Use of information technology by retail banks in India and France

Abstract

One central concern of the strategy fields is to study the development of well adopted organization. The related question of how some firms differ from others, and how these differences are related performance has also fascinated strategy scholars. The present study raises similar basic questions and attempts to answer them in the context of a particular setting. The setting examined forthis studyisthe use of information technology {IT) in retail banking. In highly information-intensive sectors like banking, IT use is expected to have far-reaching effects. Banks ail over the world have undergone major changes with the introduction of computer and telecommunication technologies. In Indian banks, technology introduction has accelerated at about the same time when financial sector reforms are leading to intensified completion. Banking operations in India are therefore expected to change dramatically in the next couple of years. Most Indian banks are concerned with what to computerize first, how much to do, and how soon. These concerns are increasing in complexity as more and more alternative ways of using the new and increasingly powerful technologies are becoming available. Linkages among firm strategy, use of IT, and performance are assuming great importance. Literature about the impact of the new information technologies is abundant, and most authors attest to the theoretical benefits. Many of them also suggest that "strategic use of IT" can lead to dramatically better results, although it is not always clear what "strategic use of IT" consists of. Another stream of literature supports the view that even though IT presents new strategic opportunities for organizations, evidence at the aggregate level does not indicate significant improvements in productivity/profitability. These viewpoints suggest two things. One, there may be certain kinds of performance that IT enhances apart from the conventional understanding in terms of financial indicators, and two, there may be certain kinds of IT usage that lead to better performance and others that do not. The present study draws from both these streams of literature to identify ways of IT usage that differ across firms in the same business. It does not seek to prove or disapprove the productivity paradox. Instead, it takes the view that even if the paradox does exist, some firms are able to use IT in superior ways, and are likely to gain more advantage out of this use. Thus, among retail banks, some would have been ableto make betteruse of IT than others, even though the industry continues its search for better re turns on IT investments. Among Indian banks too, some would have been able to derive substantial benefits from IT use, even though they are considered to be way behind their western counterparts. In accordance with this perspective, the broad research problem for this study is to examine whether the extent and quality of IT use differ across banks, and to understand the nature and implications of this difference. A theoretical framework based on existing literature was developed to identify differences in the way IT could be used. Based on this framework, case studies one each in France and India) were conducted to strengthen the theoretical constructs with specific relevance to retail bank-ing. Data from an existing case study of one more Indian bank, reported to have made strategic use of IT, was also drawn upon. In addition, data from the case study of the French bank was used to derive possible uses of IT that could be considered strategic in the Indian context. The theoretical constructs were then modified further to increase their relevance for retail branch banking. Finally, an empirical survey of Indian bank branches was con-ducted through a questionnaire designed to be filled in by branch managers/heads. The questionnaire was administered to the branches of Indian banks from the public, private and cooperative sectors. Survey respondents comprise of branch heads from 31 different banks including seven new generation banks set up in the post-liberalization period. Data from 176 responses was analyzed to explore the relationship between two sets of variables: 1. Grouping variables that divide the sample into groups based on ownership, generation, and extent of mechanization at the branch. 2. Variables indicating performance, and (b) variables reflecting ways of IT use. The two sets of variables were paired on the basis of relationships that were logically expected to be valid in the context of retail banking in India. Discriminant analysis was done across these pairs to identify the best grouping variable from the first set, and associated performance indicators and attribute variables from the second set, that had high discriminating power across the groups. This study supports the overall finding that banks are making increasing use of IT to develop new retail products and delivery channels, despite the difficulty of assessing gains from IT in financial terms. In India, new generation private banks have been able to use IT differently from the banks established earlier. This difference is reflected in better services offered to customers, but does not necessarily imply that the older banks have lost out on competitiveness. Since new banks have entered the market on the premise that technology is providing them with a leading edge these differences indicate the extent to which IT has been used strategically by retail banks in India. Case data shows that in developed countries, stronger competitive pressures are putting greater demands on IT for supporting initiatives for business growth, new product offerings, and customer segmentation. Survey data on Indian banks shows that some banks have been able to implement technology solutions more successfully than others, even when there are similar constraints arising out of Indian environmental conditions. Improved customer interface management, better quality of management information, and ongoing technological up gradations, characterize the new private banks; indicating that established banks need to catch up on these aspects. However, manager attitudes to computers, equipment adequacy, and methodologies for assessing benefits of IT use, are not very different a- cross new and established banks Indicating that new banks do not enjoy any competitive advantage on these counts. Mixed evidence on differences in IT-related performance of new and established banks indicates that by using IT differently, intermediate outcomes like service offers and working hours are easier to influence, whereas more remote ones like business growth or problems reported by customers may not be similarly influenced.