors (IV)
Smith & Empirical survey The product The study found no significant
Chang, carried out in Taiwan quality, customer difference on the implementation
(2010) public companies. The service, advert, of CRM system among
CRM implementation awareness Taiwanese industries.
impact on: generation, service
Customer satisfaction quality,
Customer loyalty responsiveness
Degree of customer reliability, empathy
focus and technology
Customer-related items measure the
strategies DV.

Akinlolu & Empirical Survey Assessing the level Investment in IT in the bank is
Oyesola, Banking operations of activities, ATM, important for the effective and
(2008) processes Cash's transactions, efficient service delivery,
efficiency of ICT, payment system and other
intensity of appropriate transactions that
customer's traffic in enhance the organizational
a banking hall, etc. performance.

Agboola, Empirical survey on Measurement of The study found that fundamental

(2007) Nigerian bank's DV based on changes in quality of banking
adoption of ICT innovative operation services occurred from
Implementation of IT: technologies, 1990 to 2005. Since then, other
degree of utilization electronic card products,
and impact of IT on transfers, telephone banking,
bank's operation. continued to increase.
Technology became the driving
force for competition and that
greatly improved customer
service management, operation's
efficiency and overall
performance.
Akhtar Using data Measurement of The study found an improvement
(2010) envelopment analysis change in total in the average productivity of
(DEA) efficiency and factors of banks as a result of technological
productivity indices of productivity to changes relative to efficiency.
banks in Saudi Arabia reflect performance
over time

Idris (2011) Total quality Measure The results showed that the
management (TQM) performance using relationship between the element
and sustainable self-reported of leadership, best practices,
company performance: manager’s productivity, customer, employee
Examining the perceptions in terms and community focus and
relationship in of profitability, company performances is
Malaysian firms financial, significantly supported.
productivity and
level of market
share.

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 Table 2.1(continued)
Type of Research &
Authors Measurement (DV) Findings
BPR Factors (IV)
Nura & A toolkit on effective Measurement of The study revealed that majority
Osman decision making effective decision in of decision made from 18th to 19th
(2012) measurement in organization using century were not measured.
organizations qualitative and While the period between 20th
quantitative and 21st century organization
perspectives decisions were measured based
on qualitative or quantitative
measurement strategy.
Nura & A toolkit on effective Measurement of The study revealed that majority
Osman decision making effective decision in of decision made from 18th to 19th
(2012) measurement in organization using century were not measured.
organizations qualitative and While the period between 20th
quantitative and 21st century organization
perspectives decisions were measured based
on qualitative or quantitative
measurement strategy.

Dick (2006) examined the service quality and bank performance in the United

States. Deregulation increased the branch network of banks to attract more and

more customers who resulted into more profits with increased risks due to changing

demographics. Findings showed that improved service quality resulted in increased

service fee, and risk could be reduced by geographical diversification and hedging.

It is reported that two principal paths can improve financial performance of banks,

i.e., by improving operational efficiency base on time, quality, customer or

improvement in customer services (Duncan &Elliott, 2004; Hasnan, 2006). Dick

(2006) reported that market concentration was not affected by its size. Dominant

banks have almost similar influence on markets of different size. The study found

that service quality is enhanced and focused by dominant banks.

Performance evaluation provides sufficient information to take better and informed

business decisions. Better decisions result in greater profitability and improved

performance in the institution and its shareholders (Crider, 2007). Farooq(2003)

reported that the performance of privately owned banks is better than that of state-

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 owned banks. Hence, more customers were attracted by the high-quality service,

adequate capital base and sound management of private banks.

Furthermore, Chowdhury and Kashfia (2009) reported that analysis on the growth

and development achieved of selected private banks in terms of stable growth of

branches, employees, deposit, loans and advances, net income, earnings per shareis

better compared to the state-owned banks. In addition, Calomiris (1999) argued that

the merger and consolidation of bank operation's results for the improvement of

efficiency that is associated with operating cost reduction and enlargement of bank

customer relationships. Adolphus (2007) examined the financial indicators in

Nigerian banks. He found that the capital adequacy ratio significantly correlates

negatively with bank solvency. The cash reserve ratio correlates negatively and

significantly with the proportion of non-performing loans. The total loans to

deposits correlate negatively significant with bank solvency. The productivities of

commercial banks in Saudi Arabia were found be enhanced as a result of

technological changes that improved their operational efficiency (Akhtar, 2010).

In a similar vein, technology became the driving force for competition that greatly

improved customer service management, operation's efficiency and overall

performance of Nigerian banks (Agboola, 2007).Investment in IT in the bank is

important for the effective and efficient service delivery, payment system and other

appropriate transactions that enhance performance (Akinlolu & Oyesola, 2008).

Similarly, Organizational performance in other service sectors such as a hotel

reflects an organization's understanding and knowledge regarding customer needs

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 and expectations (Slater & Narver, 1995). Razalli (2008) found that performance of

a company operating in the service industry could be improved through good

leadership practice and provision of customized service design for select clientele

in the service sector. Kim et al. (2011) argued that size of the board of director and

involvement in company’s strategy and size of directors of its directors have

positive influence on the private club financial performance.

Furthermore, Idris (2011) showed that the relationship between the element of

leadership best practices, productivity, customer, employee, community focus and

performance are significantly related. However, empirical survey of public

companies in Taiwan regarding customer relationship management implementation

impact on customer satisfaction, customer loyalty, degree of customer focus and

related strategies found no significant difference among Taiwanese industries.

Therefore, organization should strive to maximize their customer satisfaction for

better profitability, increased sales volume,which ultimately improves overall

performance for the long-term benefit (Baker & Sinkula, 1999).

2.3.5 Bank process performance improvement method

Business process improvement 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 (Baines, 1996), many

different terms in the literature are related to the improvement of business processes

(Siha & Saad, 2008; Zairi & Sinclair, 1995).

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 Examples are: business process improvement (BPI) (Yavas & Yasin, 2001;

Harrington, 1991); business process redesigns (Davenport & Short, 1990; Carr,

1993); business (process) reengineering (BPR) (Hammer, 1990; Al-Mashari &

Zairi, 2000); core process redesigns (Heygate, 1993; Hagel, 1993); business

restructuring (Tanswell, 1993; Talwar, 1993); continuous improvement process or

Kaizen (Imai, 1986; Juran, 1991; Juran &Gryna, 1993; Deming, 1986; Deming,

2000). Six-sigmais a quality improvement methodology for organisation

performance (Pande et al., 2000; Breyfogle, 2003; Harry & Schroeder, 2006).

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 (Hammer, 1990; Hammer & Champy, 1993) and process

improvement (BPI) to incremental improvement (see Harrington, 1991; Coskun et

al., 2008). Both areas can be seen as a subset of redesign (Valiris & Glykas, 1999).

Shin and Jemella (2002) added 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.

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

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 performance improvement efforts are successful. As reported on the literature, 50-

70 percent of the BPR as performance improvement initiatives fail to achieve their

objectives (Hammer&Champy, 1993). Thereasons 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. Lapre and Wassenhove (2002), performed an extensive study of

European manufacturers and found that both operational and conceptual learning

are important for knowledge transferability, and, consequently, for both

productivity and profit improvement.

2.3.6 Suitability of reengineering 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 (Shin & Jemella, 2002). 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:

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 questioning the fundamental assumptions of a process, drastic improvement of this

process, alignment with corporate strategy, and effective use of information and

communication technologies.

2.3.7 Organizational performance measurement

The organisational performance measurement has become increasingly necessary

for the continued survival of organizations. There are various literatures on

performance measurement, and issues concerning organizational performance. In

the past, performance measurement was based on quantitative financial measures,

while less emphasis has been placed on the qualitative components of performance

measurement. Measurement systems consist of multiple measures that can either be

objective or subjective, financial or non-financial (Nura & Osman,2012). Hence,

Maskell (1992) suggested that in addition to financial measures, a non-financial

performance measurement technique should also be used by organizations, as,

overtime, the company needs changing. It is also important to involve qualitative

indicators, such as customer service and satisfaction, product quality, learning and

innovation (Kaplan & Norton, 1996; Neely, 2002; Neely et al., 2002).

According to Waggoner et al. (1999), performance measures within an organization

can be designed based on six different approaches:

a. The engineering approach, which measures the input/output ratio;

b. The system approach which sets objectives for each work unit and measures

the achievement of these objectives;

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 c. The management accounting approach measuring the achievement of financial

results;

d. The statistical approach, which extends the engineering approach by providing

empirical tested information about input/output processes;

e. The consumer marketing approach, which measures consumer satisfaction,

conformity with product attributes and service delivery system.

In order to achieve business excellence, it is necessary to an organization to develop

a system for performance measurement. To address this issue, an interdisciplinary

review of organisational performance measurement frameworks is adopted in both

the academic literature and business press (Waggoner et al., 1999; Kuwaiti & Kay,

2000; Lin & Chen, 2007). One cannot evaluate organisational performance without

taking organizational goals into consideration. The modern business environment

demands a multi-goal orientation.

Today’s business environment is characterized by the increasing importance and

strength of various stakeholder groups. It has become quite obvious that all

stakeholders need to be taken into account when assessing the performance of

modern companies. This is the main idea of Freeman’s stakeholder theory

(Freeman, 1984). The stakeholder view maintains that firms are accountable for

stakeholders and not just shareholders. The view that the corporation has

obligations only to its stockholders is replaced by the notion that there are other

groups to whom the firm is also responsible. Groups with a stake in the firm include

shareholders, employees, customers, suppliers, lenders, the government, and society

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 (Berman et al., 1999; Harrison & Freeman, 1999; Hillman & Keim, 2001; Riahi-

Belkaoui, 2003).One important notion revealed in many studies is that building

better relations with primary stakeholders like employees, customers and suppliers

could lead to increased shareholder’s wealth. A sustainable organizational

advantage may be built with implicit assets that derive from developing

relationships with key stakeholders (Hillman & Keim, 2001). When studying the

relationship between stakeholder management and a firm’s financial performance,

Berman et al. (1999) found that fostering positive connections with key

stakeholders (customers and employees) can help a firm’s profitability.

Therefore, due to the significance of various stakeholders, organisational

performance should not be solely assessed by financial indicators. There are several

approaches to organisational performance measurement that encompass different

stakeholder’s perspectives (Tangem, 2004; Hasnan, 2006). The balanced scorecard

(BSC) (Kaplan & Norton, 1992, 1993, 1996) is the most established and commonly

used (Neely, 2005; Razalli, 2008), but certainly not the only one. The multi-model

performance framework (MMPF) model by Weerakoon (1996) is also very

interesting and has been four-dimensions, including employee motivation, market

performance, productivity performance, and societal impact, and covers the

satisfaction of various stakeholders, such as customers, investors, employees,

suppliers, and society. Prism conceptual performance framework suggests that a

performance measurement system should be organized around five distinct

dimensions such as stakeholders, customer, productivity, motivation and efficiency

linked to perspectives of performance (Hasnan, 2006; Tangem, 2004).

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 Organisational performance in this study refers to the level of bank performance

(increase/decrease) in terms of both financial and non-financial performance

indicators. Organisational effectiveness represents the outcome of organisational

activities (Henri, 2004). Empirically,organisational effectiveness is the ultimate

dependent variable in research on organizations(Cameron, 1986). The perception of

organizational performance is linked to the continued success and achievement of

an organization. Although there is wide-ranging literature on performance, there is

still no consensus definition of the term performance (Johannessen, Olaisen, &

Olsen, 1999). Murphy, Trailer and Hill (1996) found the use of the term

performance to include 71 different measures of performance categorized into eight

(8) dimensions of both financial and non-financial measures.

The majority of the previous studies used financial and non-financial indicators to

measure performance (Johannessen et al., 1999; Murphy et al., 1996). The debate

on what performance measurement to use continues, as not all the criteria apply to

all settings (Cameron, 1986).A review from the literature for the evaluation of

performance in the organisational context by Gomes, Yasin and Lisboa (2004),

reveals the different emphasis on the performance measurement depending on the

objective of the organization in that particular situation. There are many possible

benefits from reengineering that translate into improved organisationalperformance.

However, because of the wide possibility of benefit from company innovativeness

on performance, a multiple dimensional scale of performance measurement offers

more comprehensive operationalization of organizational performance than the uni-

dimensional approach. Table 2.2 provides a summary of previous performance

measures on financial and non-financial performance from various studies.

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 Examples on some financial performance indicators employed in previous studies

are: profitability, the success rate of new service (product) introduction, after-tax

ROI, sales growth, and after-tax return on assets. Examples of non-financial

performance indicators include: customer satisfaction, customer focus, market

research, and customer relationship management, quality and process improvement.

Therefore, based on the previous studies, this study considers multiple

measurements of performance (Financial performance and Customer service

management performance). The financial and non-financial performance indicators

consist of: profit, profit growth performance target, sales growth, response to

competition, future outlook, and success rate in new-product launch, overall

business performance, customer service management, market research, customer

relationship management, customer satisfaction, operational performance, speed,

quality service and process [Link] this study, the perceived measures of

the financial and non-financial performance within the organization are used

because subjective measures were found to be correlated with the objective

measure of performance (Dess & Robinson, 1984). In addition, the previous studies

(Lyles & Salk, 1998; Hansen & Wernerfelt, 1989; Bart et al., 2001) confirmed that

the reliability and correlation between objective measures and perceived measures

are strong. Similarly, previous studies conducted by Bontis (1998), Bontis et al.

(2000), Idris (2011) and Nura and Osman (2012) revealed that the subjective

measure of performance (financial and non-financial) is feasible.

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 Table 2.2
Summary of Selected Studies on Organizational Performance Dimension
Indicators Studies
1. Speed/delivery Hammer & Champy (1993); Ascari, Rock,
a. Time reduction & Dutta (1995); MacDonald (1995); Kamal
b. Cycle time & Agrawal (1997); Newman (1997);
2. Lower costs Sohmen (1998).
3. Quality
a. Few mistakes
b. Reduced error
4. Service
a. Customer service
b. Customer satisfaction
5. Process improvement Childe et al. (1994); Kamal & Agrawal
a. Reduce the number of activities (1997); Sohmen (1998).
6. Productivity Childe et al. (1994); Ascari, Rock, & Dutta
a. Improved financial strength (1995); MacDonald (1995); Riddle (1995);
b. Decrease in staff turnover Stainton (1995); Jelinek et al.
(1999);Ascari, Rock, & Dutta (1995);
MacDonald (1995).
7. Customer satisfaction Sun (2000)
8. Financial profitability
9. Competitive advantage
10. Employee's satisfaction
11. Environmental protection
12. Financial performance Bontis (1998); Bontis (2000); Bontis &
a. Industry leadership, Future outlook Fitz-enz (2002); Bontis, Chua & Richardson
b. Profit, Profit growth, sales growth (2000)
c. After-tax return on assets
d. After-tax return on sales
e. Overall response to competition
f. Success rate in a new-product launch
g. Overall business performance
13. Customer service performance Khong and Richardson (2003); Hammer &
a. Market research, Customer focus Stanton (1995); Cateora & Graham (1999);
b. Customer relationship management Hammer & Champy (1993)

The above performance measurement indicators were similar to those of Hammer

& Champy (1993) who suggested cost, quality, service and speed as performance

measurement. Therefore, based on previous studies, this study considers multiple

measurements of performance (Financial performance and Customer service

management performance). The financial and non-financial performance indicators

consist of profit, profit growth performance target, sales growth, response to

competition, future outlook, and success rate in new-product launch, overall

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 business performance, customer service management, market research, customer

relationship management, customer satisfaction, operational performance, speed,

quality service and process improvement.

2.4 BPR factors

The globalization and deregulation of the Nigerian banking sectorhas necessitated

small and medium banks to enhance their professional capability by engaging in-

process change and reengineering to bring about efficiency and accuracy to meet

the needs of the customer. In addition to these challenges, banks in Nigeria operate

in a turbulent environment, as there were over 1,023 registered banks (Commercial

banks, Microfinance and Primary mortgage finance) as in December 2009 (CBN,

2009). To survive and excel in this type of business environment is a major concern

for the Nigerian banking industry. BPR is a management concept that seeks to split

away from the old-fashioned and traditional processes to new ways of organizing

people, processes and the use of IT to achieve better resultsthat are of help to the

banks. Reengineering is the fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in a critical quantum leap

ofcontemporary measures of performance, such as cost, quality, service, and speed

(Hammer & Champy, 1993).Thisdefinition 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

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 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

[Link] 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 [Link] 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

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

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 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 (Hammer &

Champy, 1993).

There is considerable literature on CSFs of BPR implementation with evidence

concerning the performance effect; hence, there is a need to examine the success

factors in relation to performance (Devaraj & Kohli, 2000). The importance of BPR

implementation in the Nigerian financial service industry was understood by the

bank manager as a tool to achieve competitive advantage, and many do not fully

understand the success factors that drive the implementation (Ringim, Razalli, &

Hasnan, 2011). No doubt reengineering in the present-day globalize economy is not

only a necessity but important as the prerequisite for success of any financial

institution. BPR factors are strongly related to the mission and strategic goals of the

business or project. Whereas the mission and goals focus on the aims and what is to

be achieved, BPR factors focus on the most important factors and get to the very

heart of what is to be achieved and how to achieve it.

The BPR factors are those important factors for success. They were originally

developed to align planning with the strategic direction of an organization. It is only

when the most important factors have been identified that practitioners have a

chance of organizational success. Various BPR factors were developed and

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 validated by authors from studies in organizations operating in different industries

such as manufacturing, education, and services. The BPR factor is aptly chosen to

represent the factors that are important for the achievement of the desired outcome

of organizational performance. BPR factors are of importance in that these key

areas of activity should receive constant and careful attention from management.

BPR factorscertainly differ according to the industry and environment as the

company’s position within the industry changes. It is important to understand what

factors of BPR in the implementation and related to organizational performance

improvement.

The literature review on BPR studies shows that the opinion of scholars on the

subject matter can be classified into two (Herzog, Polajnar, & Tonchia, 2007). The

first group includes the scholars who agree that BPR is a panacea to turbulent

market changes, customer demand and competition (Davenport & Short, 1990;

Hammer, 1990, Terziovski, Fitzpatrick, & O’Neill, 2003), while the second group

holds the opposing view claiming that BPR has failed to meet its expectations

(Mumford, 1995; Biazzo, 2002). According to Al-Mashari, Irani and Zairi (2001),

the average success rate achievement of implementing BPR in developed countries,

Multi National Corporation was 55 percent, being 61 percent achieved in the USA

and 49 percent in Europe. The majority of studies on BPR have focused on the

importance of the various factors for successful implementation in the

manufacturing industry, while relatively few studies have been conducted in the

banking industry. Therefore, it is risky to generalize the BPR success rate, because

the evaluation is subjective as cross national differences (such as cultural belief,

norms and values) may exist. Reengineering is a painful process because the whole

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 set of values and beliefs in the organization are being challenged (Hammer &

Champy, 1993).

The lack of empirical study on BPR covering a wide range of issues with rigorous

methodology has been confirmed by various authors (Motwani et al., 1998; Al-

Mashari et al., 2001; Tenant & Wu, 2005). From the available survey, we can

briefly discuss the following previous studies of BPR [Link] and Bond

(1996) identified six organisational BPR factors for implementation. These include:

process change, goals and objective's accomplishment, implementation problems,

derived benefits and organisational performance. The study further indicated the

success factors for implementation to include external, employee empowerment,

operational, communication, method and tools and leadership. Terziovski et al.

(2003) reported six predictors for BPR: strategy, management commitment, IT,

customer focus, continues improvement and performance outcomes. Maull et al.

(2003) presented ten dimensions in which BPR can be measured in five themes:

strategic approach, performance measurement, creating business process

architecture, human and organizational factors, and role of IT. Herzog et al. (2007)

suggested seven factors based on a synthesis of the literature and previously

performed surveys. The seven success factors are top management commitment,

education and training, teamwork, project of BPR, employee cooperation, IT

support, levers and results. Ahmad et al. (2007) found seven success factors to be

essential to BPR implementation in higher educational organizations. These

include: teamwork, quality culture, quality management system, rewards, change

management, less bureaucratic and participatory management, and adequate

financial resources.

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 The BPR studies that examined lessons learned from BPR approaches were case

studies (Broadbent, Weill, & Clair, 1999; Caron, Jarvenpaa, & Stoddard, 1994;

Clemons, Thatcher, & Row, 1995; Davenport & Beers, 1995; Earl, Sampler, &

Short, 1995; Sarker, Sarker, & Sidorobo, 2006; Stoddard & Jarvenpaa, 1995;

Ahmad et al., 2007; Salimifard, et al., 2010). AL-Mashari and Zairi (1999)

classified the CSFs of BPR implementation into five dimensions, with each

construct having items that measured it. The five latent constructs are

changemanagement, management competence, organizational structure, BPR

project management and IT infrastructure.

Therefore, BPR factors in the present study have been adapted based on the scope

of study and fit to the banking industry, which isin line with the previous studies

(Al-Mashari & Zairi, 1999; Ahmad et al., 2007; Salimifard, et al., 2010). BPR

factors are the independent variables, which include 1) Change Management, 2)

Management Commitment, 3) Less bureaucratic and flatter organizational structure,

4) Project Management, 5) Customer Focus; sixeffective process redesign, 7)

Adequate financial resources, and 8) IT infrastructure. These eight BPR factors are

essential elements to the successful transformation process. Each of these factors is

discussed in detail below:

2.4.1 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,

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 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

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 organizationsare 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 ofcustomers (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 [Link]

changes in organizations are being achieved through effective communication,

involvement of employees, reward and motivation, socio-cultural adjustment need

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:

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 [Link] Reward and motivation

Organizations motivate employees through various [Link] 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 higher-

performance achievement of employees. The organization reward system should be

revised as part of the motivation process for the BPR effort (Jackson, 1997). An

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

programmewithout fear.

[Link] 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

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 communication in organizationkeeps employees up-to-date with related changes in

policies and procedures. Communication in organizationsavoids rumourmongering

and filters [Link] should be open, honest and clear, especially when

discussing sensitive issues relating to change, such as personnel reductions

(Davenport, 1993; Janson, 1992).

[Link] 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; createeffective organization’sculture norms

and valueacceptable 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. Aclassless 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).

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 [Link] Stimulating receptivity to change

Stimulating Receptivity to Changemeasures 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).

[Link] 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).

[Link] Human involvement

Human involvement in an organisationalproject decision process facilitates

achievement of its objectives (Jackson, 1997). Human involvement is a powerful

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 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.

[Link] 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.

2.4.2 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

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 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

teams are going to work, how human resources is 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 (Al-Mashari &

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.

2.4.3 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 mayresult 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

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 knowledge about the company’s [Link] addition, they should have enough

knowledge of the project and a realisticexpectation 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).

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

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 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).

2.4.4 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).

2.4.5 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,

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 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

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).

2.4.6 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

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 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 [Link] 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

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.

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 2.4.7 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.

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 formeeting 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 capitalizationof the Nigerian

banking system at 311million naira (US$2.4million) is extremely low in relation to

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 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).

2.4.8 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

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 cross-

functional 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

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 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 inTable 2.3.

Table 2.3
Summary of the BPR Success Factors and Causes of Failure
Method BPR success factors Failure factors

Business 1. Questioning the fundamental 1) Negligence of the work

Process assumptions of the process of environment aspects of the
Reengineering integration of BPR with the corporate design process
strategy 2) The importance of BPR
2. Total commitment of the leadership projects
3. Strong communication among the 3) The rigidity of the
participating team infrastructure system
4. The ambitious goals of the 4) Consideration of human
reengineering process factors as costs that need to
5. Deployment of the most talented, be reduced, rather than a
competent and creative people in the resource to be developed.
project
6. The process chosen for reengineering
should be in
the center of the organization for the
improvement to be felt
7. The effective use of information and
communication technology

2.5 BPR failure factors

The detailed explanations on the summary of critical success and failure factors of

BPR in Table 2.3 had been 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

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 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.

2.5.1 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

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 (Manganelli, 1993).

2.5.2 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, the gain should be conditioned upon realistic situations (Klein,

1994).

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 2.5.3 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).

2.5.4 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 [Link] incorrectly defined business

objective result in reengineering process failure as the contribution of BPR is

reduced to negative (Mathews, 1995).

2.5.5 Non recognition of BPR benefit

The inability of an organization to recognize the benefits of BPR or realizethe

positive performancemay be as a result of inadequate vision for dramatic

improvement of customer satisfaction and effective process operations (Rai &

Paper, 1994).

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 2.5.6 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).

2.5.7 Opposition and lack of commitment from top management

To achieve satisfactory results of BPR, it requires top management commitment

(Bashein, 1994). Membersof 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 organizationalresistance 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 [Link] is one of the topics for practitioners and

academicians, as the process constitutes the core of how to advance.

2.5.8 Previous studies on BPR factors and performance in banks

Table 2.4summarise the previous empirical and case studies that were conducted in

the financial services industry regarding BPR and performance improvement in

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 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.

Table 2.4
Summary of Studies on BPR Factors and Performance in Banks and Financial
Services Setting
Type of Research & BPR
Authors Measurement (DV) Findings
Factors (I.V)
Cheng & Empirical Survey Perceived measure Customer focus is the only
Chiu, Strategic alignment of overall quality; factor that is significantly
(2008) Management commitment Value for money; related to performance. Other
Change management Customer BPR factors such as change
Customer focus satisfaction; management, IT is not
BPR Project management Customer retention; significant with performance.
Use of IT Market share; Sales
growth and
Profitability
Khong & Empirical Survey Perceived measure Change management system
Richardson, Change management and of financial and culture, management of
(2003) culture performance and risk and BPR Project
Management competence customer service management are found to be
Organizational structure management significantly correlated to
BPR project management performance customer service management
IT infrastructure performance of Malaysian
banks and finance houses.

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 Table 2.4(Continued)
Type of Research &
Authors Measurement (DV) Findings
BPR Factors (I.V)
Terziovski, Empirical Survey Performance The study identified:
Fitzpatrick BPR strategy factors measurement indicators BPR strategy and customer
& O'Neill, Top management includes: ROE, Cost, focus as the most significant
(2003) commitment and income ratios. predictors, while other is not.
Use of IT
Process redesigns
Customer focus
BPR as part of
continuous
improvement culture
Shin & Qualitative - Case e-fund, ATM debit The organization achieved
Jemella, study approach card, disbursement and successful reengineering
(2002) service charge efforts that led to business
transformation, improvement
in new product, services and
customer service's
management.
Sidikat & Longitudinal Case Assesses the impact of The study revealed that the
Ayanda, study approach BPR implementation of First bank of Nigeria
(2008) the business reengineering project had a
organization significant effect on
performance of First organizational performance
bank Plc. improvement and use of ATM
facilitated cash withdrawal
and improved customer
service management.
Siyanbola Empirical Survey Profitability The study revealed that UBA
(2011) Use of IT Increase market share & UBN adopted a mixture of
Change management Operational efficiency 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, Case Assess the overall The study revealed that

(2005) study/Longitudinal impact of reengineering adoption of BPR improved the
approach in terms of financial performance of STB
profitability, customer limited, now United Bank for
service delivery and Africa Plc.
sustained customer The study concluded that
banker'srelationship. implementation of BPR would
result in the achievement of
remarkable success whereas
adoption of other management
tools does not yield in
dramatic outcomes.
Bob, Case Assessing the impact of The banks operational
(2004) study/Longitudinal BPR on performance of performance greatly was
approach banks in Nigeria. Case improved in terms of
study of UBA, First profitability, efficiency and
bank, Zenith bank, and effectiveness.
Standard Trust bank.

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 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,

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).

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 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;

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.

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 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'sability 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).

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 inTable 2.5.

Table 2.5
Summary of Some Selected Previous Studies on BPR in Organizations from another
Sector
Type of Research
Authors & BPR Factors Measurement (DV) Findings
(I.V)
Wang, Empirical Study: The supply-chain The outcome can assist in
Chan & Combining BPR operation’s reference implementation of
Pauleen, and SCM (SCOR) model is the multinational supply chain
(2010) disciplines. framework developed projects by identifying the
by experts and gaps and linking them to the
explains the SCM channel of entities.
practice and BPR.

Zellner Review of Overview of business The study found that BPI

(2011) literature on process improvement approaches usually do not
Business Process approaches and their actually state the level of
Improvement actual improvement improvement, and some do
contribution not have a methodological
structure for re-application.

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 Table 2.5(Continued)
Type of Research &
Authors Measurement (DV) Findings
BPR Factors (I.V)
Willmott Review of BPR The study highlighted BPR
(1994) literature 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 The study found that the

(2009) implementation in organizations are not ready
Local Government for a radical change. The
organization in UK senior managers do not
understand the BPR concept
and its implications.

Currie & Qualitative Case Process redesigns Reengineer core processes to

Willcocks, study and innovation by be heavily dependent on IT
(1996) using IT as an to deliver the anticipated
enabler large-scale improvement in
financial performance.

Ozcelik, Longitudinal ROA; ROE, firm Firm size, IT budget, advert

(2009) approach: BPR size, market share expenditure, and market
Project management share are positively
associated with all four
performance measures.

Abdolvand, Empirical Survey Positive and Leadership, collaborative

Albadvi & Leadership, Negative BPR working environment, top
Ferdowsi, Collaborative readiness indicators management commitment,
(2008) working were assessed. supportive management and
Top management use of IT have positive
commitment relationship with readiness
Change management while, resistance to change
Use of IT as a negative factor
decreases the readiness.

Brandon, Longitudinal Impact of BPR in Business process changes to

Brans ford, Approach terms of ROE, the greatest extent; customer
Guimaraes Sales growth profit, cost satisfaction, time reduction,
& Tor, Market share reduction improve employee morale,
(1999) Profit and service quality.
Personnel
development
Political/Public
affairs
Product development

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 Table 2.5(Continued)
Type of Research
Authors & BPR Factors Measurement (DV) Findings
(IV)
Ahmad, A case study The study found seven
Francis & research on BPR factors to be critical to BPR
Zairi, critical success implementation success. The
(2007) factors in higher factors are team work and
education. quality culture, quality
management system, reward,
change management, less
bureaucratic and
participative, IT/IS, effective
project management and
adequate financial resources

Tennant & Case study To achieve a Strategic approach, company

Wu, (2005) research focused maximum benefit of target, continuous
on Warwick BPR for long-term improvement, motivation
Manufacturing and short-term
Group. benefits, all elements
such as organization
structure,
empowerment
training, and IT
system should be
considered.

Devaraj & A mixed method A Triangulation The study posited that

Kohli, of qualitative and analysis using three drivers of IT impact are not
(2003) quantitative study measures of IT usage on IT investment, but the
longitudinal IT usage is actual usage of IT. This is
approach in health significantly related to attested in a longitudinal
care revenue and quality in setting of a healthcare
health, but the effect system.
occurs after time lags.

Chen & A case study to To address the theoretical

Tsai, demonstrate the gaps between BPR and OR
(2008) effectiveness of in organisational change,
the Process process re-engineering-
oriented organisational
change exploratory
simulation System’ (process)
was proposed.

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 Table 2.5(Continued)
Type of Research & BPR Measurement
Authors Findings
Factors (IV) (DV)
Philipp, Literature review: The study provides over 300
Susanne Analysing the degree of techniques from various
&Gregory, BPI techniques. improvement methods.
(1991). 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.

Tsai, Chen, Review of literature on The study found that some

Hwang & BPI supported by BPI approaches do not have
Hsu, qualitative content a methodological structure to
(2010) analysis. describe the act of
improvement.

Neghab, This paper is an attempt to The study provided a

Sharif & study an organisational quantitative model to
Imani, condition for BPR and evaluate the organizational
(2009) analyses the collected capability for BPR with
information by presenting respect to organisational
a model on the culture.
relationship between
organisational culture and
BPR.

Devaraj & A longitudinal study The study outlines future

Kohli, conducted on IT in research direction on BPR
(2000) healthcare organisations. 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

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 that functionally focused reengineering projects, onaverage; contribute more to

performance than those with broader cross-functional scope.

2.5.9 Different between this study and previous study on BPR factors and
performance in banking industry settings

The present study differs from previous studies in financial setting based on the

following:

1. The focus of the study is on the organizational performance, unlike the

above,which gives much attention to implementation of BPR and the

effectiveness of the technique.

2. The independent variables of the proposed study totalled eight (8) as against

five (5) and six (6) for the previous studies, respectively.

3. The eight (8) independent variables BPR factors are: 1) Change management,

2) Project Management, 3) Management commitment, 4) Customer focus, 5) IT

infrastructure, 6) Effective process redesign, 7) Adequate financial resources,

and 8) Less bureaucratic structure. This shows that three (3) variables (Effective

process redesigns, adequate financial adequacy and less bureaucratic structure)

in this study are different from the previous research. The additional variables

were adapted from Salimifard et al., (2010), Ahmad et al. (2007).

4. This study considers IT capability (IT knowledge and Operations) as the

moderating variable between the predictor and outcome. Empirical studies have

shown that IT capabilities enhance performance through the elimination of

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 inefficiency, reduction of long-term cost, improving service reliability and

reduced transaction errors (Tippins & Sohi, 2003). In addition, Yongmei,

Hongjian and Junhua, (2008) argued that IT investment affects firm

performance indirectly through IT infrastructure. Huang et al. (2009) argued

that 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 has been conducted to sustain the banks' large-scale network

(Canato & Corrocher 2004). Although the financial service industry is one of

the early adopters of new IT, 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). The data analysis of Huang et

al. (2009) confirmed the reliability and validity of the construct of IT capability.

Hence, the proposed study examines the impact of IT capability in moderating

the BPRfactors performance relationships.

5. The study’srespondents compriseof organisations, i.e., the commercial banks,

microfinancebanks and primary mortgage finance.

6. The study research model is an advancement of the previous model that limits

the establishment of a direct relationship between the independent variable with

the dependent variable as shown inFigure 2.1 and Figure 2.2.

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 Change Management
construct

Management Competence
construct Customer Service
Management
Organizational Structure
construct
Business
BPR Project Management Performance

IT infrastructure construct

Figure 2.1
Model Framework of Khong & Richardson (2003)

Strategic Alignment

Management
Commitment

Performance:
Change Management
1. Customer
Satisfaction
Customer Focus
2. Profitability

BPR Project
Management

Use of IT

Figure 2.2
Model Framework of Cheng & Chiu (2008)

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 2.6 IT capabilities

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 capabilityare IT

knowledge and IT operation (Bhatt & Grover, 2005; Tippins & Sohi, 2003).

2.6.1 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 theIT department with the rest from the business. Bharadwaj

(2000) broadened the explanation of the accepted views of organizationalIT

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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 2.6.2 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 thatIT 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 isin a form of

ITcompetency, 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, ITobjects andIT operations among

the dimensions of measuring IT capability. The BPR factors encompass both

tangible and intangible elements of resources. Therefore, this study usesIT

knowledge and IT operation as the main components of measuring IT capability.

The third component ITobject 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

achieveeffective 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.

2.6.3 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 re-

engineer (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,

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 enabling 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 canalso 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 [Link] 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 in-

consistency 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.

2.6.4 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:

[Link] ITknowledge

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 know how.

IT knowledge is distinguishable as a subset of the more general conception of

knowledge.

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 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 memberswho exchange their strategic IT

and business knowledge, and blend themtogether 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.

[Link] IToperations

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-time business

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 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 [Link] 2.6 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

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 2.6
Summary of Some Selected Previous Studies on IT and performance
Authors Input Output Findings
Aral & Weill IT investment Market valuation, IT investments only lead to
(2007) allocation Profitability, cost performance if IT investments are
innovation consistent with the firm's strategy.
Furthermore, firm's IT capabilities
enhance the effect of IT assets and
broaden the impact.

Bartel, IT investment Productivity growth Service Assurance in a valve

Ichniowski, & (operational efficiency in manufacturing plant, IT investment
Shaw (2007) Manufacturing plant), leads to increase in performance of
number of customized. the great number of products.
products Furthermore, the IT related new
machines required labor with
higher skill levels of specialization.

Barua et al. IT capital Measures of operational IT investments affect intermediate

(1995) Performance (Capacity measures such as inventory
utilization, inventory turnover but there is no evidence as
turnover, inferior quality, to the benefits for the firm
relative price, ROA and performance as measured by ROA.
market share

Bharadwaj IT capital ROA, ROE, Increasing IT capability increases a

(2000) COGS/Sales, firm's competitive advantage. High
SG&A/Sales, IT capable firms have higher
OPEXP/Sales 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.

Bharadwaj et Market The ratio of the market The coefficient on IT spending

al. (1999) valuation of IT value of a firm's assets to ranges between 1.7 to10.3 in five,
investment the replacement cost of single year regressions.
those assets.
Market value of a firm's

Bresnahan, Labor, IT Sales-material billed The combination of three related

Brynjolfsson, Capital, Non- innovations- 1) information
& IT capital technology (IT), 2) complementary
Hitt, (2002 workplace reorganization,
and 3) new products and services-
constitute a significant
Skill-based technical change
affecting labor demand in the
United States.

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 Table 2.6(Continued)
Authors Input Output Findings
Brynjolfsson IT investment Labor productivity, IT investment increases both labour
and Hitt, MFP growth productivity and MFP growth.
(2000) Specifically, the impact of IT
investment on MFP growth is
maximized after a lag of 4 to seven
years.

Brynjolfsson& Market value Market capitalization One dollar of computer capital is

Yang, (1999) of computer valued at ten times one dollar of
capital conventional capital.

Brynjolfsson IT investment Market capitalization Spending on IT brings about the

et al. (2000) 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& IT Stock MFP and output In short-run, the returns on

Hitt, (2003) contribution in short- computer investment are
term and long-term years comparable to the cost, while in
long-run the return is not only the
output but also the MFP.

Chari, IT investment Performance IT investment enhances the firm's

Devaraj, (Tobin's q) performance related to
& David, international diversification.
(2007
Chatterjee, IT investments Stock returns and. Investments in IT infrastructure are
Pacini, & in IT investment more likely to capture a
Sambamurthy, infrastructure announcement competitive advantage over the
(2001) IT firm compared to the investments
applications in IT applications.

Chatterjee, IT investment Share price reaction There are significant abnormal

Pacini, & announcement returns on stock value and trading
Sambamurthy volume associated with IT
(2002) investment announcement.
Devaraj & IT investment Firm performance IT investment coupled with the
Kohli (2002) BPR positively and significantly
impacts performance.
Letwongsatien The effect of Firm performance The effect of capabilities on the
(2001) IT higher level of firm competencies
management which are directs responsible for
firm performance.
Santhanam & IT capability The study confirms Bharadwaj
Hartono, on firm (2000). Furthermore, found that
(2003) Performance firm with superior IT capability
shows superior firm performance.
Wade & The resource- IT capability and Literature review on application of
Hulland based view organizational RBV in information system
(2004) and performance research
information
systems
research

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 Table 2.6(Continued)
Authors Input Output Findings
Nakata & Zhu IT customer IT capabilities and The study found that IT capability
(2006) orientation customer orientation can help firm to be more
customersfocused.

Song, Capabilities IT capability and The study found that IT capability

Benedetto & and financial financial performance increase financial performance.
Nason (2007) performance:
the
moderating
effect of
strategic type

Table 2.6shows 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).

2.6.5 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 capabilityas 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

maturityis 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 inTable 2.7.

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 Table 2.7
Five Levels of the IT Service Capability Maturity Model
Level Management Enabling Delivery
Optimizing Process Change Technology Change Problem
Management Management Prevention
Managed Quantitative Process Service
Management Quality
Management
Financial Service
Management

Defined Integrated Service Organization Process Focus Service

Management Organization Service Definition Delivery
Organization Process Definition
Training Programme
Intergroup Coordination
Resource Management
Problem Management

Repeatable Service Commitment Configuration Management

Management
Service Delivery Planning Service Request and Incident
Management
Service Tracking and Service Quality Assurance
Oversight
Subcontract Management
Initial Ad-hoc processes

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.

2.6.6 The key process areas on the IT service capability maturity model (IT
services 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:

[Link] 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.

[Link] 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 baseduponthe 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.

2. 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 service-

delivery 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

[Link] 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:

1. 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 in-

house IT service providers). The service catalogue is continuously updated with

experience from the actual delivery of services.

2. 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.

3. 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.

4. 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 process and

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 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 [Link] 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.

5. 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 depend on the particular services

being provided, there is no fixed list of activities to be performed.

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 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.

6. Inter group coordination

Purpose: Establish means for communication between the different groups

involved in delivering the service to the customer.

7. 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.

8. 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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 9. 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.

[Link] 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

Purpose: Develop a quantitative understanding of the quality of the services

delivered and achieve specific quality goals.

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 [Link] 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

Purpose: Identify the cause of problems and prevent them from recurring by

making the necessary changes to the processes.

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 2.6.7 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

organisationalperformance-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 ITcapability. 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

for firms in information-intensive industries like retailing, banking and high-tech

manufacturing. These results confirm the RBV that firms compete based on

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 distinctive core competencies and resources that are valuable, rare, difficult to

imitate, and non-substitutable by other resources.

The review ofprevious 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

organization performance. The study re-conceptualized CIO’s competence into six

sub-dimensions (includes interpersonal communicative ability, political skills,

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 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

introduction of a moderator variable. In the same vain, Li et al., (2004) argued that

IT capability is a moderator than mediator based on RBV theory of firm

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 performance, since the definition of IT capability means the ability to mobilise and

deploy IT based resources 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 2.3.

IV DV

Moderator
Variable

Figure 2.3
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

variables operate to influence the dependent variable and their impact on the

dependent variable. The relationship can be presented as shown in Figure 2.4.

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 Mediator
IV DV
Variable

Figure 2.4
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.

2.7 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

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 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.

2.7.1 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 void 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

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.

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 Table 2.8summaries, 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 2.8
Summary of Various Relevant Theories of the Firm Performance and their
Implication
Model Relevant Theories Implications
Value proposition RBV Offering based on value derived from
strategic assets/ core competences.
Relational view/appropriability Value proposition designed to avoid
regime appropriability problems.
Market segment RBV Market segment chosen follows the
and revenue model value proposition to gain maximum
value from strategic assets.
Relational view Revenue model designed to gain
economic share of relational rents.
Value chain Transaction cost economics Optimise level of vertical integration
RBV Identify a need for complementary assets
Comparative efficiency of individual
Value chain analysis activities
Cost structure and Relational view Profit dependents on share of value
profit potential
Value chain analysis Comparative efficiency of individual
activities
Value network Transaction cost economics Cost and risk reasons for alliance
formation
RBV Access complementary assets
Dynamic capability Adjust (build/acquire) internal and
external competences to dynamic
environments.
Absorptive capacity Increase's capacity withinthe firm to gain
from alliances
Competitive RBV Development of strategic assets
strategy
Appropriability regime Decision to access or acquire
complementary assets.
Relational view Preserve adequate share of relational
rents

Transaction cost economics Considerations of transaction integration

versus contract or alliance

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 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

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

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 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

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

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 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

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

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 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

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).

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 2.7.2 How the RBV relates to this study

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,

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 volatileenvironment

(Mahoney, 1995; Teece et al., 1997). Second, the RBV focuses only on the

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 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 [Link],the presence of dynamic

capability theory is to support RBV. Second, the need to have the ability to create

an environment in which they can be self-reinforcing and enhancing in value and

strength, thus causing sustained major cost disadvantages to imitating firms.

2.7.3 ITcapability 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

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 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

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.

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 2.7.4 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

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 2.5.

2.8 Chapter Summary

This chapter provide an extensive review of the literature on BPR factors, IT

capabilities and organisational performance. This chapter also discusses the RBV to

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 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

Organizational
Organization
2 BPR Factors
BPR Factors H2
H3 Performance
Performance

2.I.T
[Link]
Capability

Figure 2.5
Conceptual Framework

The chapter also discusses the adoption ofdynamic capabilitiestheory and

complementarity theory to address the deficiency of [Link] addition, findings

from previousstudy indicated that organisation survival in turbulent business

environment became a concern. These and many other reasons have made authors

to called 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

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 organisation performance dimensions such as operations cost reduction, customer

service management, business operations efficiency and overall performance. The

review of the literature in this chapter provides a foundation for theoretical

framework of the study, which is discussed in the next chapter.

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 CHAPTER 3 CONCEPTUAL FRAMEWORK
CHAPTER 3
CONCEPTUAL FRAMEWORK

3.1 Introduction

This chapter provides the framework for the study based upon the background for

the research discussion in the literature review chapter. The main purpose of this

research is to investigate the relationship among three variables: BPR factors, IT

capability, and organizational performance. Thus, the aim of the chapter is to

propose a conceptual framework model of study and to suggest hypotheses based

upon the foundation of the related theory discussed throughout the literature review

chapter. The chapter is divided into three (3) sections as follows: first, the research

proposed conceptual framework; second, the overall relationships between

variables – BPR factors, IT capability and organizational performance; third, the

research proposition (hypotheses development) for the study.

3.2 Conceptual framework

Following the discussions throughout the literature review chapter, a framework

was developed to examine the BPR factors and the moderating effect of IT

capability on organizational reengineering performance of banks and financial

institutions. Research framework is the basic foundation upon which other research

structures extend the frontier of knowledge (Sekaran, 2003). Therefore, this

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 framework is derived from a review of the model, concepts and the BPR factors, IT

capability and organizational reengineering performance.

The dependent variable in this study is the organizational performance. This refers

to the bank's effectiveness of activity's outcomes in terms of financial and non-

financial. This study considers multi-dimensional performance measures as they

offer more complete measurement than the uni-dimensional approach. Examples on

some performance indicators used in previous studies are: profitability, success rate

of new service (product) introduction, after-tax ROI, sales growth, after-tax return

on assets, customer satisfaction, customer focus, market research, customer

relationship management, quality and process improvement. The measures of

performance were adapted from previous studies by various scholars (e.g., Hammer

& Champy, 1993; Sun, 2000; Bontis, Chua, & Richardson, 2000).

The independent variables of this study comprise the BPR factors (change

management, management commitment, less bureaucratic (flatter) structure, project

management, customer focus. Effective process redesigns, and adequate financial

resources and IT infrastructure). In reengineering the main area of concern is to

identify the factors that correlate with performance. It is only when the most

important factors have been identified that practitioners have a chance of success

when implementing reengineering projects. The measure of BPR factors was

adapted from previous studies (Al-Mashari & Zairi, 1999; Cheng & Chiu, 2008).

The moderating variable is IT capability. Ross, Beath and Goodhue (1996) defined

IT capability as a firm’s ability to assemble, integrate and deploy IT based

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 resources. Heijden (2000) pointed out that the measurement of IT capability covers

the relationships in the IT department with the rest from the business. 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 are IT enabled resources (consisting 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 the

organizational divisions. The measure of IT capability was adapted from previous

studies (Tippins & Sohi, 2003). The study proposes two dimensions of IT capability

– IT knowledge and IT operations. Having defined the conceptual variables, the

conceptual framework in the study is shown in Figure 3.1.

The model shows the framework for the analysis of the relationship between BPR

factors, IT capability and organizational performance. The independent variable in

the framework is BPR factors. The dependent variable is organizational

performance. IT capability attribute was considered to moderate the variable

between the BPR factors and organizational performance. The BPR factors consist

of eight variables: 1) Change management, 2) Management commitment, 3) Less

bureaucratic, 4) Project management, 5) Customer focus, 6) Effective process

redesign, 7) Adequate financial resources, and 8) IT infrastructure while IT

capability consists of two dimensions: a) IT knowledge; b) IT operations; and

Organizational performance is the financial and non-financial dimension. The

relationship is based on the RBV that suggests the performance of a firm is

influenced by internal resources. A firm obtains better performance by making

more effective use of its internal resources than its competitors. IT capability is a

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 dynamic capability, and this capability would eventually influence the

organizational performance.

ChangeManagement
policy CM)

BPR
ProjectManagement
(PM)
Top
ManagementCommitme
nt (MC)

Customer focus (CF) Organizational

performance

IT Infrastructure (IT
Infra)

Process Redesign
(EPR)

Financial Resource
(FR)

Bureaucratic Structure
(BS)
Information
Technology
Capability: (ITC)

Figure 3.1
Research Model

The discussionson the relationships between BPR factors, IT capability and

organizational performance are provided in the next sections.

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 3.3 BPR factors, IT capability and organizational performance

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 core-

customer 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)

3.4 Statement of hypothesis's development

This part provides the research propositions based on the relationships between

BPR factors, IT capability and organizational performance. Table 3.1 shows the

hypotheses of this study:

H1: The extent of BPR factors are significantly related to the organizational

performance.

H2: The extent of the IT capability attributes related to the organizational

performance of Nigerian banks.

H3: The level of IT capability attribute moderates the relationship between BPR

factors and the organizational performance of banks in Nigeria.

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 Table 3.1
Summary of Statement of Direct Relationship Hypotheses Development
Hypotheses Statement
H1 The extent of BPR factors aresignificantly related to the
organizational performance of Nigerian banks.
H1a The extent of change management (CM) is significantly related to overall
performance of organization (OP).
H1b The extent of change management (CM) is significantlyrelated to non-
financial performance of organization (ONFP).
H1c The extent of change management (CM) significantlyrelated to financial
performance of organization (OFP).
H1d The extent of Project management (PM) is significantly related to overall
performance of organization (OP).
H1e The extent of Project management (PM) is significantlyrelated to non-
financial performance of organization (ONFP).
H1f The extent of Project management (PM) is significantlyrelated to financial
performance of organization (OFP).
H1g The extent of management commitment (MC) is significantlyrelated to
overall performance of organization (OP).
H1h The extent of management commitment (MC) issignificantly related to non-
financial performance of organization (ONFP).
H1i The extent of management commitment (MC) is significantlyrelated to
financial performance of organization (OFP).
H1j The extent of customer focus (CF) is significantlyrelated to overall
performance of organization (OP).
H1k The extent of customer focus (CF) issignificantly related to non-financial
performance of organization (ONFP).
H1l The extent of customer focus (CF) is significantlyrelated to financial
performance of organization (OFP).
H1m The extent of information technology infrastructure (IT infra) is
significantlyrelated to overall performance of organization (ONFP).
H1n The extent of information technology infrastructure (IT infra)
issignificantlyrelatedto non-financial performance of organization (ONFP).
H1o The extent of information technology infrastructure (IT infra) issignificantly
relatedto financial performance of organization (OFP).
H1p The extent of the effective process redesigns (EPR) is significantlyrelated to
overall performance of organization (OP).
H1q The extent of the effective process redesigns (EPR) is significantlyrelated to
non-financial performance of organization (ONFP).
H1r The extent of the effective process redesigns (EPR) is significantlyrelated to
financial performance of organization (OFP).
H1s The extent of adequate financial resources (AFR) is significantlyrelated to
overall performance of organization (OP).
H1t The extent of adequate financial resources (AFR) issignificantly related to
non-financial performance of organization (ONFP).
H1u The extent of adequate financial resource (AFR) is significantlyrelated to
financial performance of organization (OFP).
H1v The extent of less bureaucratic structure (LBS) is significantlyrelated to
overall performance of organization (OP).
H1w The extent of less bureaucratic structure (LBS) is significantlyrelated to non-
financial performance of organization (ONFP).
H1x The extent of less bureaucratic structure (LBS) is significantlyrelated to
financial performance of organization (OFP).

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 Table 3.1(Continued)
Hypotheses Statement
H2: The extent of the IT capability attributes related to the
organizational performance of Nigerian banks
H2a. To what extent is the IT capability (ITC) attributes related to the overall
performance of Nigerian banks?
H2b. To what extent is the IT capability (ITC) attributes related to the non-
financial performance of Nigerian banks?
H2c. To what extent is the IT capability (ITC) attributes related to the financial
performance of Nigerian banks?

The hypotheses state the relationships between each independent variable of BPR

factors and organizational performance. The organizational performance is

enhanced when BPR factors are implemented. Table 3.2shows the hypotheses that

postulate the moderating effect of IT capability indicators of the relationship

between BPR factors in the banking process performance relationship.

Table 3.2
Summary of Statement of Indirect Relationship Hypotheses Development
Hypotheses Statement
H3 The level of Information Technology (IT) capability attribute
moderates the relationship between BPR factors and the
organizational performance of Nigerian banks.
H3a The level of IT capability attribute moderates the relationship between
change management (CM) and overall organizational performance (OP).
H3b The level of Information Technology (IT) capability attribute moderates
the relationship between change management (CM) and non-financial
performance of organization (ONFP).
H3c The level of Information Technology (IT) capability attribute moderates
the relationship between change management (CM) and financial
performance of organization (OFP).
H3d The level of Information Technology (IT) capability attribute moderates
the relationship between Project management (PM) and overall
performance of organization (OP).
H3e The level of Information Technology (IT) capability attribute moderates
the relationship between Project management (PM) and non-financial
performance of organization (ONFP).
H3f The level of Information Technology (IT) capability attribute moderates
the relationship between Project management (PM) and financial
performance of organization (OFP).

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 Table 3.2(Continued)
Hypotheses Statement
H3g The level of Information Technology (IT) capability attribute moderates
the relationship between management commitment (MC) and overall
performance of organization (OP).
H3h The level of Information Technology (IT) capability attribute moderates
the relationship between management commitment (MC) and non-
financial non-performance of organization (ONFP).
H3i The level of Information Technology (IT) capability attribute moderates
the relationship between management commitment (MC) and financial
performance of organization (OFP).
H3j The level of Information Technology (IT) capability attribute moderates
the relationship between customer focus and overall performance of
organization (OP).
H3k The level of Information Technology (IT) capability attribute moderates
the relationship between customer focus and non-financial performance of
organization (ONFP).
H3l The level of Information Technology (IT) capability attribute moderates
the relationship between customer focus and financial performance of
organization (OFP).
H3m The level of Information Technology (IT) capability attribute moderates
the relationship between information technology infrastructure and overall
performance of organization (OP).
H3n The level of Information Technology (IT) capability attribute moderates
the relationship between information technology infrastructure and non-
financial performance of organization (ONFP).
H3o The level of Information Technology (IT) capability attribute moderates
the relationship between information technology infrastructure and
financial performance of organization (OFP).
H3p The level of Information Technology (IT) capability attribute moderates
the relationship between effective process redesign and overall
performance of organization (OP).
H3q The level of Information Technology (IT) capability attribute moderates
the relationship between effective process redesign and non-financial
performance of organization (ONFP).
H3r The level of Information Technology (IT) capability attribute moderates
the relationship between effective process redesign and financial
performance of organization (OFP).
H3s The level of Information Technology (IT) capability attribute moderates
the relationship between adequate financial resources and overall
performance of organization (OP).
H3t The level of Information Technology (IT) capability attribute moderates
the relationship between adequate financial resources and non-financial
performance of organization (ONFP)
H3u The level of Information Technology (IT) capability attribute moderates
the relationship between adequate resource and financial performance of
organization (OFP).
H3v The level of Information Technology (IT) capability attribute moderates
the relationship between of less bureaucratic structure and overall
performance of organization (OP)

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 Table 3.2(Continued)
Hypotheses Statement
H3w The level of Information Technology (IT) capability attribute moderates
the relationship between less bureaucratic structure and non-financial
performance of organization (ONFP).
H3x The level of Information Technology (IT) capability attribute moderates
the relationship between less bureaucratic structure and non-financial
performance of organization (OFP).

Therefore, based on the literature review of the related theories (RBV, DC and

complementarity) and model discussed in the previous chapter, this study proposes

an overall conceptual framework. The main purpose to the study is to examine the

relationship of the three variables: BPR factors, IT capability, and organizational

performance.

3.5 Chapter Summary

This chapter extensively described the hypothesised research model that was

empirically investigated in this study. The chapter argued for the need to determine

the effect of BPR factors and organisational performance. Each of the six

components in the research framework was discussed to ascertain their relation

upon which 24 direct and indirect relationships each were hypotheses. This study

has primarily examines the relationship between BPR factors and organisational

performance constructs. In addition, the study has investigated the moderating

effect of IT capability on the relationship between BPR Factor and performance

dimensions such as operations cost reduction, customer service management and

business operation efficiency [Link] to this chapter is chapter 4 which

extensively discussed the methodology that was adopted to answer the research

questions.

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 CHAPTER 4 METHODOLOGY
CHAPTER 4
METHODOLOGY

4.1 Introduction

This chapter discusses the research methodology in achieving the objective. The

chapter is divided into six sections, namely, the research design, sample and

sampling procedure, data collection, instrument, data analysis, and summary.

4.2 Research design

Zikmund, (2000) described the research design as a master plan specifying the

methods and procedures for collecting and analyzing the needed information.

Furthermore, Zikmund, (2000), and Sekaran, (2003) identified three (3) types of

business research documented from the literature: 1) Exploratory, 2) Descriptive,

and 3) Causal/Hypothesis testing. The decision to select the type to be used depends

on the understanding and clearness of the research problem. Exploratory research is

carried out to shed more light on the problem but does not provide conclusive

evidence. In this case, the research is required to understand the problem before

developing any model (Zikmund, 2000; Sekaran 2003). Descriptive research is

conducted when there is some understanding of the nature of the problem; such

research study is used to provide a more specific description of the problem

(Zikmund, 2000; Sekaran, 2003). Causal research or hypothesis testing further

describes the nature of the relationships among the variables being investigated

(Zikmund, 2000; Sekaran, 2003).

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 This study focuses on descriptive and causal research (hypothesis testing), since the

objective of the study is to examine the relationships between the BPR factors, IT

capability and organizational performance. Descriptive research is undertaken for

this study to identify the characteristics as the population, such as respondents

(commercial bank, microfinancebank and mortgage finance) variability and

organizational characteristics. The causal research or hypothesis testing and the

correlation approach are conducted in the study to explain the relationship between

the variables and the variance of the dependent variables.

The research setting was a cross-sectional study design. It involves gathering the

data only once or at one point in time to meet the research objectives (Cavana,

Dalahaye, & Sekaran, 2001). The advantage of using a cross-sectional study is that

it is economical and does not take time like a longitudinal study. The majority of

the previous studies on BPR used case study descriptive research design (O’Neil &

Sohal, 1999).

4.2.1 Types of research design

Zikmund, (2000) classified research design into three (3) categories: 1) survey or

non-experimental design consisting of interviews and questionnaires, 2)

experimental design conducted at the laboratory and field study, and 3) historical

design, which explores the usage of secondary data and observation study. This

study uses non-experimental design, where the researcher does not have control

over the independent variables that determine their effect on the dependent variable.

The researcher can only control the measurement for the study but does not

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 interfere with the research settings. The researcher is only interested in gathering

the information from the banks and financial institution's performance outcome of

implementation of the BPR factors, and, specifically, to examine the relationship of

BPR factors, IT capability and organizational performance within the banking and

financial service settings. Therefore, non-experimental design or survey using the

quantitative method of administering the questionnaire is employed in this research.

4.2.2 Sampling design

The study uses the organization as the unit of analysis. The population of the study

is 1,023 financial organizations (consisting of 24 commercial banks, 901

microfinance bank and 98 primary mortgage finance). A total of one thousand and

twenty three (1, 023) banks and financial institutions are registered with the Central

Bank of Nigeria (CBN). The list of the Nigerian bank's population frames is in

appendix 9. Furthermore, the list can be accessed through the CBN Internet

website: [Link]

Given the population size of 1,023, the sample size is computed using the formula

suggested by Dillman (2000) and Weaver (2006). The formula for computing

sample size is as shown below:

(N)(p)(1 − p)
n= B
(N − 1)( )2 + (p)(1 − p)
C

Where, n = the computed sample size needed for the desired level of precision.

N = the population size.

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 p = the proportion of population expected to choose. In this study before collecting

data, the proportion of respondents who answer “yes” or “no” is unknown, so the

proportion of 0.5 was used instead of 0.80 for a more homogenous sample

(Dillman, 2000). However, using 0.50 will lead to a greater sample size than using

0.80 (Weaver 2006); But,it always provides an adequate sample size for a smaller

or greater population (Biemer & Lyberg, 2003).

B=acceptable amount of sampling error or precision. It can be set at 0.1, 0.05, or

0.03, which are + 10, 5, or 3% of the true population value, respectively. In this

study, the acceptable amount of sampling error or precision is set at 0.05 or 5%.

C = Z statistic associated with the confidence level; 1.96 corresponds to the 95%

level.

Where, N = 1.023, p = 0.05, B = 0.05, C = 1.96

(1.023)(0.5)(1 − 0.5)
n= = 279.481
0.05 2
(1.023 − 1) ( ) + (0.5)(1 − 0.5)
1.96

Krejcie and Morgan (1970) greatly simplified size decision by providing the sample

size table that ensures a good decision model. The sample size for a given

population of 1,000 = 278 and sample size for 1,100 population = 285. Hence,

everything (assumption) being equal, we can deduce that, the sample size from a

given population of 1,023 would be = 279.61 approximately 280 (Krejcie &

Morgan, 1970)

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 Based on the computation of sample size, this study needed 280 banks to complete

the survey using the questionnaire. It was also within the sample frame of +5%

margin error based on the formulae. The sample size of 280 is within Roscoe’s rule

of thumb for sample size; that is, larger than 30 and smaller than 500 are

appropriate for most research (Roscoe, 1975). In multivariate research, the sample

size should be ten (10) times the number of variables in the study (Hair, et al.,

2010).

4.2.3 Sampling techniques

Probability sampling techniques are used in this research instead of non-probability

sampling. The probability sampling gives each respondent an equal chance of being

selected as the sample object (Sekaran, 2003). Furthermore, a representative sample

in the probability sampling design guarantees the equal and independent

representation of data being chosen. The advantage of this sampling method is that

there is no bias of the researcher against the choice of another (Salkind,2003). It is

also regarded for its high generalizability (Cavana et al., 2001). Furthermore, the

aim of this study is to have samples drawn from various banking institutions. Thus,

stratified random sampling is appropriate to the study, as shown by Sekaran,

(2003); Biemer and Lyberg (2003). Stratified random sampling as its name implies,

involves a process of categorization, followed by selection of subjects from each

stratum using simple random sampling procedure. The subjects drawn from each

stratum are proportionate to the total number of elements in the respective strata.

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 4.2.4 Proportionate stratified random sampling

The banks were categories into strata: 1) Commercial bank = 24 banks with 5,799

branches and minimum bank capitalization of N25billion about $200 million; 2)

Microfinance = 901 branches and minimum capitalization of N2 billion about

$15million; 3) Primary mortgage finance = 98 with 102 branches and minimum

capitalization of N5 billion about $40 million. The selection of the sample size of

each category of banks was made based on proportionate stratified random

sampling technique. 27.4% of the population elementsfrom each stratum were

selected. The breakdown of the stratified sample size and number of questionnaire

distributed to each category of the bank is as shown in Table 4.1.

Table 4.1
Proportionate stratified random sampling
Calculation. Questionnaire
Proportionate
Bank Population (27.4% of the distribution & new
Sample size
element) sample size
Commercial bank 24 24x.274 7 21
Primary Mortgage 98 98x.274 27 90
Microfinance 901 901x.274 246 449
Total 1023 1023x.274 280 560

Furthermore, a representative sample in the probability sampling design is

important for wider generalization purposes (Sekaran, 2003). In this study, simple

random sampling is used, which guarantees equal and independent representation

of the data chosen. The advantage of this sampling method is that there is no bias

that one person would be chosen over another and the choice of one person does

not bias the researcher against the choice of another (Salkind, 2003). It is also

regarded for its high generalizability (Cavana et al., 2001).

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 However, the disadvantage to this method is that it is time consuming, expensive

and tedious (Cavana et al., 2001; Salkind, 2003). Furthermore, the objective of this

study is to have a sample drawn from various banks. Thus, simple random sampling

is appropriate to the study. Random numbers were generated using a Microsoft

excels program for application of the mathematical formula {= rand ( )}to enable us

select individual samples from the sample size of 560 banks. The details of random

numbers generated and selection of individual samples from the three categories of

banks is reported in appendix 9.

4.2.5 Estimating expected response rate

For thisstudy, a total of 560 questionnaires were distributed among the banksstated

inTable 4.1. The aim was to achieve at least 50% response rate of the respondents

whoare 280. The response rate was set in order to ensure that the non-response bias

and non-response rate did not affect the results. Moreover, this percentage was

established in accordance with a response rate of previous studies such as Sindhu

and Pookboonmee, (2008) and Phokhwang, (2008) that employs stratified random

sampling received response rate of 47 % and a response rate of 77.7%. Going by

the computation, this study is expected to sample 560 banks with an expected rate

of at least 50% for reliable and valid results.

4.3 Data collection strategy

In an attempt to get the completed questionnaire returned as quickly as possible, the

hand delivery and collection method was chosen; which is expected to give a high

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 response rate. Hand delivery and collection are an efficient method in an

environment where a research culture is not sufficiently developed, such as Nigeria.

For instance, research has shown that the rate of return of mailed questionnaires is

between 3 per cent and 4 per cent (Asika, 1991).

The primary data was collected through the survey method, and the questionnaire is

adapted for such a purpose. The survey was conducted through self-administered

questionnaires. Although this method is expensive compared to a mail survey,

nevertheless, the researcher favours this method due to its advantages. The biggest

advantage is that the researcher can collect all the completed responses within a

short period of time. The second advantage is that the researcher can explain on the

spot the terms or parts of the questions that the respondents cannot understand.

Third, the researcher can motivate the respondents to take part in the survey and

give their honest opinions (Sekaran, 2003).

The survey method strategy was adopted to collect the data with regard to BPR

factors, IT capability and manager’s perception of the organization's performance.

Babbie (1990) highlighted the three (3) objectives linked with survey research: 1)

Description: It involves descriptive statement about population to identify the

characteristics and attributes of the respondent; 2) Explanation objectives to

enlighten the population through examining the relationship of the variable; and 3)

Exploratory objectives, which involve the search for a new study on a particular

area. This study’s objectives are descriptive and explanatory. It involves identifying

the characteristics and attributes of the respondents as well as providing an

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 explanation through the examination of the relationships among the variables to the

study.

4.4 Measurement instruments and operationalization of variables

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 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 six-point rating scale as

justified by Krosnick (1991), who argued that respondents demonstrate behaviour

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 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

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 organisationalperformance 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:

4.4.1 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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 [Link] 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 organisation.

[Link] 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).

[Link] 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 initiatesthe 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.

[Link] Customer focus

The customer focus measures the focus on the external orientation based on

customer research, competitive analysis, analysis of customer requirements on

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 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

[Link] 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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 [Link] 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.

[Link] 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 productsto its customers.

[Link] 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.

4.4.2 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.

[Link] 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.

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 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.

[Link] 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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 4.4.3 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.

[Link] 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

[Link] 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 4.2 summarizes the

measurement instrument's dimensions of the independent, moderating and

dependent variables.

Table 4.2
Summary of Measurement Instrument Variables, Sources, and Number of Items
No. of
Construct Dimensions Definition Sources
item
BPR factor Change This study defines change management Al-Mashari and 9
Management asthe extent of all human, social related Zairi (1999);
changes and cultural adjustment technique Ahmad, Francis
needed by management to facilitate the and Zairi (2007);
introduction of newly designed processes Cheng and Chiu
and structures of the systems, working and (2008);
to deal effectively with resistance. Terziovski,
Fitzpatrick and
O’Neil (2003)

BPR Project This study defines project management as Same as above 4

management 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.

Top This study defines management Same as above 8

management commitment as the extent of top
commitment management commitment to ensure that
employees contribute towards the
successful achievement and remarkable
improvement in the organizational
performance of the bank.

Customer This study defines customer focus as the Same as above

focus extent of research conducted on customer 4
related to their requirements, value,
satisfaction, competitive analysis and
benchmarking for improvement of
performance of organization.

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 Table 4.2 (Continued)
No. of
Construct Dimensions Definition Sources
item
IT This study defines IT infrastructure as Same as above 5
Infrastructure 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.
Process This study defines the process redesign Same as above 5
redesigns 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.
Same as above
Adequate This study defines adequate financial 6
Financial resources as the extent of monetary
resources resources available to meet the
budgetary allocation for successful
implementation of projects for
improvement of the performance of a
bank.

Less This study defines a flatter structure as Same as above 5

Bureaucratic the extent of organizational structure
Structure that encourages creativity and
(Flatter innovativeness. The less bureaucratic
Structure) and more participative organization the
better, which would avoid failure of
BPR implementation.

IT This study defines IT capability Tippins and

Capability attributes as the extent to which Sohi (2003)
cumulatively the IT knowledge, IT
operations and IT objects' dimensions
of IT competency represent co-
specialized 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.

IT knowledge IT knowledge is referred as the extent Tippins and 6

to which a firm possesses a body of Sohi (2003)
technical knowledge about objects such
as computer-based systems.

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 Table 4.2 (Continued)
No. of
Construct Dimensions Definition Sources
item
IT operations IT operations refer to the extent to Tippins and 6
which a firm utilises IT to manage Sohi (2003)
market and customer information.

IT objects IT objects refer to computer-based Tippins and

hardware, software and support Sohi (2003)
personnel.

Organisation This study defines organizational Sun (2000); 20

Performance performance as the level of bank Bontis (1998);
performance (increase/decrease) in Khong &
terms of both financial and non- Richardson
financial performance indicators. (2003); Bontis,
Chua &
Organisational performance refers to Richardson,
the organisational effectiveness and (2000); Hammer
represents the results of the & Champy,
organization’s activities or focuses on (1993).
the achievement of objectives
(Hammer & Champy, 1993; Henri,
2004).
Total items 78

4.5 Preliminary investigation on BPR implementation in Nigerian banks

Prior to commencement of the research (main study) on the BPR factors and

organizational performance of Nigerian banks, a preliminary investigation was

conducted to ascertain the level of BPR implementation. The result indicated that

various operational processes were reengineered by Nigerian banks in the post

consolidation period. The operationalization of BPR factors by change

management, process innovation and use of IT as well as IT capability

operationalized by IT partnership, IT external link, IT business strategy integration,

IT management, and IT infrastructure were also found to be reliable and valid

measurement (Ringim, Razalli & Hasnan, 2011).

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 4.6 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

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:

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 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

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

beestablished 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

twomain methods through which researchers can statistically measure

thediscriminant validity of their data set, i.e. AVE (as suggested by Fornell

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 andLarcker, 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 madeused of the average

variance extracted (AVE) procedures as described byFornell and Larcker (1981). In

that study, they suggested that the squaredmultiple correlations between any two or

more constructs as calculated for eachitem that measures it should be less than the

calculated average varianceextracted (AVE) that is measuring the item (John and

Reve, 1982).

4.7 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

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 inTable 4.3.

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 4.3are appropriate for use in further research. Further reliability analysis

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 was performed after factor analysis in the actual study based on larger sample size

(refer to chapter 5).

Table 4.3
Summary of the pilot test reliability analysis of constructs
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

4.8 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

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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 4.8.1 Cleaning and screening the data

The data screening set was conducted through an examination of basic descriptive

statistics and frequency distributions. Values that were found to be out of range or

improperly coded were detected. A frequency test was run for every variable to

identify any missing responses.

4.8.2 Descriptive analysis

Prior to carrying out any statistical analyses, such as correlation, it is important to

ensure that any assumptions make for a test are not violated. Testing of assumptions

usually involves getting descriptive statistics on the variables. These descriptive

statistics include the mean, standard deviation, range of scores, skewness and

kurtosis (Pallant, 2001).

4.8.3 Goodness of measure

As this research uses instruments that were already tested by other researchers,

principal component analysis was performed for determining the set of common

underlying dimensions, known as a factor of the construct (Hair et al., 2010).

Furthermore, the use of factor analysis is also to check whether each constructs

cluster together thus, reducing a vast number of variables to a meaningful,

interpretable and manageable set of factors (Cavana, Dalahaye & Sekaran 2001).

The sample size that is needed to perform factor analysis for this study is

acceptable. The required sample size qualified to conduct factor analysis should be

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 100 or larger, or to have at least five times as many observations as possible for the

variables (Hair et al., 2010; Coakes & Steed, 2003). Since the computed sample,

size is 560, and the study samples met the requirement, the researcher decided to

perform factor analysis.

4.8.4 Principal component analysis (PCA)

Factor analysis was used to identify the latent structure (dimensions) of a set of

variables. It reduces attribute space from a larger number of variables to a smaller

number of factors. For factor analysis purposes, the items on the questionnaire were

grouped into components consisting of items to represent all antecedent variables to

the study. Factor analysis was based on the principal component method with

varimax rotation for all components.

4.8.5 Correlation analysis

The analysis was conducted to determine the link between the variables under

study. It identified the power and direction of the linear relationship between two

variables. The analysis results reveal the variables that correlate with the dependent

variable as well as the presence of multicollinearity before using multiple

regression analysis.

4.8.6 Multiple regression analysis

This method analyses the link between several independent (predictor) variables

with a single dependent (criterion) variable. Multiple regression analysis was

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 conducted for this study to verify the relationship between the independent

variables (BPR factors) and the dependent variable (organizational performance),

and, at the same time, to identify the contributory variables.

4.8.7 Hierarchical regression analysis

This analysis was conducted to test the interaction effect of the moderating

variables on the relationship between the independent and dependent variables.

Hierarchical regression or moderator regression analysis was considered to be an

appropriate technique in identifying the moderating variables (Baron & Kenny,

1986; Frazier, Barron, & Tix, 2004). The summary of the data analysis against each

objective of the study is shown inTable 4.4.

Table 4.4
Summary of data analysis against each research objective
No. Research Objectives Data Analysis
1 To examine the relationship between Multiple regression analysis
BPR factors, IT capability in banking and was conducted to determine the
organizational performance of Nigerian relationship between BPR
banks. factors, IT capability with a
single organization
Multivariate relationship between BPR
performance variable (financial
factors and organization performance as
and non-financial).
well as between IT capability and
organisational performance would Simultaneously, regression
provide answers to researchobjectives- analysis identified the BPR
1& 2. Before conducting the multiple factors and IT capability
regression analysis, a correlation analysis variable that best predicts
was conducted to determine the direction organization performance in
and power within the relationship terms of financial and non-
between the independent variable and the financial performance).
dependent variable.
2 To examine the level of IT capability that Hierarchical regression
moderates the relationship between BPR analysis
factors and the organizational
performance of Nigerian banks. This
would provide answers to research
objective – 3.

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 4.9 Chapter Summary

This chapter discussed the research methodology and rationale behind the research

design. It outlined the sampling design, methods and strategy of data collection.

The chapter also discussed on the measurement instrument used for this study and

validity and reliability of the instrument measures. Finally, this chapter described

the methods of data analysis used for this study. The analysis and findings of the

study are presented in the next chapter.

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 CHAPTER 5 DATA PRESENTATION AND ANALYSIS
CHAPTER 5
DATA PRESENTATION AND ANALYSIS

5.1 Introduction

The main objective of this chapter is to provide the results of the research, which

include data presentation, analysis and discussion of the outcomes of the study. The

chapter presents the research findings of the study based on the data collected from

respondent banks. The data were analysed in the following sections: first, response

rate; description of the study profile of the respondents and study variables;

goodness of measures through validity, reliability analysis of measures being used,

and analyses hypothesis testing; general descriptive statistics of the respondents and

main variables involved in the study; Second, reports on the assumptions in

multiple regression analysis; Third, reports on the multivariate and multiple

regression analysis results between BPR factors and organizational performance;

and the hierarchal regressions results regarding the moderating effect of IT

capability attributes to the relationship between BPR factors and organisational

performance.

5.2 Response rate

The data for this study was collected from senior management, executives,

managers and heads of department that represent the respective banks in Nigeria. In

this study, attempts were made to increase the response rate by reminding the

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 respondents through telephone calls, SMS and self-visit (Sekaran, 2003). As a

result of these efforts, 460 questionnaires were returned out of the 560

questionnaires distributed by hand delivery to the respondent banks (commercial,

microfinance and mortgage) in Nigeria. This makes a response rate of 82.14%

based on the definition of response rate (Jobber, 1989). Out of these 460 responses

collected, 417 questionnaires were useable for further analysis making a valid

response rate of 74.0 per cent. A response rate of 30 per cent is acceptable for

surveys (Sekaran, 2003; Hair et al., 2010). Similarly, Pallant (2001) suggested that

for regression type of analysis to be conducted, the sample size could fall between

five and ten times, the number of independent variables. Given the number of

variables in this study, which are eight (8), it suggests that a sample size of 80

respondents. Hence, 417 useable responses (74 per cent) satisfied the required

sample size requirement for conducting the multiple regression analysis. Table 5.1

shows the distribution of the required sample and the total number of responses by

each category of the bank.

Table 5.1
Response Rate of the Questionnaires
Response Commercial Microfinance Mortgage Freq/Rate
No. of distributed questionnaires 21 449 90 560
Returned questionnaires 21 349 90 460
Returned and usable questionnaires. 18 312 87 417
Returned and excluded questionnaires. 3 37 3 43
Questionnaires not returned 0 100 0 100
Response rate 100% 77.72% 100% 82.14%
Usable response rate 86% 69% 97% 74%

The data collection period took about three months. The follow up messages were

made through text messages, phone calls and e-mails during the period. The data

was keyed into SPSS (version 16.0) for further analysis. Forty-three (43)

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 questionnaires were excluded in the process of screening and cleaning the data.

Errors were checked by analysing the mean, standard deviation, minimum and

maximum scores for all 417 cases on all variables.

5.3 Respondent and organizational background

The statistical frequency distribution of key variables in the questionnaires was

objectively classified and presented in logical categories to reflect the originality of

the study. Subsequently, the desired analytical tables were extracted for the proper

data analysis and hypothesis testing. The presentation of the original data sets in the

form of frequency tables, as well as the analytical tables, is in the appendix 2.

The majority of the respondents in the organization were male (68%). In terms of

job title of the respondents, 35% were holding the responsibility of the head of

department, 30% senior manager, and 20% Deputy General Manager/Assistant

General Manager. Hence, these represent the majority of the targeted respondents

for the study. Others include top management (ED/GM), which represents 16%.

The respondents represented their organizations that were categorized into three

different types of the bank – Commercial bank 4.3% of population sample

(representing 75% of registered commercial banks with the Central Bank of

Nigeria); Microfinance bank represents 74.8% of 417 useable response

(representing 35% of registered Microfinance banks with the Central Bank of

Nigeria; Primary mortgage banks, representing 21% of 417 useable response, which

accounted for 88.75% of the registered primary mortgage banks to the apex bank.

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 As for the number of employees in these organizations, 60% of employees were

outsourced personnel’s to banks. Out of 417, responses received from the banks,

75% of them fall under a category of organization (Microfinance bank and Primary

Mortgage bank) without ATM machines, POS, etc. Only 14% of banks have a

network of 99 branches with ATM Machines, 5.0% of the participating banks have

a network of 300 to 499 branches with ATM machines, and 4% of banks involved

in the survey have a network of 100 to 299 branches that have ATM machines

installed onsite. As for the location of branches, 47% of the respondents indicated

that most of their bank branches are located in the commercial and state capital,

21% were sited in-state capitals and a few in cities, and 13% were located in urban

and rural areas with a few branches in cities.

In terms of BPR implementation, the Nigerian banks have implemented BPR

initiative in their operational processes. Specifically, we found that 57% of the

banks have implemented electronic banking services, such as operational

transactions of cash/cheques received and payment through ATM, POS, mobile,

telephone, card's transaction, loan processing, credit transactions and others; 67%

of the banks have restructured and improved their operational processes; 61% of the

banks reengineered their credit risk operational processes of loan appraisal and

administration, as well as the rendition of periodic returns to the regulatory

authority using IT software for credit risk reporting; 51% of the banks confirmed to

have redesigned their domestic and international operational processes.

Concerning the objective of adopting BPR initiatives by the organization, 25% of

the banks indicated that their organization’s objective was to enhance their

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 profitability performance by increasing revenue; 23% of the banks indicated that

their motive was to improve the quality of customer service of the organization;

21% of the banks implemented BPR in order to be proactive for future challenges

while 12% expressed their goals to reduce operating cost and be reactive to

competitive pressure from foreign banks. Another 13% of the banks implemented

BPR as a reactive approach as a quick fix, while 20% of the respondents indicated

their objectives as proactive for challenges in the business environment. The overall

objective of BPR implementation by Nigerian banks was to improve profitability

through cost containment strategy, and improve customer service delivery by

providing an effective and efficient service with error free operational processes.

Therefore, the reengineering processes in banks involved redesigning of core

processes and restructuring of the domestic and foreign operational processes that

involved some kind of innovation and value added service to the various processes,

such as cheque clearing and settlement, interbank transfers, remittances for

payment of bills, fund transferred both local and international payment through

MoneyGram, Western Union Money transfer, Wire transfer through SWIFT and

opening of letters of credit.

5.4 Goodness of measures: factor analysis of the research instrument

The instrument used in this study was evaluated for its content, criterion,

convergent and discriminant validity. Convergent validity refers to the degree to

which the scale correlates positively or in the same direction with other measures of

the same construct. Discriminant validity refers to the degree to which the

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 measurement scale does not correlate with or is distinct from other measures

(Malhotra, 1999). Content validity refers to the extent to which the instrument

covers the meaning included in the concepts (Babbie, 1990). The present study

assesses the content validity subjectively by using the extensive literature review

and practitioners in the banking industry (Chow& Lui, 2001). In addition, the PCA

method is used to help the investigator represent a large number of relationships

among interval-level variables in a simpler way. The method allows the computer

to determine which, of a fairly large set of items, "hang together" as a group, or are

answered most similar by the participants.

PCA was carried out for the items of the variables of this research work. The

central idea of principal component's analysis is to reduce the dimensionality of a

data set in which there are a large number of interrelated variables, while retaining

as much as possible of the variation present in the data set. This reduction is

achieved by transforming to a new set of variables, the principal components,

which are uncorrelated, and, which are ordered so that the first few retain most of

the variation present in all the original variables.

Computation of the principal components reduces to the solution of an eigenvalue

problem for a positive semi-definite symmetric matrix. The sample size guideline

by Coakes and Steed, (2003); Hair et al., (2010) indicates that a minimum of five

subjects per variable is needed for factor analysis. In this study, with eight

variables, a sample size of 417 is higher than the minimum requirement of the

desired cases for factor analysis. A sample size of more than 350 requires a factor

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 loading of 0.30 to assess statistical significance (Hair et al., 2010). Hence, the

minimum requirement for factor analysis was fulfilled.

Other criteria for factor analysis suggested by Hair et al. (2010) employed by this

study are as follows:

1. Sample size should be 150 plus and should be a ratio of five cases for each of

the variables.

2. Bartlett’s test of Sphericity (test of presence of correlation among variables)

need to be significant at p<0.05 or smaller.

3. Kaiser-Meyer-Olkin (KMO)/Overall Measure of Sampling Adequacy (MSA)

should be at least 0.50 or above. These values are presented as part of the

output from the factor analysis.

4. Commonalitiesgive information on how much of the variance in each item is

explained. Low values (e.g., less than 0.50) could be deleted as it indicates that

the item does not fit well with other items in the component. Removing items

with low commonalities values tend to increase the total variance explained.

5. Items for loading and cross loading of 0.50 or greater on one factor and 0.30 or

lower on the other factor have been set to assess the significance for this study;

the items load less than 0.50 is deleted (Igbaria, Livaria, & Maragahh,1995).

6. To determine how many components (factors) to extract, there is a need to

consider information provided by the output. First, using Kaiser’s criterion, this

is based on components that have an eigenvalue of more than one. To

determine how many components meet this criterion, we looked at the total

variance explained the table.

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 7. The naming of the factor is based on the item with higher loading. The

discussion on the results of factor analysis for the dependent, moderator and

independent and variable are as follows:

5.4.1 Dependent variable – organization performance (OP)

Table 5.2 shows the outcome of the factor analysis for the dependent variable

(organization performance). At inception, the dependent variable was measured by

20 items in two dimensions, which was subjected to principal component's analysis

(PCA) using SPSS Version 16. Prior to performing PCA, the suitability of data for

factor analysis was assessed. The factor loading of the items ranged from 0.770 to

0.984 with 10 items being removed for various reasons, such as having low MSA

value, low communalities value, loading less than 0.50, and cross-loading. The ten

(10) deleted items from the initial 20 items measurement of organization

performance construct (1, 2, 6, 10, 11, 12, 14, 16, 17 and 19) were those items that

indicated failure to fit well with other items in their components. Removing these

items increased the total variance explained. Inspection of the correlation matrix

revealed the presence of many coefficients of 0.3 and above.

The KMO measure of sampling adequacy of 0.885 exceeded the benchmark value

of 0.60, showing that the sample size was adequate for factor analysis to be

conducted. That is, the ratio of the sample size to the number of items is sufficient

for factorability. However, the Bartlett's test of Sphericity is statistically significant,

supporting the factorability of the correlation matrix, as the p-value is 0.000. This

implies the adequacy of applying the factor analysis. Principal component's analysis

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 revealed the presence of three components with eigenvalue exceeding 1. The three

components extracted were named 1) operation cost reduction (L10), 2) customer

service relationship management (K4), and 3) business operation's efficiency (zero

error operations process–K8). The percentages of the variance were 50.70%,

19.94%, and 11.26%, respectively.

Table 5.2
Results of the Factor Analysis for Organization Performance
Component
Items
1 2 3
L10 Operating Cost .984
L8 Interest cost of tenured fund .981
K7 Branches operations cost .981
L5 Number of recovered bad loans .978
L3 Number of non-performing loans .977
K4 Customer relationship management in branches .794
K5 Organization brand name/Goodwill .785
K3 Customer service delivery in branches .770
K8 Zero error operational processes .840
K9 Market share in retail, consumer and corporate banking .812
services
Eigenvalue 5.070 1.994 1.126
Percentage of variance (81.90%) 50.69 19.940 11.262
81.90%
KMO .885
Bartlett’s Test of Sphericity 5520.00
Significance .000

The three component solution explained a total of 81.90% of the variance. To aid in

the interpretation of these three components, varimax rotation was performed. The

first component was defined by five items relating to operating cost. This included

interest payment (cost) on tenured fund, branches operational cost, cost of

recovering bad loans, and provisional cost of having numbered of bad loans in the

organization. The higher loadings influence the name of the factor (Hair et al.,

2010). The higher loadings were level of operating cost, interest cost of tenured

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 fund and branch's operating cost. Operating cost and interest cost are part of the

cost of doing business in an organization (Ogubunka, 2010). Hence, this factor was

named as operation cost reduction.

The second component was defined by three items, namely, customer relationship

management, brand name, and customer service delivery. These items were related

to customer service relationship management (Bontis, 1998; Bontis, Chua, &

Richardson, 2000; Kotler, 2003; Khong & Richardson, 2003). Hence, the name

Customer service management was used.

Finally, the third component was represented by two items – zero error of

operational process, and market share in retail, consumer and corporate banking

services. Business operation's efficiency (Zero error process) is a category of

efficient service delivery/speed (Hammer & Champy, 1993). Hence, the factor was

named business operations efficiency performance. Please refer to appendix - 3 for

SPSS output regarding this result of factor analysis from the table, the KMO

measure of sampling adequacy of .[Link] implies that the sample size was

adequately meritorious for factor analysis to be conducted.

5.4.2 Moderating Variable: IT capability (IT Cap)

Table 5.3 shows the results of factor analysis for IT capability. At the beginning,

the moderating variable was measured by 12 items in two dimensions, which were

subjected to PCA using SPSS. Prior to the process of performing PCA, the

suitability of data for factor analysis was assessed. The factor loading of the item

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 ranges from .650to .794. Two items being removed due to various reasons, such as

having low MSA value, low communality value, loading less than .50, and cross-

loading. The deleted items from the initial (1 and 2) are those items that indicated a

sign of non-fit with other items in their components. Removing the non-fit items

that had low communality values increased the total variance explained in this

study. Inspection of the correlation matrix revealed the presence of many

coefficients of .3 and above. The KMO measure of sampling adequacy of .863

exceeded the benchmark value of .60; this implies that the sample size was

adequate for factor analysis to be conducted. Furthermore, the ratio of the sample

size to the number of items was sufficient for factorability. However, the Bartlett's

test of Sphericity was statistically significant, supporting the factorability of the

correlation matrix, as the p-value was .000. This indicated the adequacy of applying

the factor analysis. Principal component's analysis revealed the presence of three

components with eigenvalue exceeding 1. The three components extracted were

named 1) IT knowledge (IT Cap3), 2) IT Operations (IT Cap8), and 3) IT policy

(IT cap11). The percentages of the variance were 39.81%, 11.64%, and 10.55%,

respectively.

FromTable 5.3, the KMO measure of sampling adequacy of .863 implied that the

sample size was adequately meritorious for factor analysis to be conducted. The

three-component solution explained a total of 61.99% of the variance. To aid in the

interpretation of these three components, varimax rotation was performed.

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 Table 5.3
Results of the Factor Analysis for IT Capability
Component
Items
1 2 3
I3 IT staff and network engineers with professional .754
qualification.
I5 Proactive IT staff in e-banking innovation .731
I4 Excellent expertise consultant in computing .730
I6 Regular training of IT staff .700
J2 Technology based link via local area network LAN 24/7 .794
J2 Link to branches through wide area network WAN .735
J3 Minimal down time for connection links to computers .714
J5 Organization IT policy in line with regulatory guidelines .154 .759
J6 Comprehensive procedures, of operational transactions and -.064 .749
requirements
J4 Computerization of operational services .384 .650
Eigenvalue 3.981 1.164 1.055
Percentage of variance (61.99%) 39.810 11.637 10.552
KMO .863
Bartlett’s Test of Sphericity 1162.00
Significance .000

The first component was defined by four items relating to IT knowledge. These

included professional qualification, IT staff proactiveness in e-banking innovation,

and qualified trained expertise/consultant in computing and regular training courses

for IT staff. The higher loadings influence the name of the factor (Hair et al., 2010).

The higher loadings were professional qualification of IT engineers, proactive

innovation in e-banking by IT staff and qualified expertise/consultant. Professional

qualification, expertise consultants and regular training of IT staff can be viewed as

skill knowledge in IT computing (Tippins & Sohi, 2003). Hence, this factor was

named as IT knowledge.

The second component was defined by three items, namely, the technology-based

links via local area network and wide area network online real time (LAN and

WAN 24/7), link to branches through WAN, and minimal computer system down

time. These items were relating to IT operations (Tippins & Sohi, 2003). Hence, the

original name was retained.

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 Finally, the third component was represented by three items – organization IT

policy in line with regulator's guidelines, monitoring of customer’s transaction by

IT operations, and computerization of banking operations. These activities were

related to the function of IT objects. It is a tool; technical object refers to artefacts

that assist in the acquisition, processing, storage, dissemination, and use of

information (Martin, 1988). Hence, the third factor was named IT objects (Tippins

& Sohi, 2003). IT objects represent computer-based hardware, software and support

personnel to ensure compliance with regulatory guidelines, monitor customer

activities by making use of software and hardware installed in the computer system.

Please refer to appendix- 3 for SPSS output regarding the results of factor analysis.

5.4.3 Independent variables: BPR factors

The independent variables of this study are the BPR factors, which include 1)

Change Management – measured as the uni-dimension, 2) BPR Project

Management – uni-dimensional, 3) Top Management Commitment – one

dimension, 4) Customer Focus – one dimension, 5) IT Infrastructure – one

dimension, 6) Process Redesign – one dimension, 7) Financial Resources – one

dimension, and 8) Less bureaucratic structure – one dimension. Initially, the total

items measuring the BPR factors were 56 items. These items and dimensions were

analysed using factor analysis to check for their validity. Using the criteria for

conducting factor analysis discussed in section 5.1, the analysis extracted nine (9)

components. In the process of getting these nine components, 27 items and one

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 construct (Less bureaucratic structure) had to be deleted for various reasons, such

as low communality value, loading less than 0.50, and cross loading. Removing

items with low communality values increased the total variance explained.

Inspection of the correlation matrix revealed the presence of many coefficients of

.30 and above. The KMO value was .750, exceeding the recommended value of .6

(Kaiser, 1970, 1974) and the Bartlett’s test of Sphericity (Bartlett, 1954) reached

statistical significance, supporting the factorability of the correlation matrix. Table

5.4 presents the results of factor analysis for the independent variables of the study,

while the Appendix 3 shows the SPSS output for the analysis. The number of final

factors together with the number of items used to measure the particular variable is

as follows. Note that almost all the original names were retained.

1. IT investment (E3) – fouritems

2. BPR Strategy Alignment (B1) – four items

3. Customer Focus (D4) – three items

4. Management commitment (C7) – three items

5. Communication (A8) – three items

6. Training and education (A3) – three items

7. Volume of financial activities (G5) – four items

8. Reward system (A4) – two items

9. Strong capital base (G2) -2 items

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 Table 5.4
Results of the Factor Analysis for Business Process Re-engineering Factors (BPR)
Components
Item
1 2 3 4 5 6 7 8 9
E3 Sufficient budget to purchase
updated software and .773
hardware.
E4 To achieve proper integration
.755
of IT
F2 Redesign core processes for
.722
efficient service delivery
E2 Build an effective IT
.551
infrastructure
B1 Alignment of BPR strategy
.754
with corporate policy
B4 Establish performance
improvement goal for process
.740
key performance indicator
(KPI)
B3 Organization re-engineering
effort towards key business .718
process
B2 Organization BR project clear
.710
to all staff
D4 Customer feedback was used
.740
to redesigned processes
D3 Ability to meet customer
demand or new products and .735
services
D3 Ability to meet customer
demand or new products and .735
services
D1 BPR project result from
.734
analysis of customers
D2 The organization objective is
to find a new way of adding .728
value to customers.
C7 Personnel commitment to
.792
handle related change
C6 BPR as operational
performance improvement
.772
method considered by
management
C5 Top management accepted .676
consultant positive
recommendation on re-
engineering for
implementation
A8 Employees accept positive
.749
changes easily
A2 Recognition of human .719
involvement in
implementation of BPR

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 Table 5.4 (Continued)
Components
Item
1 2 3 4 5 6 7 8 9
A5 Effective
communication system
to update employees on .705
reengineering
implementation
A3 Training and education
of newly introduced .767
operational processes
A9 Employee
empowerment
.728
initiatives to encourage
productivity
A7 Flexible structure that
empowers process
.638
owners for effective
service delivery
G5 Volume of deposit in
.761
tenured fund
G4 High volume of demand
.713
deposits as cheap fund
F5 Processes identified for
.633
redesigning
F4 Make use of appropriate
technology for .544
operational process
A4 Openness by
management for
.974
employees to accept
changes
A1 Effective reward system
to facilitate BPR .972
implementation
G2 The organization strong .783
capital base
G1 Financially sound to
conduct business .736
profitable transaction
Eigenvalue 4.677 3.311 2.400 1.786 1.732 1.317 1.238 1.118 1.057
Percentage of variance
16.127 .416 8.274 6.158 5.974 4.540 4.270 3.854 3.645
(64.259%)
KMO .750
Bartlett’s Test of Sphericity 4107.0
Significance .000

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 As shown in Table 5.4. Principal Components analysis revealed the presence of

nine (9) components with eigenvalue exceeding 1, explaining 16.127%; 11.416%;

8.274%; 6.158%; 5.974%; 4.540%; 4.270%; 3.854% and 3.645% of the variance,

respectively. An inspection of the scree plot revealed a clear break after the ninth

component. Using Catell’s (1966) scree test, it was decided to retain nine (9)

components for further investigation. To aid in the interpretation of these nine (9)

components, Varimax rotation was performed. The rotated solution revealed the

presence of a simple structure (Thurstone, 1947), with both components showing a

number of strong loadings and all variables loading substantially on components.

The nine factor solution explained a total of 64.259% of the variance, with

component 1 contributing 16.127%; component 2 contributing 11.416%;

component 3 contributing 8.274%; component 4 contributing 6.158%; component 5

contributing 5.974%; component 6 contributing 4.540%; component 7 contributing

4.270%; component 8 contributing 3.854%; and component 9 contributing 3.645%

respectively.

The first factor was defined by four items and reflected the organization’s

investment in IT to achieve proper IT integration, build effective IT infrastructure

and redesign core process for efficient service delivery. Thus, this factor was named

IT investment. The second factor was dominated by items relating to organization

strategic initiative project that aligned with corporate policy. Therefore, this factor

was named BPR strategy alignment driven of reengineering project (Zairi &

Sinclair, 1995). The third factor was dominated by items relating to customer focus,

which are oriented towards finding new ways of adding value to customers (Scherr,

1993). Thus, this factor was named customer focus. The fourth factor consisted of

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 items pertaining to personnel capability and commitment to handle related changes

recommended by consultant and consider process re-engineering as the method to

improve process performance in the organization, thus, this factor was named

management commitment. The fifth factor consists of items related to

communication for an employee to accept positive changes by involving them in

implementation of business process re-engineering. Therefore, the factor was

named effective communication. The sixth factor was dominated by training and

education of employees in newly introduced core processes for effective service

delivery. Thus, this factor was named training and education. The seventh factor

consists of items related to organization volume of financial activities and making

use of appropriate software technology to redesign processes, thus, this factor was

named volume of financial activities to customer. The eighth factor consists of

items related to the effective reward system that encourage employees to accept

changes for improvement. Therefore, this factor was named reward system. The

ninth factor consists of items related to organization adequate capital base to

provide a cushion for risk asset and conduct profitable transaction. Therefore, this

factor was named strong capital base. Please refer to appendix – 3 for SPSS output

regarding this result of factor analysis. From the table, the KMO measure of

sampling adequacy of .750 implies that the sample size is adequately meritorious

for factor analysis to be conducted.

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 5.4.4 Common method variance (CMV) test

As a precaution, the study has adopted measures, such as hiding the information of

the participants, randomizing the order of items, devising the items in a reverse

order and organizing the wording of the items, to prevent the occurrence of

common method variance. Besides, the study also adopts Harman’s single factor

analysis to conduct posterior examination of common method variance (Podsakoff

& Organ, 1986). Traditionally, researchers using this technique load all the items in

their study into an exploratory factor analysis (Aulakh & Gencturk, 2000) and

examine the un-rotated factor solution to determine the number of factors that are

necessary to account for the variance in the variables. The basic assumption of this

technique is that if a substantial amount of common method variance is present,

either (a) a single factor will emerge from the factor analysis or (b) one general

factor will account for the majority of the covariance between the measures. The

use of a single-factor test may provide an indication of whether asingle-factor

accountfor all the covariance between the items, this procedure does nothing to

statistically control for common method variance effects.

In this study, un-rotated factor analysis with forty nine items results in fifteen

factors those together accounts for 68.7% of the total variance, of which factor one

accounts for 17.56%. Common method bias is not likely in the context of this study

since a single factor does not emerge in this analysis and no single-factor account

for the majority of covariance between the variables. Therefore, based on the

multiple factors emerged from the factor analysis using the Harman one factor test

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 was an indication that the measures are free of common method variance. Hence,

common method variance is not a major problem for this study.

5.5 Measuring the reliability of the research instrument

The reliability of any research questionnaire is best measured by the Cronbach’s

alpha statistic. It is designed as a measure of internal consistency of a research

instrument. Reliability measures the extent to which results are consistent with time

and acts as the best representation of the population under study (Joppe, 2000).

Cronbach’s alpha is a consistency test of whether all items within the instrument

measure the same thing. It is simply a measure of reliability of the questionnaire

items. It is measured on the same scale as the Pearson’s product-moment

correlation coefficient and typically varies between 0 and 1. Although a negative

value is possible, such a value indicates a scale in which some items measure the

opposite of what other items measure. The closer the alpha is to 1.00, the greater

the internal consistency of items in the research instrument. At a more conceptual

level, the coefficient of Cronbach’s alpha may be considered as the coefficient

between a sincere response and all other sincere responses of the same item that are

drawn randomly from the same population of interest.

After factor analysis, the nine constructs that emerged, containing twenty nine (29)

items in the questionnaire, will evaluate and assess the effect of BPR factor on the

organizational performance of Nigerian banks: moderating factor of IT capability.

Cronbach’s alpha is the approximate average correlation between all pairs of items.

The formula that determines Cronbach’s alpha is fairly simple and makes use of the

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 number of variables or question items in the instrument (k) and the average

correlation between pairs of items (r):

kr
∝=
1 + (k − 1)r

The reliability test for each dimension emerged after factor analysis was conducted.

Table 5.5 shows the results of the reliability test. Flynn, Schroeder, and Sakakibara

(1994) argued that a Cronbach’s alpha of 0.6 and above was considered an effective

reliability for judging a scale. The generally agreed lower limit for Cronbach’s

alpha may decrease to 0.60 in exploratory research (Hair et al., 2010). A research

instrument can be considered to be reliable if the result of the study can be

replicable under a similar methodology with stability of measurement over time

(Golafshani, 2003). Therefore, the Cronbach’s alpha of the instruments is shown in

Table 5.5. The SPSS output for this analysis is shown in the Appendix - 4.

Table 5.5
Summary of Reliability Analysis of Major Variables
No of items
Variables No. of items Cronbach’s Alpha
deleted
Dependent Variables
Organizational Performance 10 0 0.87
Operations cost reduction 5 0 0.99
Customer Service Management 3 0 0.71
Business operations efficiency 2 0 0.60
Moderating Variables
IT Capability 10 0 0.83

Independent Variables
BPR Factors 29 0 0.80
IT Investment 4 0 0.75
BPR Strategy alignment 4 0 0.73
Customer Focus 4 0 0.74
Management Commitment 3 0 0.71
Change Management 8 0 0.77
Financial Resources 6 0 0.71

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 From Table 5.5, the Cronbach’s alpha ranges from 0.60 to 0.99 for the variables in

the questionnaire used for the study implied that the instrument was reliable. Hence,

the instrument had excellent reliability as far as internal consistency is concerned,

that is, the instrument can give consistent results on the effect of the BPR factors on

the organizational performance of Nigerian banks.

5.6 Construct Reliability and Validity

In this section, an attempt is made to explain the reliability and validity of the

constructs involved in the study. However, construct reliability must be assessed

before examining its validity (Hair et al., 2010). To this end, the reliability of all the

items was examined through the Cronbach’s Alpha, factor loadings and the index

of composite reliability (see Table 5.6). Although, there is a lot of debate

concerning the best method to estimate reliability, coefficient alpha remains the

commonly used method even though it may underestimate reliability (Hair et al.,

2010). The different methods of assessing reliability produced similar results. The

values of Cronbach’s alpha and composite reliability are shown in Table 5.6.

Fornell and Larcker, (1981) argued that composite reliability is more robust than

Cronbach’s alpha. From the table, it is obvious that each of the indexes of construct

reliability (composite reliability) is greater than the threshold of .7 (Fornell &

Larcker, 1981). The composite reliability values range between .7307 and .9803.

This result means that the constructs have internal consistency, and that all the

measures consistently represent the same latent construct.

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 Although, composite reliability is stronger than the Cronbach’s alpha, in this study,

the latter was also assessed in order to complement the former. Flynn, Schroeder,

and Sakakibara (1994) argued that a Cronbach’s alpha of .6 and above was

considered an effective reliability for judging a scale. The generally agreed lower

limit for Cronbach’s alpha may decrease to .60 in exploratory research (Hair et al.,

2010). Again, fromTable 5.6 presents factor loadings for all the items ranging from

.544 to .984, confirming that the indicators are strongly related to their various

[Link], it indicatesgood construct validity (Hair et al., 2010).

(∑𝑛𝑖=1 𝐿𝑖 )2
𝐶𝑅 =
(∑𝑛𝑖=1 𝐿𝑖 )2 + (∑𝑛𝑖=1 𝑒𝑖 )

Where:CR = composite reliability; Li = standardized factor loading; ei = error

variance

Table 5.6
Constructs Validity and Reliability
Average
Factor Factor Composite Cronbach’s
Constructs Items Variance
Loadings LoadingsSquared Reliability Alpha
Extracted
Biz OPS K8 .840 .705 .682 .811 .603
Efficiency K9 .812 .659
Customer K4 .794 .630 .613 .826 .705
Service K5 .785 .616
K3 .770 593
Ops Cost L10 .984 .968 .961 .992 .993
Reduction L8 .981 .962
K7 .981 .962
L5 .978 .956
L3 .977 .955
Performance K8 .840 .706 .875 .924 .870
K9 .812 .659
K4 .794 .630
K5 .785 .616
K3 .770 .593
L10 .984 .968
L8 .981 .962
K7 .981 .962
L5 .978 .956
L3 .977 .955

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 Table 5.6 (Continued)
Factor Average
Factor Composite Cronbach’s
Constructs Items Loadings Variance
Loadings Reliability Alpha
Squared Extracted
.796
IT Invest
E3 .773 .598 .501 .751

E4 .755 .570
F2 .722 .521
E2 .551 .303
BPR Strategy B1 .754 .569 .534 .821 .730
B4 .740 .548
B3 .718 .516
B2 .710 .504
Customer D4 .740 .548 .539 .824 .738
Focus D3 .735 .540
D1 .734 .539
D2 .728 .530
Mgt C7 .792 .627 .560 .792 .712
Commitment C6 .772 .596
C5 .676 .456
Communication A8 .749 .561 .525 .768 .715
A2 .719 .517
A5 .705 .497
Training & A3 .767 .588 .508 .755 .706
Educ. A9 .728 .530
A7 .638 .407
Volume of G5 .761 .579 .546 .760 .683
financial G4 .713 .508
activities. F5 .633 .401
F4 .544 .496
Rewards A4 .974 .948 .947 .973 .976
A1 .972 .945
Strong Capital G2 .783 .613 .577 .732 .600
base G1 .736 .542
Change Mgt. A1 .972 .944 .638 .939 .771
A2 .719 .517
A3 .767 .588
A4 .974 .948
A5 .705 .497
A7 .638 .407
A8 .749 .561
A9 .728 .530
Financial GI .736 .542 .590 .850 .706
Resources G2 .783 .613
G4 .713 .508
G5 .761 .579
F4 .544 .296
F5 .633 .401

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 Table 5.6 (Continued)
Factor Average
Factor Composite Cronbach’s
Constructs Items Loadings Variance
Loadings Reliability Alpha
Squared Extracted
IT Capability I3 .754 .984 .851 .892 .830
I5 .731 .981
I4 .730 .981
I6 .700 .978
J8 .794 .977
J7 .735 .794
J9 .714 .785
J11 .759 .770
J12 .749 .840
J10 .650 .423
IT Knowledge I3 .754 .569 .531 .819 .780
I5 .731 .534
I4 .730 .533
I6 .700 .490
IT OPS J8 .794 .630 .560 .792 .731
J7 .735 .540
J9 .714 .510
IT Objects J11 .759 .576 .520 .764 .631
J12 .749 .561
J10 .650 .422

5.6.1 Convergent Validity

In an attempt to establish construct validity, convergent validity was examined

using Average Variance Extracted (AVE) as recommended by Hair et al. (2010).

The AVE shows how indicators of construct converged and how they share

common variance. In other words, the indicators should converge and share a high

proportion of variance on a common point, the latent construct. AVE is computed

as the mean of variance extracted for the items loading on a construct. This

computation can be done using the formula below with the standardized loadings:

∑𝑛𝑖=1 𝐿𝑖 2
𝐴𝑉𝐸 =
𝑛

Where: AVE =average variance extracted; Li = standardized factor loading; i =

number of items

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 5.6.2 Discriminant Validity

Discriminant validity assesses the extent to which a construct is truly different from

other constructs (Hair et al., 2010). Consequently, a high level of discriminant

validity suggests that a latent construct is unique and captures some phenomena that

other constructs do not. Although, there are several ways to compute discriminant

validity, a more rigorous method is to compare the AVE values for any two

constructs and with the square of the correlation estimate between these two

constructs. The AVE should be greater than the square correlation estimate (Hair et

al., 2010). Another way of doing this test is to compare the square-root of AVE for

a given construct with the absolute correlations of that construct and all other

constructs (Tang, Luo, & Xiao, 2011). For either, however, the AVE must be

greater than the construct correlation in order to establish discriminant validity

(Fornell & Larcker, 1981). Table 5.7 clearly indicates all the square roots of AVE

ranging between 0.731 and 0.981 are greater than the values of the constructs in the

corresponding matrices. This indicates that each constructs shares more variance

with its items than with other constructs, and supports discriminant validity.

5.6.3 Face Validity

Face validity, according to Sekaran and Bougie (2010), provides an indication that

the items that are intended to measure a construct seem to have measured it. With

regards to the measurement scale of this study, six experts - Senior lecturers,

Associate Professor and Professor in UUM - were consulted, and their observations

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