The impact of information systems on the efficiency of banks: an empirical investigation
| Published date | 01 February 1997 |
| Date | 01 February 1997 |
| DOI | https://doi.org/10.1108/02635579710161296 |
| Pages | 10-16 |
| Author | Uma G. Gupta,William Collins |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
[ 10 ]
Industrial Management &
Data Systems
97/1 [1997] 10–16
© MCB University Press
[ISSN 0263-5577]
The impact of information systems on the efficiency
of banks: an empirical investigation
Uma G. Gupta
Assistant Professor, Department of Decision Sciences, East Carolina University,
Greenville, North Carolina, USA
William Collins
Professor, Department of Decision Sciences, East Carolina University,
Greenville, North Carolina, USA
Financial institutions, and
banks, in particular, are one
of the largest investors in
information systems (IS) and
information technologies (IT)
and there are indications that
this trend is likely to con-
tinue. However, there is grow-
ing concern that IS invest-
ments are not yielding the
anticipated results, an issue
that is of grave concern to
many CEOs and top man-
agers. One way to address
this concern is to analyse the
relationship, if any, between
investments in IS and an
organization’s efficiency
measures. Reports the results
of an empirical study that
assesses the role and contri-
bution of IS to a bank’s effi-
ciency, based on a study of
nationalized banks in the
state of Florida. More specifi-
cally, reports on the role of IS
in achieving business goals,
improving productivity, and
enhancing customer service
in banks.
Introduction
Financial institutions are one of the largest
investors in information systems (IS), and
according to a survey by Ernst and Young and
the American Banker, the industry’s informa-
tion technology (IT) spending is expected to
reach unprecedented heights in the late 1990s.
It is estimated that in 1994 alone, banks
invested close to $20 billion in information
systems and technologies in an effort to
improve efficiency and enhance customer
service.
Many successful financial institutions have
clearly demonstrated that information sys-
tems and technologies can be a powerful
competitive weapon that can be used to cap-
ture market share, improve customer service,
reduce operating costs, and create new prod-
ucts and services (Lederer and Mendelow,
1988). Chief executive officers (CEO) and top
managers often have an intuitive understand-
ing of the power and potential of IS, thus
propelling many companies and institutions
to invest large sums of money in IS and IT.
However, decision makers often struggle
with how to assess the returns from these
investments because of the many intangible
benefits associated with IS and IT. The pri-
mary question of “What is the relationship
between investments in information systems
and the bottom line?” is a difficult one to
address since traditional ROI measures for IT
investments are often inappropriate and
misleading (Bender, 1988). As the IS commu-
nity tries to develop innovative and meaning-
ful cost-benefit methodologies for IS and IT
and as the pressure on CEOs and chief infor-
mation officers (CIOs) to be more accountable
increases, more and more companies are
taking a hard look at the gains derived from
IS (Benjamin, 1982).
In spite of the large investments in IS and
IT by the banking industry and the pressing
concern to assess the returns from these
investments, little has been done to assess the
contribution of IS to the growth, profitability,
and efficiency of banks. A literature search
yielded almost no theoretical frameworks or
financial models for conducting such a study.
Most references in the literature to banking
IS appear in trade journals and are often
news releases of investments in specific tech-
nologies. There are a number of “how to”
articles in the popular literature, such as how
to design and develop client-server systems
for banks, but little has been written on how
to assess the contribution of such systems to
the broader goals and objectives of the bank.
With the new debate on the “information
productivity paradox” raging in the IS com-
munity, the issue of measuring the impact of
IS on a bank’s efficiency is both appropriate
and timely.
This paper reports the results of an empiri-
cal study that evaluates the contribution of IS
to various productivity and efficiency mea-
sures in a bank. This paper is laid out as fol-
lows. In the following section we describe the
research methodology and the results of the
survey. We then analyse the implications of
the results, followed by recommendations and
conclusions.
Methodology and results
The survey was mailed to the CIOs of all
member banks of the Florida Bankers Associ-
ation (FBA), which enthusiastically
supported the study. The survey was initially
tested on six bank CIOs who reviewed the
survey and made several recommendations.
The input of this test group was incorporated
into the survey and the revised surveys were
mailed to member banks of FBA.
Multi-part questions were broadly divided
into the following categories:
1 profile and characteristics of the bank;
2 technologies used by the bank;
3 investments in technology;
4 alignment between IS and business goals;
5 top management’s commitment to technol-
ogy;
6 role of IS in supporting organizational
tasks;
7 efficiency measures used to identify the
contribution of IS;
8 critical success factors.
We received 123 usable responses to our sur-
vey, giving us a response rate of 57 per cent.
To continue reading
Request your trial