IT Impact on Organizational Performance in Banking

IT Impact on Organizational instruction execution in swaning nurture engine room and permeated almost e very(prenominal) aspect of business operations and communications technologies. So it is a one of the most exciting look into has been foc exploitation on the wide eat upest in all parts of the world by dint of the decades, but little was devoted to info the usurpation of tuition applied science to depones in Bahrain.This analyze envisions the impact of information technology on organisational murder in the positing sector during the end from 2005 to 2009. The dependent unsettled mathematical function is return on equity ( hard roe) fleck the self-employed person covariants are sturdy ware, Soft Ware, System Development Operations, I .T forethought, I.T Training , I .T redress , I.T Communication, I .T Implementation, I .T Consultancy , I .T Sites and Business Continuity readiness (BCP). explorative entropy collected through in-depth interviews, official documents and surveys of the field through the acquit 8 trusts in Bahrain, this data has been tested by applying different statistical methods and finance. The research results led to the conclusion that information technology has a arbitrary impact on organizational action in the banking sector.CHAPTER ONE set in motionation garmentAs an emerged business trend, the use of information technology (I.T) in the economic organizations are immense and measuringless. Systems of organization and functions are now considered effortless and wide-eyed because of I.T. information technology passes to be the most important one for each monetary institution and the banks, particularly, they are one of the greater investors in I. T, Ahli fall in bank one of these banks that equals them around $ 13 millions. It is an enormous cost of this technology for local and international mercenaryise.The existing studies familiarly hold in think two decreed effects concerning the family congressship mingled with IT and the fiscal execution of instrument of banks. First, it buns reduce available costs of banks (the cost advantage). For example, the Internet helps banks to carry on typeized, low value proceedings (e.g. send the bill payments, balance inquiries, bill transfers) through the online channel, term focusing its resources on alter, eminent value added transactions (eg small business loans, individualised trust services, investment funds banking) through branches. Second, bum facilitate transactions mingled with customers within the kindred intercommunicate(the network effect).As an example, let us consider the case of automated teller machines (ATMs) by banks. If ATMs are geographically dispersed areas available largely over, the advantage of using an atmosphere leave alone increase as customers can access their accounts from whatsoever geographic location they want. This would imply that the value of the ATM network increases with subprogram of locations available in the atmosphere, and the value of the network of the a bank to a customer is determined in part by the final size of it of the network effect banks network is important in the adoption of the atmosphere.IT has displace the attention of m whatever researchers, commissioned to consider the impact of IT in the procedure of the bank and that is a goal of many organizations. Some researchers digest run aground positive human relationships mingled with IT investiture and organizational feat and some of it build it negative.Problem StatementIT enthronisations and its impact on the banking industry is a very important point for both banking managers and IT managers to be able to deal with and unblock wither increase expense for investment in IT result pourboire to increase work of pious platitude or not. That will put change magnitude pressure on managers to asses its business value.In this study we will examine the account character s of IT investments (Hard ware, Soft Ware, System Development Operations, I .T Maintenance, I.T Training , I .T Insurance , I.T Communication, I .T Implementation, I .T Consultancy , I .T Sites and Business Continuity prep (BCP) to see if put downing in different IT areas as an impacts on bank feats.Significance and ImportanceThe importance of this project lies in its ability to swing a light on the Impact of nurture technology on The Financial Performance of commit sector in ground of Bahrain. Further lots, this study would encourage sepa wanderwise coin banks in the area to benefit from Bahraini blasphemes aim and on that pointfore follow their lead.PurposesThe goal of this study is toTo determine which type of information system leads to high financial performance of the banks.Evaluate in what special(prenominal) ways and to what extent do information systems could eventually lead to high financial performance.To find tabu what issues emerges when implementing IT at the bank.Research HypothesisThe of import Hypotheses thither is no substantive relationship mingled with investing in I.T and the financial performance of curses of Bahrain.H01 There is no operative relationship amidst investing in HW and the financial performance of Banks of Bahrain.H02 There is no probative relationship surrounded by investing in SW and the financial performance of Banks of Bahrain.H03 There is no significant relationship between investing in SDO and the financial performance of Banks of Bahrain.H04 There is no significant relationship between investing in Main and the financial performance of Banks of Bahrain.H05 There is no significant relationship between investing in Trn and the financial performance of Banks of Bahrain.H06 There is no significant relationship between investing in Insu and the financial performance of Banks of Bahrain.H07 There is no significant relationship between investing in Comm and the financial performance of Banks of Bahrain .H08 There is no significant relationship between investing in Imp and the financial performance of Banks of Bahrain.H09 There is no significant relationship between investing in Con and the financial performance of Banks of Bahrain.H010 There is no significant relationship between investing in Sit and the financial performance of Banks of Bahrain.H011 There is no significant relationship between investing in BCP and the financial performance of Banks of Bahrain.Key WordsInformation technology (I.T) any technology that helps to produce, manipulate appendage, store, communicate, and/or disseminate information.Information system (IS) is any confederacy of information technology and peoples activities using that technology to maintain operations, management, and decision-making.I.T investment Banks of Bahrain Its a financial institution located in Bahrain that deals in money and its substitutes and provides other financial services.ATM automated teller machine, which allows custome rs to complete basic transactions without the aid of a branch showative or teller.Financial Performance is the overall returnsability of the insurance firm.Study OutlineThe paper outcome as follows Chapter 2 focuses on the literature round where the work of other researchers and some previous theoretical and verifiable studies are mentioned. Chapter 3 is around the methodological digest utilize in this study. Chapter 4 discusses the empirical results and findings of the research. Finally, conclusions and recommendations are do in chapter 5.CHAPTER TWOBACKGROUNDCHAPTER TWOBACKGROUNDIntroductionThis chapter will specify some aspects of Bahrains economy and what attracts foreign and local investors to invest their ceiling in this country along with some important features and statistical data regarding the banking industry, we will try to know why It is necessary for the management of the organizations to stride and to adjudicate the organization performance. Finally, the literature review will discuss a number of some previous studies related to this topic.An Overview of Bahrains EconomyThe economy of Bahrain is primarily defined by embrocate production and refining and production, ship repair, iron pelletization, fertilizers, seaward banking, insurance. The country is trying hard to privatize its economy so that it can reduce the dependence on oil production and that prompted the political sympathies to develop other industries as easily. For example, in 1970, the government established aluminium Bahrain (ALBA), an aluminum smelting industry which still re primary(prenominal)s an important industry. In a further effort at diversification, the government has as swell promoted tourism.The government controls the oil and gas, most heavy industry, and the bulk transport and communications, but has made efforts to privatize the economy, bank transfer, light manufacturing, and trade in private hands.Listen require phoneticallyDictionary View de tailed dictionaryTranslate any websiteEl Confidencial-SpainTom.com-ChinaNews.de-GermanyNord-Cinema-FranceZamalek Fans-ArabicGotujmy.pl-PolishVogue-FranceArte Toreo-SpainLExpress-FranceOnet.pl-PolishPblico.es-SpainZeit Online-GermanyBahrains economy is strong and always meliorate their sectors to compute for a bright future. It was called the fastest growing financial center in the Arab world by the unite Nations Economic and Social Commission for westward Asia in January 2006 by the City of London global financial centers indicator in 2008. In 2004 it signed a free trade an savvy with United States will reduce the concern Which Barriers between the two countries.Bahrain Was the graduation Arabian Gulf state to sign such a trading mutual agreement with the United States.http//www.mapsofworld.com/country-profile/bahrain1.htmlhttps//www.cia.govBanking Sector in BahrainBahrain is the home of more than 400 the authorized financial institutions, what represents a rich mix of inter national, regional and local names. They cover all the range of financial products, with private concentrations in sure, wholesale banking and funds / asset management. The financial sector is now the major sector of the economy represents more than the 27% of the GDP. The financial sector is alike the major employer in Bahrain for more than the 80% of the labor.The sector is regulated and oversee by the cardinal Bank of Bahrain (CBB) (www.cbb.gov.bh), which since 2002 has functioned as a regulator of the undefiled financial system. Bahrains banking system consists of both formal and Islamic banks and is the main component of the financial system, which represent over 85% of total financial assets. The conventional segment includes 19 retail banks, 69 wholesale banks, 2 specialized banks and 36 representative offices of foreign banks.The Islamic segment, offering a serial publication of Sharia Conformity of their products and services include 6 retail and 18 wholesale banks, an d the numbers are increasing steadily.The banking sector has played a central role in the development of Bahrain as major financial center in the region. As in December 2006, banking sector assets toted to over U.S. $ 180 billion, more than twelve times annual gross domestic help product.The recent increase in the sector has been supported willingly mountain of the industry of the petroleum and the corresponding increases of liquidity. The banks are playing thus a central role in surplus to reinvest the petroleum incomes as well as complying the opportunities of financing in other segments of the economy.http//www.bahrain1.com/banking.htmlPerformance MeasuresThe performance as declared by Wheelen and hunger (2000) is the final result of an activity and a performance organizacional accumulates turned out final of all the organization process and activities. It is necessary for the management of the organizations to greenback and to evaluate the organization performance to utiliz e organizations resources in better form and to win good organization honorableness.Managers measure and to control organization performance, since conducts to a better management of assets, to a greater capacity to provide value of the client, for improve the measures of organization Knowledge and measure of performance organizacional cause an impact on an organization reputation.Literature reviewMany studies had been done in tell apart provide a guide picture of the financial performance of banks.Gupta, Uma and Collins (1997) investigate the impact of information systems on the efficiency of banks. They were centered in determining the relation among the investments in I.T and bank efficiency they identified an efficiency measures assembly unremarkably utilized by the banks and they asked to their respondents to specify if these measures were utilized to evaluate the performance of I.T an investment.They nominate that the companies ensure that the investments in technology a re deliberately and in a significant way aligned with achieving the strategic, tactical one, and the operational goals of the business is likely that to see a narrower link among I.T investments and improvements of productivity of the organization. Thus I.T performs an important and priceless role in helping to reach objectives organizational, to enlarge the productivity to improve service to the client, and to utilize fully existing system.Lunardi, Becker and Macada (2003), they evaluated the strategic impact of IT in Brazilian, American, Argentinean, Uruguayan and Chilean banks as perceived by their executives. In order to externally validate the questionnaire, results were analyzed considering, as isolated samples, (a) Brazil, (b) the United States, (c) Argentina, Uruguay and Chile, and, hence, (d) as one group merging all data.The results indicate that (1) Competition, Products and Services, and Borrowers (customers) are the main strategic variables affected by IT (2) at tha t place are no differences between executives of IT and other functional executives regarding their perception of the impacts of IT in strategic variables and (3) the impact of IT in Competitiveness is significantly related with the impact of IT in Borrowers, Government and res publica Requirements, Products and Services, and Cost Structure and Capacity. This study supported banking executives to plan IT strategies, their implementation and to evaluate their use.Another research had been done by Elena Becalli. (2005) Who investigated whether investment in Information Technology (IT) hardware, software and other IT services influences the performance of banks by use a sample of 737 European banks over the extent 1993-2000 .The study bring that the impact of different types of IT investment (hardware, software and services) on banks performance is heterogeneous. Investment in IT services from external suppliers (consulting services, implementation Services, training and educatio n, support services) appears to have a positive influence on accounting receiptss and profit efficiency, while the acquisition of hardware and software seems to reduce banks performance.Shaukat and Zafarullah. (2009) made a study examined the impact of IT on organizational performance in denary terms of Pakistans manufacturing and banking sectors over outcome of 1994-2005 and come with the following result.I.T changed the character of so much work for the industries and enlarges its performance. This positive impact has shown in indicators of qualitative performance. evidential improvements with regard to the different qualitative variables as customer satisfaction, client/suppliers links, part of the business, employees interest work, shareholders, confidence and among office links/communication they have been find in both the sectors and banking in Particular .Akram and Allam. (2010), explored the impression on improving the performance of two forms of matrix. The for the f irst time is matrix of financial performance which comprises market Value-Added (MVA), drive away on Investment (ROI) and Earning per Share (EPR) and the second is matrix of operational performance, which includes the pay attain Margin (NPM),Operating Return on Assets (ORA) and the profit value of the employee (PE). Utilizing IT by Jordanian banks which measured by testing the train of investment in Hardware, Software, Internet Banking, Phone banking, number of ATMs, use of Cyber branches and Banking via SMS.The results of measurements indicated that there was an impact on the use of MIS in Jordanian banks in the market value added (MVA), Earnings Per Share (EPS), Return on Assets (ROA), Net Profit Margin (NMP).Keramati, Azadeh and Mehran (2009), discussed and tested empirical to moderate environmental effects of heartiness and branch strategy on the impact of the investment and other economic variables (number of employees and fixed assets) in the branches. The study sample was comprised of 102 branch offices of the bank Parsian and the empirical results, on the base of a homunculus moderate of decline. Concretely, IT investment seems to have a greater positive impact on performance of the banks when there are greater environmental changes and more proactiva strategy branch.According to their conclusions, the banks considering that the investment should evaluate their performance environmental contexts and the strategic orientation.Another investigation has been carried out for Mallick and Shirley (2006). They examined the effects of the information technology (IT) in the banking industry of United States.They found that IT can improve banks performance in two ways IT can reduce operational cost (cost effect), and facilitate transactions among customers the clients inside the same network (effect network).They characterized the conditions to severalize these two effects and the conditions for the two seemingly positive effects to turn negative in the equilibrium. The results were tested on a panel of 68 US banks over 20 course of studys, and they found that the bank profits decline due to adoption and diffusion of IT investment, reflecting negative network effects in banking Industry.In this study I will use the same factors used by Akram and Allam (2010) to explain the Impact of Information Technology on The Financial Performance of Bank sector in kingdom of Bahrain.CHAPTER THREEMETHODOLOGYIntroductionIn this part of the study, we build the methodology of the study that is characterized in terms of tools and method of measurement and tests for the problem of the study, taking advantage of methods and tools of previous studies, in order to guarantee the access to the methodology to obtain the information more I need and better results.The key variables will be measured in an intent of practice to identify dependent and independent variables and to explain how the independent variable affects the dependent variable.Finally, I t will also provide a study mildew and some specifications of the model used to conduct the research.Population and Sampling data CollectionThe data was collected through in-depth interviews with the senior managers of finance , and some mangers from I.T Department of Banks in sample and from official documents plus We used several academic journals and articles which have been downloaded online from various websites to collect data for this study. Updating numerical data well-nigh the Banking sector and Banks have been collected from the annual reports of each Banks which are submitted on their official websites.PopulationThe research population is all locally Banks in BahrainAhli United BankNational Bank of BahrainBahrain Islamic Bank (BisB)Bank of Bahrain and capital of Kuwait B.S.C.Bank Muscat transnational (BMI)Standard CharteredKuwait Finance House BahrainCitibank BahrainHSBC Bank Middle East LimitedArab BankTable 3.1 PopulationSource The ResearcherSampleAhli United Bank ( AUB) Bank Muscat International (BMI) were selected as research sample to represent this sector. However these Banks were selected because I found that it was easy for me to collect any information needed for this research from these tow Banks since I am working in Ahli united Bank and I Know Manger of IT in Bank Muscat International (BMI) .Ahli United Bank. Bank Muscat International (BMI)Table 3.2 SampleSource The ResearcherThe first bank is Ahli United Bank, Bahrain (AUB)Ahli United Bank BSC (AUB) formed after the 2001 merger of Al-Ahli Commercial Bank and Commercial Bank of Bahrain, It is a full fledged commercial and investment banking group providing Services of 1. Wealth management 2. Retail, corporate 3. Treasury 4. offshore 5. Islamic banking 6. Real estate fund management 7. Structured finance and private banking services. The Groups businesses consist of the operations in Bahrain, a wholly owned subsidiary in the UK and associates in Kuwait, Qatar, Oman, Egypt, Iraq and Libya.Source http//www.cbb.gov.bh/page.php?p=bankingThe second bank is Bank Muscat International (BMI) BMI Bank (previously known as Bank Muscat International), an associate of Bank Muscat the largest financial services provider in Oman today, is a Retail Bank, registered in Bahrain and regulated by the primal Bank of Bahrain offering a full range of retail and commercial banking services. BMI Bank operates in Bahrain through a network of 8 branches and 26 ATMs with net banking for easy access to services.Source http//www.bmi.com.bh/AnnualReport/imagesPeriod covered in this researchThis research covers the menstruation from 2005 to 2009.Analysis PlanUse reversal method to specify the relationship between the independent variables (HW, SW, SDO, MAIN, TRN, Insu, Comm, Imp, Cons, Sit, BCP) and the dependent variable which is the (ROE).Research ModelModel SpecificationThis economic model is used to examine the relationship between Independent Variables and Banks performance.Defining Study VariablesThe independent variablesHard ware Which includes spending on data storage devices, terminals, memory, peripherals, workstations, personal computers and data communications devices, So It is the net investment bank in the computer hardware and equipment in the period. (Akram Allam 2010)Soft Ware which includes spending on packaged software, application Solutions software, application tools, and systems infrastructure software? It is the net investment bank in the software during the period.(Akram Allam 2010)System Development Operations Which includes spending on Specific activities related to system development and other expenses for operations management during the period like the network, processing services, backup and archiving. ( Elena Becalli. 2005)I .T Maintenance On going operational support of either hardware or software IT assets of an organization. This can be both preventative as well as reactive support.I.T Training Includes education used to enhance general knowledge and expand the abilities to use IT during the period. (Elena Becalli 2005)I .T Insurance The insurer provides security system of IT assets against fire, theft, flood and accidental damage and protects the firms investment from claims arising out of professional neglect or system failure .I.T Communication Providing effective ways for inter application, inter entity communication. Effective IT communication provides the backbone for the working of any succeeding(a) generation application due to centralized and cloud based roadmap towards Information Technology.I .T Implementation Which includes spending on a new or changed application systems are needed in order to support the processes, these must(prenominal) first be procured or developed and implemented.I .T Consultancy Includes all what they spend to provide product-specific consulting during the period. It is one of the independent variables.(Elena Becalli. 2005)I .T Sites Physical controlled infrastructure support for IT related hardware / data centers. This can be segregated between production and disasters recover sitesBusiness Continuity Planning (BCP) It is the cost of Planning that identifies to the organization, exposition to external and internal threats and synthesizes soft and hard assets to provide an in effect(p) prevention and the recovery of the organization, during the period. It is one of the independent variables.The independent variablesROE Return on equitymeasures a corporations profitabilityby revealing how muchprofit a company generateswith the money shareholders have invested. So it is the amount of the net incomes returned like a percentage of the capital stock. Each banks ROE has been obtained for its annual reports and calculated asReturn on Equity = Net Income/Shareholders EquityCHAPTER FOURANALYSIS TESTING HYPOTHESISIntroductionThis dent includes tow main topics, the first is about descriptive Analysis of the study variables through various descriptive st atistical measures, such as Central tendency measures, Dispersion measures, Mean, Median, Range and Standard Deviation to describe the study variables. The Second topic represents testing the study hypotheses, and computing the regression model information.First topic, Descriptive AnalysisDescriptive AnalysisThe descriptive analysis table in the appendix shows the followingFrom Table 4.1, which illustrates the use of Bahrain banks for I.T, we pedigrees that just cost of H W in Bahrain banks reached the highest average in course of instruction 2009 (3,332,204) and this year was the lowest in the standard refraction (323,436), as well as the year that contains the largest cost for investment (3,103,500), which refers to the rise in investment H W by Bahrain banks.The second independent factor is the S W, its cerebrate (medium) started with (1,085,277) and we notice that they are on the increase from year to year until it reaches in 2009 to (3,117,740) While the standard deviatio n of S W started with 940,060 then decrease to (865,657) and increase later in 2007 and again rock-bottom to (805,459) in 2008 and lowest amount (236,654) in 2009. The minimum S W during the research period was (420,554) while the maximum was (2,950,400).We marked that the third factor which is the S D O had a mean started with ( 627,493 ) and terminate with( 525,001 ) and noted that investment in S D O reached the highest value in the age 2005 ( ,000,000) and 2007 ( 720,000 ) while the lowest value was in the year 2008 ( 245,907 ) and the standard deviation started high in first year 2005 ( 526,804 ) and decreased to the lowest in the become year 2009 ( 35,281) .The M A I N mean (medium) started with (930,182) in 2005 and end with (1,519,138) in 2009. While the standard deviation started with (805,844) and terminate with (957,440). The minimum M A I N during the research period was (360,365) and the largest amount was (2,196,150).The fifth factor which is the T R N had a mean (medium) of (133,498), (142,611), (180,363), (147,626) and (94,051) the standard deviation started with 94,048 and ended with (36,697), the minimum T R N during the research period was (66,996) while the maximum was (280,000).The I N S U mean (medium) started with 48,220 in 2005 and ended with 99,966 in 2009 while the standard deviation started with 37,873 and ended with 13,918 the minimum I N S U during the research period was 21,440 while the largest was 109,808.From the previous table we note that the seventh variable COMM, the average cost in Bahrain banks started with 1,124,045 and continue increased upto (1,737,626). In 2009, the standard deviation started with 955,944 and ended with (1,148,871), the minimum rate during the period reached to the lowest of 448,091 and highest was 2,550,000 in 2009.The I M P mean (medium) started with (243,621) in 2005 and ended with (562,749) in 2009. The standard deviation started with (188,627) and ended with the (60,303) the minimum rate dur ing the period was (110,241), while the maximum was (60,303).The ninth factor which is the C O N S had a mean (medium) of (63,192), (32,123), (38,552), (55,051) and (95,053) and the standard deviation started with (52,055) and ended with (35,281), the minimum C O N S during the research period was (14,245) while the maximum was (120,000).The S I T mean (medium) in the beginning 3 years were the same 65,307 years and in the last 2 years increased to (104,500) while the standard deviation started with 49,063 and ended with (21,920). The minimum S I T during the research period was 30,614 while the maximum reached to (89,000).The BCP mean (medium) in the beginning year started with (295,011) and ended in the last year with (430,744). While the standard deviation was beginning with (247,472) and decreased in the last year to (198,759). We note the minimum BCP during the research period was (120,022) and the maximum was (571,288).The dependent variable is the ROE which was marked by the year 2006 the highest revenue between the years of the sample, as it reaches the highest return of 19.230% while the standard deviation was started with 3.606% and decreased later to .495 % in 2009. The year 2009 marked the lowest return on equity, amounting to 9.600%.Regression AnalysisI used Pooled Data Regression method because Ive tie series data (2005-2009) and cross-sectional data (2 Banks).I have mathematical model of the study is developed as followsI used E views program to analyze the data, I also used pooled regression and multi-regression because we have more than one independent variable verses only one variable which is the R O E. The confidence separation is ( 95 %).Testing HypothesisAs stated in the first chapter, these are the null hypothesis for this researchThe main Hypotheses There is no significant relationship between investing in I.T and the financial performance of Banks of Bahrain.H01 There is no significant relationship between investing in HW and the fina ncial performance of Banks of Bahrain.H02 There is no significant relationship between investing in SW and the financial performance of Banks of Bahrain.H03 There is no significant relationship between investing in SDO and the financial performance of Banks of Bahrain.H04 There is no significant relationship between investing in Main and the financial performance of Banks of Bahrain.H05 There is no significant relationship between investing in Trn and the financial performance of Banks of Bahrain.H06 There is no significant relationship between investing in Insu and the financial performance of Banks of Bahrain.H07 There is no significant relationship between investing in Comm and the financial performance of Banks of Bahrain.H08 There is no significant relationship between investing in Imp and the financial performance of Banks of Bahrain.H09 There is no significant relationship between investing in Con and the financial performance of Banks of Bahrain.H010 There is no significant relationship between investing in Sit and the financial performance of Banks of Bahrain.H011 There is no significant relationship between investing in BCP and the financial performance of Banks of Bahrain.The preceding(prenominal) hypothesi