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AN EXPLORATORY STUDY OF THE CRITICAL SUCCESS FACTORS OF
RETAIL BANKING IN THE DIGITAL ERA
Supervisors: Ir Prof. T.C. Edwin CHENG
Prof. W.C. Petrus CHOY
Presented by : S.K. Derek CHUNG (15043462g)
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Agenda
1. Introduction2. Literature Review3. Research Framework and Hypothesis Development4. Research Methodology5. Data Analysis6. Results Validation (Case Study) – The China Merchants Bank7. Implication and Conclusion
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1. Introduction
1.1 Background
What is Digital Era? What is Retail Banking? Changing Role of Retail Banking What is Retail Banking in the Digital Era?
1.2 Research Objective
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Phase 1st Industrial Revolution 2nd Industrial Revolution 3rd Industrial Revolution 4th Industrial Revolution
Time 1750–1850 1870–1914 Digital Era Digital Era18th–19th Century 19th–20th Century 21st Century 21st Century
Characteristic
Focus on the application of steamengines
Breakout in the UK Communication: printing press
(Mokyr, 1998; More, 2002; Troxler, 2013; Zhu et al., 2015)
Focus on manufacturing powered by oil and electricity
Communication: radio, television Made large technological systems
commonplace Geographically, technological
leadership switched from the UK to the western world
Technological change irreversibly drove digital and technological revolutions to establish the digital era
(Mokyr, 1998; Troxler, 2013; Zhu et al., 2015)
Invention and rapid popularization of computers and communication devices have driven technological, economic, social, and cultural changes
Communication: Internet Affordable digital manufacturing
tools linked up with the Internet resulted in affordable capital investments
Digital tools bridged both designing and manufacturing and white collar–blue collar connectivity
Five Pillars of the 3rd Industrial Revolution: 1. Renewable energy2. Small-scale energy generation3. Hydrogen and storage4. The Internet and smart grids5. Electric transport
(Rifkin, 2011; Chris, 2012; Troxler, 2013; Zhu et al., 2015)
Network-based production drives digitalized automation by leveraging Internet technologies
Communication by different Internet channels, particularly mobile Internet
The 4th Industrial Revolution, also known as Industry 4.0, is defined as the era of network-based production that drove digitalized automation by leveraging Internet technologies
The 4th Industrial Revolution is summarized by the physical and cyber systems from the previous three industrial revolutions
Industry 4.0 has been planned as a critical high-tech innovation strategy of the German Federal Government
(Kagermann, et al., 2013; Sogeti Group, 2014; Zhu et al., 2015; Yao & Lin, 2016)
Industry 4.0, also known as the digital revolution, consists of four key elements: 1. Big data 2. Cloud computing 3. Technology platforms4. Mobile Internet
Information and communication technology is driving changes in the mindset of community
(Blackmore, 2000; Doukidis, et al., 2004; Zhu et al., 2015; Loucks et al., 2016)
Digital Era
Data is stored on paper
Data is transferred by hand delivery
Data is stored in digital format
Data is transferred from offline to online at high speed
Table 1: Chronology of Industrial Revolutions
1.1 Background – What is Digital Era? (1)
1. Introduction
P. 5
The Internet Economy is ranked in the world’s top five if it were treated as a nation (BCG, 2012) Population of internet users:
3.4 billion, i.e. around 51.7% of world’s population in 2017
In 2016, global digital retail sales were US$1,915 billion, i.e. 8.7% of total global retail sales
ChinaInternet users population: 738
millionInternet users accounted for
53.2% of the world’s population in 2016 as per World Development IndicatorsContributed to 47% of global
digital retail sales in 2016 (DBS Bank & EY, 2016)
China Highest FinTech adoption rate:
69% in 2017 Mobile phone is the most
popular channel for new and existing internet users among all channels of internet users in China: 95% of existing internet users / 81% of new internet user in 2016 (China Statistical Report on Internet Development, 2017)
FinTech has been popularly used to describe the rapid technological innovation and emergence of new business models in the financial services sector
FinTech startups engage in financing, wealth management, payments, and other financial business activities in the conventional retail banking value chain (Haddad & Hornuf, 2016)
Twenty major countries with highest FinTech adoption rates had occurred in the following products and services: • money transfer and
payments (around 50%)• insurance (around 24%)• savings and investments
(around 20%)• financial planning (around
10%)• financing (around 10%)
China with highest FinTech adoption rate has occurred in the following products and services: • money transfer and
payments (83%)• savings and investments
(58%) • financing (46%)• insurance (38%)• financial planning (22%)
1. Introduction
1.1 Background – What is Digital Era? (2)
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Retail Banking
Refers to the financial services provided to retail banking customers by providing physical branch networks as symbolic bank icons (Pond, 2007)
Hong Kong’s Banking Ordinance: Retail banks are the authorized
institutions providing banking or financial services to individuals, firms, partnerships, unincorporated business, or companies
These authorized institutions operate retail banking businesses and branch networks in Hong Kong
China Banking Regulatory Commission: A majority of banks, including large
commercial banks under (a) state ownership, (b) joint stock commercial banks, and (c) city commercial banks that provide retail banking services to retail banking customers
Provides individual banking customers with a series of products and services, including :
Checking, savings, and time deposit accounts
Transactional banking services
Consumer credit
1. Introduction
1.1 Background – What is Retail Banking? (1)
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China Banking Regulatory Commission
3 policy banks5 large
commercial banks12 joint stock
commercial banks134 city
commercial banksPostal savings
bank39 locally incorporated
foreign banks
40 rural cooperative banks
1,125 rural credit cooperatives
1,114 rural commercial banks 8 private banks Sino-German
Bausparkasse
13 lending companies
48 rural mutual cooperatives
1,443 village or township banks
5 asset management companies
236 finances companies of corporate groups
56 financial leasing companies
5 money brokerage firms
25 auto financing companies
68 trust companies18 consumer finance
companies
Twenty-One Types of Banks in China (Source: 2016 Annual Report of the China Banking Regulatory Commission)
Majority of banks provide retail banking services to retail banking customers
1. Introduction
1.1 Background – What is Retail Banking? (2)
P. 8
* OECD: Organization for Economic Co-operation and Development
De-regulation
Technological development
Financial liberalization
Socio-economic development
(Franzer & Vittas, 1982)
Tightened regulatory controls after the Financial Tsunami in 2008
Foreign Account Tax Compliance Act (United States)
Common Reporting System (34 member of OECD*)
Anti-Money Laundering
Pre de-regulation of government regulation on pricing (Edward, Barry, & Jonathan, 1999)
Business focus: outward looking
Business focus: inward looking (Edward et al.,1999)
Keen competition and stringent control in the retail banking
Retail banking customers and SMEs are targeted and served through various channels
Customers demand for high-quality banking services
Traditional servicing channels and products cannot meet customers’ expectations
1. Introduction
1.1 Background – The Changing Role of Retail Banking (1)
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15% of bank branches – 1,800branches were lost in the period 2003to 2012 (French et al., 2013)
Commercial banking branch per100,000 people: 24.2; bank ATM per100,000 people: 124.3 (Arner et al.,2015)
United Kingdom
Since 2012, branch networks of WellsFargo, Chase Manhattan Bank, Bankof America have been declined by 2%,9%, and 15% respectively (Mayo,2017)
Commercial banking branch per100,000 people: 35.2; bank ATM per100,000 people: 173.4
United States
Number of banks’ branches droppedfrom 1,460 in 2001 to 1,174 in 2015(around 20% reduction)
ATM units increased from 2,361 in2005 to 3,249 in 2015, i.e. 38%increase (HKMA, 2016)
Hong Kong
In China, physical retail bankingnetworks are insufficient to fulfillthe needs of retail bankingcustomers
Commercial banking branch per100,000 people: 7.7; bank ATMper 100,000 people: 37.5 (lessthan United Kingdom and UnitedStates)
China
Banks now processfar more transactions
digitally thanin branches
(McKinsey, 2018)
Since the financial crisis in the late 2000s, more
than 10,000 United States bank branches have been closed – an average of 3
branches per day(McKinsey, 2018)
1. Introduction
1.1 Background – The Changing Role of Retail Banking (2)
P. 10
1. Introduction
1.1 Background – What is Retail Banking in the Digital Era? (1)
Information Technology Investment
• Retail banks have substantially increased investment to approximately US$197 billion in North America, Europe, and Asia-Pacific in 2015 (Arner et al., 2015)
Banking Transaction
• Digital interfaces, such as mobile phones, tablets, ATMs, virtual teller machines, and Internet, provide banking services anytime anywhere
Digital Bank• Chronology of banking development from: e-banking (Digital Bank 1.0) (1998 – 2002)multi-channel integration (Digital Bank 2.0) (2003 –
2008) omni-channel with full function smartphone app rather
than depending on branch network (Digital Bank 3.0) (2009 – 2014)
digital banking with internet of everything-enabled, digital and personalized solutions (Digital Bank 4.0) (2015 – present)(Cisco System Inc., 2014)
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Digitization has been shifted to customer-driven mode
The importance of digital technologies is overtaking that of bank networks, which have been the core retail banking platform for over 700 years
Digitization has improved banks’ operating cost,
efficiency, ability to reach new customer segments, and
enhancement of customer service quality reputations
Digital financial services allow customers to digitally access
most of the basic retail banking functions virtually in 24 hours
a day
In the digital era, retail banking business models focus on offering digital financial services in the areas of: money transfer and payments savings and investments financing insurance financial planning(Shrader & Duflos, 2014)
1. Introduction
1.1 Background – What is Retail Banking in the Digital Era? (2)
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1. Introduction
1.1 Background – What is Retail Banking in the Digital Era? (3)
2017 China Urban Competitiveness ReportRanking
Highest Internet Penetration Rates among China’s Administrative
Regions
Comprehensive Economic
Competitiveness Index 2016
Sustainable Competitiveness
Index 2016
Liability Competitiveness
Index 2016
77.8% 7 - 2
74.1% 3 10 3
74.0%
5 3 4
1 7 5
- 2 1 1HongKong
Shenzhen
Guangzhou
Shanghai
Beijing
Guangdong Province
Source: The Hong Kong Institute of Asia-Pacific Studies at The Chinese University of Hong Kong
Source: 2016 China Statistical Report on Internet Development
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* Five major banks: The Hongkong and Shanghai Banking Corporation Limited (HSBC),Bank of China (Hong Kong) Limited, Hang Seng Bank Limited,Bank of East Asia Limited and China Construction Bank (Asia)Corporation Limited
In HSBC Group, retail banking businessof Hang Seng Bank contributedapproximately 46% and 53% of totalprofits in 2016 and 2017, respectively
According to European CommissionReport 2007, retail banking represented50% of gross income among WesternEuropean banks, contributing 2% of totalEuropean Union GDP and providingmore than 3 million jobs
Five major banks* in Hong Kongrevealed that the contribution of retailbanking to the respective banks’ overallfinancial performance was 25% – 48%in 2016 and 23% – 53% in 2017
Retail banking divisions of twelve largebanks in the United States contributed to50% – 75% of total bank net operatingrevenues from 2001 to 2005 (Clark et al.,2007)
In China, the China Merchants Bank’s(CMB) as an example illustrates that itsretail banking business contributedapproximately 56% of total profit beforetax in 2017 (CMB 2017 Annual Report)
Retail banking has maintained relatively stable revenue streams to banks as compared with corporate banking
The banking industry has played a substantial role in the global financial market
Importance of
RetailBanking
1. Introduction
1.2 Research Objective (1)
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1. To develop and identify the critical success factors of retail banking in the digital era
2. To investigate the potential relationships between the identified critical success factors of retail banking in the digital era and organizational performance measures pertinent to retail banking in the digital era
Research Question 1:
What are the critical success factors of retail banking in the digital era?
Research Question 2:What are the relationships between the identified critical success factors of retail banking in the digital era and organizational performance measures pertinent to retail banking in the digital era?
Interaction of the Underlying Research Objective and Research Question
1. Introduction
1.2 Research Objective (2)
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2.1 What are Critical Success Factors?
2.2 Theoretical Background
Porter’s Generic Strategies Resources-Based View Competence-Based Theory Dynamic Capability Theory Resources Dependence Theory Organizational Culture Theory
2.3 Critical Success Factors of Retail Banking in the Digital Era
2.4 Organizational Performance Measures Pertinent to Retail Banking in the Digital Era
2. Literature Review
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Critical Success Factors (CSFs)
Key factors are needed for ascertaining the competitiveness of an organization and improving its performance
The CSF concept encompasses numerous dimensions of a structural hierarchy. Individual executive managers assess and monitor CSFs through a set of procedures and mechanisms (Jenster, 1986)
CSFs of organization specific directly influence on its individual executive managers’ CSFs (Bullen & Rockart, 1981)
Customized to each specific industry, organization, and individual executive manager
By focusing on few key factors, an organization can drive its business with limited resources to pursue satisfactory results (Rockart, 1978)
From management information system planning perspective, the CSF methodology is adopted to ensure an organization’s success (Boynton & Zmud, 1984)
The use of CSFs was further examined in success reflection, strategy formulation, influence of motivation and alignment, and quantifiable measures (Jenster, 1987)
2. Literature Review
2.1 What are Critical Success Factors? (1)
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Leidecker & Bruno (1984) identified four key criteria to determine the importance of CSFs:
business activity’s importance monetary involvement size financial influence contribution to Organizational
Performance (OP)
Importance of CSFs
Williams & Ramaprasad (1996) established a four-level taxonomy of CSFs:
causal mechanism factors necessary and sufficient for
success factors necessary for success factors associated with success
Taxonomy of CSFs
2. Literature Review
2.1 What are Critical Success Factors? (2)
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Key Theories Main Concepts
Porter’s Generic Strategies Outstanding OP can be attained by employing generic strategies in cost leadership, differentiation andstrategic focus (Pulaj et al., 2015)
Two dimensions: strategic scope (demand-side dimension) and strategic strength (supply-sidedimension)
Resources-Based View Identified the resource types of a firm as tangible and intangible resources (Grant, 1991); physical,human, and organizational capital resources (Barney, 1991); financial, physical, managerial, human,organizational, and technological resources (Hofer & Schendel, 1980); imperfect knowledge-basedresources including organizational mobility, imitable technologies, and substitutable managerialresources (Das & Teng, 2000)
Competence-Based Theory Emphasizes the importance of connecting a firm to the market (Freiling, 2004) and suggests that a firmcan outperform competitors by effectively using existing and available resources
Dynamic Capability Theory Explains how a firm possesses capabilities in three dimensions: (1) sensing and shaping opportunitiesand threats, (2) seizing opportunities, and (3) maintaining competitiveness by means of theenhancement, combination, protection, and reconfiguration of both intangible and tangible assets(Teece, 2007)
Resources Dependence Theory Posits that a firm must use external resources to attain competitiveness (Pfeffer & Salancik, 1978) Examines how a firm exchanges resources through strategic relationships with external partners
Organizational Culture Theory Concerns organizations’ variable, distinct, and unique internal features Three levels: (1) artifacts, (2) espoused values, and (3) underlying assumptions (Schein, 2009; Schein
& Schein, 2016)
2. Literature Review
2.2 Theoretical Background
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2Few studies on the dimensions and practices of organizational management under the principles of quality management have been provided by quality gurus, such as Edwards W. Deming, Joseph M. Juran, Philip B. Crosby, and Armand V. Feigenbaum (Karuppusami & Gandhinathan, 2006)
3An examination of CSFs in relation to quality management provided some insights (Badri et al., 1995), but CSFs have not yet been directly tailored to fit specific retail bank sectors
In the past decades, few studies have focused on CSFs of retail banking in the digital era 1
2. Literature Review
2.3 Critical Success Factors of Retail Banking in the Digital Era
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Organizational Performance Measures
Quantitative ApproachFinancial Measure
Net Interest Margin
Fee Income
Return on Asset
Return on Equity
Rhee & Mehra (2006)
Profitability
Operational Efficiency
Market Size and Share
Growth Rate
Martin-Consuegra et al. (2008)
Customer Satisfaction
Risk Governance
Wu (2012) and OECD (2014)
Qualitative ApproachNon-financial Measures
Organizational performance measures are used to assess the achievement of business goals by employingappropriate CSFs. Performance measurement requires a set of critical criteria to quantitatively andqualitatively evaluate an organization’s financial and non-financial performances
2. Literature Review
2.4 Organizational Performance Measures Pertinent to Retail Banking in the Digital Era
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3.1 Research Framework
Identification of Initial Constructs and Measurement Indicators of Critical Success Factors
Identification of Initial Constructs and Measurement Indicators of Organizational Performance Measures
3.2 Hypothesis Setting
General Hypothesis Setting
Proposed Hypotheses
3. Research Framework and Hypothesis Development
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Extensive literature review on
the critical success factors
of retail banking in the digital era
Extensive literature review on theorganizational performance
measures pertinent to retail banking in the
digital era
Independent Variables
The critical success factorsof retail bankingin the digital era
Quantitative Approach:
Structured survey questionnaire,exploratory factor analysis,
reliability and validity tests, andmultiple regression analysis
Dependent Variables
The organizational performance measures pertinent to retail banking
in the digital era
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (1)
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Proposed Framework for Identifying and Developing the Initial Constructs of Critical Success Factors of Retail Banking in the Digital Era
CSFs of the servicing industry and banking industry were identified to broaden the scope to develop the initial constructs of CSFs
CSFs in the digital era were identified to ensure the relevancy of this study to the contemporary business world
Further reference to the consultancy reports was conducted to identify and develop the initial constructs of CSFs of retail banking in the digital era
In Table 5, the nine initial constructs of CSFs are the most common, core, and critical initial constructs of this study
.From academic perspective, summary of the constructs of the critical success factors of the bankingindustry in the digital era
Table 2Extensive literature review onthe constructs of the criticalsuccess factors of the bankingindustry
Table 1Extensive literature review onthe constructs of the criticalsuccess factors of theservicing industry
Table 3Extensive literature review onthe constructs of the criticalsuccess factors in the digitalera
Table 4From practical perspective, summary of consultancy reports on the constructs of the critical successfactors of the retail banking industry in the digital era
Table 5From holistic view of both the academic and practical perspectives, summary of the developmentof the nine initial constructs of the critical success factors (this study)
From academic perspective
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (2)
Table 1Critical Success Factors of the
Service Industry
Previous Studies
Leadership and Strategic Capability Service Quality Technological
Capability Innovation
Capability Human
Resources Management Organizational
Flexibility Marketing
Capability Risk
Governance Integrated
Channel Management
Leidecker & Bruno (1984) Stafford (1996) Huselid, Jackson, & Schuler
(1997) Han, Kim, & Srivastava (1998) Bharadwaj (2000) Shah (2000) Lane, Salk, & Lyles (2001) Lee, Lee, & Pennings (2001) Luo & Park (2001) Power, Sohal, & Rahman (2001) Brotherton, Heinhuis, Miller, &
Modema (2002) Brotherton (2004) Darroch (2005) Ravichandran, Lertwongsatien, &
Lertwongsatien (2005) Tanriverdi (2005) Vorhies & Morgan (2005) Brown & Caylor (2006) Guan, Yam, Mok, & Ma (2006) Prieto & Revilla (2006) Bhagat & Bolton (2008) Trkman (2010) Huang, Bruzga, & Wang (2011) Mithas, Ramasubbu, &
Sambamurthy (2011) Gu & Jung (2013) Raravi, Bagodi, & Mench (2013) Shaul & Tauber (2013) Ab Talib & Abdul Hamid (2014) Chae, Yang, Olson, & Sheu (2014) Lin & Wu (2014) Kumar, Singh, & Shankar (2015) Parnell, Long, & Lester (2015) Shen (2015) Simon, Bartle, Stockport, Smith,
Klobas, & Sohal (2015) Tan & Sousa (2015) Zapalska, Brozik, & Zieser (2015) Hao & Song (2016) Karna, Richter, & Riesenkampff
(2016) Sarang, Bhasin, Verma, & Kharat
(2016)
Table 2Critical Success Factors of the
Banking Industry
Previous Studies
Leadership and Strategic Capability Service Quality Technological
Capability Innovation
Capability Human
Resources Management Organizational
Flexibility Marketing
Capability Risk
Governance
Chen (1999)Sureshchandar, Rajendran,
& Anantharaman (2003)Shah & Siddiqui (2006)Shah, Braganza, &
Morabito (2007)Kumar, Fong, & Manshor
(2009)Rod, Ashill, Shao, &
Carruthers (2009)Toufaily, Daghfous, &
Toffoli (2009)Kumar, Fong, & Charles
(2010)Nezhad, Jomehri, &
Javanshir (2011)Garg, Rahman, Qureshi, &
Kumar (2012)Ferreira, Kershaw,
Kirchmaier, & Schuster (2013)Haery & Farahmand (2013)Safari Kahreh, Mehdi
Mirmehdi, & Eram (2013)Katwalo & Muhanji (2014)Anyanful & Nartey (2015)Pérez & del Bosque (2015)Kiliç (2016)
Table 3Critical Success Factors in the
Digital Era
Previous Studies
Leadership and Strategic Capability Service Quality Technological
Capability Innovation
Capability Human
Resources Management Organizational
Flexibility Marketing
Capability Risk
Governance Integrated
Channel Management
Jun & Cai (2001)Phan (2003)Johnston & Wright (2004)Oyelaran-Oyeyinka & Lal
(2004)Zhu & Kraemer (2005),Horsti (2006)Johnston, Shi, Dann, &
Barclay (2006)Beccalli (2007)Keoy, Hafeez, & Koh (2007)Al-Hajri & Tatnall (2008)Safeena & Date (2009)Günsel & Tükel (2011)Lin (2011)Ramseeok-Munhurrun &
Naidoo (2011)Wu, Tao, & Yang (2012),Yang (2012)Lin (2013)Uzkurt, Kumar, Semih
Kimzan, & Eminoğlu (2013)Taherparvar, Esmaeilpour,
& Dostar (2014)Jairak, Praneetpolgrang, &
Chirawichitchai (2015)Limsarun (2015)Mehraban, Haghparast, &
Bahmaei (2015)Jun & Palacios (2016)Kamau & Oluoch (2016)Holotiuk & Beimborn
(2017)
Table 4Critical Success Factors in the
Digital Era
Consultancy Reports
Leadership and Strategic Capability Service Quality Technological
Capability Innovation
Capability Organizational
Flexibility Marketing
Capability Risk
Governance Integrated
Channel Management
Boston Consulting Group (2012)Capgemini Consulting
(2012)International Finance
Corporation (2012)Kearney, A.T. (2012)Boston Consulting Group
(2013)Boston Consulting Group
(2014)Deloitte (2014)Efma & Backbase (2015)Bain & Company, Inc.
(2016)Boston Consulting Group
(2016)Capgemini Consulting
(2016)Efma & Edge Verve
Systems Limited (2016)The FinTech Facilitation
Office of the HKMA (2016)Deloitte (2017b)McKinsey China (2017a)
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (3)
P. 25
Table 1Extensive literature review on the
constructs of critical success factors of the servicing industry
Table 2Extensive literature review on the
constructs of critical success factors of the banking industry
Table 3Extensive literature review on the
constructs of critical success factors in the digital era
Table 4From practical perspective,
summary of consultancy reports on the constructs of critical success factors of retail banking in the
digital era
1. Leadership and Strategic Capability 2. Service Quality3. Technological Capability4. Innovation Capability5. Human Resources Management6. Organizational Capability7. Marketing Capability8. Risk Governance9. Integrated Channel Management
Table 5
From holistic view of both the academic and practical perspectives, summary of the development of the nine initial constructs of critical success factors of retail banking industry in the digital era (this study)From academic perspective,
summary of the constructs of critical success factors of the
banking industry in the digital era
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (4)
P. 26
The constructs are illustrated inTables 6 – 8, based on which asummary of the combined set ofconstructs of OP measures of thebanking industry in the digital erafrom an academic perspective
To supplement the literature review,this study further conducted asearch and review of professionalconsultancy reports on retailbanking from a practicalperspective to develop and identifyOP measures of retail banking inthe digital era (Table 9)
Table 10 lists the five initialconstructs of OP measurespertinent to retail banking in thedigital era
.From academic perspective, extensive literature review on the constructs of the organizational
performance measures of the banking industry in the digital era
Table 7Extensive literature review on
the constructs of the organizational performance
measures of the banking industry
Table 6Extensive literature review on
the constructs of the organizational performance
measures of the servicing industry
Table 8Extensive literature review on
the constructs of the organizational
performance measures in the digital era
Table 9From practical perspective, summary of the consultancy reports on the constructs of the
organizational performance measures of retail banking in the digital era
Table 10From holistic view of both the academic and practical perspectives, summary of the development
of the five initial constructs of the organizational performance measures (this study)
From academic perspective
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (5)
Proposed Framework for Developing and Identifying the Initial Constructs of the Organizational Performance Measures Pertinent to Retail Banking in the Digital Era
Table 6Organizational Performance
Measures of the Service Industry
Previous Studies
Financial Performance
Customer Service Performance
Operational Performance
Marketing Performance
Risk Governance Performance
Lieberson & O'Connor (1972)Dutta, Narasimhan, &
Rajiv (1999)Matsuno, Mentzer, &
Özsomer (2002)Brotherton (2004)Ying & Chang (2005)Brown & Caylor (2006)Coombs & Bierly (2006)Wu (2006)Wu & Wang (2007)Bhagat & Bolton (2008)Ojokuku, Odetayo, &
Sajuyigbe (2012)Gu & Jung (2013)Ram, Corkindale, & Wu
(2013)Chae, Yang, Olson, & Sheu
(2014)Mutahar, Rasli & Al-
Ghazali (2015)Sarang, Bhasin, Verma, &
Kharat (2016)
Table 7Organizational Performance
Measures of the Banking Industry
Previous Studies
Financial Performance
Customer Service Performance
Operational Performance
Marketing Performance
Risk Governance Performance
Levesque & McDougall (1996)Santomero (1997)Pyle (1999)Tasche (1999)Beerli, Martin, & Quintana
(2004)Bonin, Hasan, & Wachtel (2005)Gelade & Young (2005)Lehar (2005)Al-Hawari (2006)Rhee & Mehra (2006)Rosenberg & Schuermann
(2006)Beccalli (2007)Cheng & Chiu (2008)Kosmidou & Zopounidis (2008)Martín-Consuegra, Molina, &
Esteban (2008)Rod, Ashill, Shao, & Carruthers
(2009)Sensarma & Jayadev (2009)Shil (2009)Yang (2009)Fethi & Pasiouras (2010)Nazir (2010)Nezhad, Jomehri, & Javanshir
(2011)Aebi, Sabato, & Schmid (2012),Wu (2012)Popovici (2013)Ratnovski (2013)Shafiee, Sangi, & Ghaderi
(2013)Uzkurt, Kumar, Semih Kimzan,
& Eminoğlu (2013)Wu & Shen (2013)Taherparvar, Esmaeilpour, &
Dostar (2014)
Table 8Organizational Performance
Measures in the Digital Era
Previous Studies
Financial Performance
Customer Service Performance
Operational Performance
Marketing Performance
Risk Governance Performance
Callaway & Jagani (2015)Stoica, Mehdian, & Sargu
(2015)Tunay, Tunay, & Akhisar
(2015)Wongsansukcharoen,
Trimetsoontorn, & Fongsuwan (2015)Siddik, Sun, Kabiraj,
Shanmugan, & Cui (2016)
Table 9Organizational Performance
Measures of Retail Banking in the
Digital Era
Consultancy Reports
Financial Performance
Customer Service Performance
Operational Performance
Marketing Performance
Risk Governance Performance
PricewaterhouseCoopers Private Ltd. (2011)Capgemini Consulting
(2012)International Finance
Corporation (2012)Boston Consulting Group
(2013)Boston Consulting Group
(2014)Deloitte (2014)Organization for Economic
Cooperation & Development (2014)McKinsey & Company
(2015)Bain & Company, Inc.
(2016) Competition & Markets
Authority (2016)European Central Bank
(2016)The FinTech Facilitation
Office of the HKMA (2016)Deloitte (2017b)McKinsey China (2017b)Mix Market (2017)
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3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (6)
P. 28
Table 6Extensive literature review on the
constructs of organizational performance measures of the
servicing industry
Table 7Extensive literature review on the
constructs of organizational performance measures of the
banking industry
Table 8Extensive literature review on the
constructs of organizational performance measures in the digital
era
Table 9From practical perspective,
summary of the consultancy reports on the constructs of organizational performance measures pertinent to
retail banking in the digital era
1. Financial Performance
2. Customer Engagement Performance
3. Operational Performance
4. Marketing Performance
5. Risk Governance Performance
Table 10
From holistic view of both the academic and practical perspectives, summary of
the development of the five initial constructs of organizational performance
measures pertinent to retail banking in the digital era (this study)From academic perspective,
extensive literature review on the constructs of the organizational performance measures of the
banking industry in the digital era
3. Research Framework and Hypotheses Development
3.1 Research Framework of this Study (7)
P. 29
The Nine Initial Constructs of Critical Success Factors
Conceptual Framework of the Relationship between the Initial Constructs of Critical Success Factors and Organizational
Performance Measures Pertinent to Retail Banking in the Digital Era
1. Leadership and Strategic Capability
2. Service Quality3. Technological Capability4. Innovation Capability5. Human Resources
Management6. Organizational Capability7. Marketing Capability8. Risk Governance9. Integrated Channel
Management
1. Financial Performance2. Customer Engagement
Performance3. Operational Performance4. Marketing Performance5. Risk Governance
Performance
The Five Initial Constructs of Organizational Performance
Measures
Conceptual Framework for the Relationship between the Nine InitialConstructs of Critical Success Factors and OrganizationalPerformance Measures
Endogenous ConstructsExogenous Constructs
Construct A Construct B Construct C
Construct D
Hypotheses Development
Conceptual Framework for the Relationship between Exogenous Constructs and Endogenous Constructs
3. Research Framework and Hypotheses Development
3.2 Hypothesis Setting (1)
General Hypothesis Setting
P. 30
Proposed Hypotheses:
Hypothesis 1 (H1): Leadership and Strategic Capability are Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 2 (H2): Service Quality is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 3 (H3): Technology Capability is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 4 (H4): Innovation Capability is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 5 (H5): Human Resources Management is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 6 (H6): Organizational Flexibility is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 7 (H7): Marketing Capability is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 8 (H8): Risk Governance is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
Hypothesis 9 (H9): Integrated Channel Management is Positively Associated with Organizational Performance of Retail Banking in the Digital Era
3. Research Framework and Hypotheses Development
3.2 Hypothesis Setting (2)
P. 31
4.1 Research Strategy and Design
Identification of Initial Constructs of Critical Success Factors and Organizational Performance Measures of Retail Banking in the Digital Era
Questionnaire Design Content Validity Sampling Frame
4.2 Data Analysis Methodology
Analysis of Respondents Purification of Item Correlations Among Variable and Appropriateness of Factor Analysis Exploratory Factor Analysis Scale Validity Multiple Regression Analysis
4. Research Methodology
P. 32
Step 1: Development and identification of the initial constructs and their corresponding measurement indicators of the critical success factor and organizational performance measures pertinent to retail banking in the digital era
Structured Survey Questionnaire
Step 1aRetail banks
CSF1CSF2CSF3
.
.CSF9
Retail banksOPM1OPM2OPM3OPM4OPM5
Step 1b
Step 4: Validation of findingsCase Study – the China Merchants Bank
Step 3: Identification of the critical success factors and organizational performance measures, and examine and investigate their relationships
Step 2: The relationships between the identified and potential critical success factors and organizational performance measures pertinent to retail banking in the digital era
Multiple Regression Analysis
OPM1 = a1 × CSF1 + b1 × CSF2 + c1 × CSF3 + …. + ki × CSFn + ZiOPM2 = a2× CSF1 + b2 × CSF2 + c2 × CSF3 + …. + ki × CSFn + ZiOPM3 = a3 × CSF1 + b3 × CSF2 + c3× CSF3 + …. + ki × CSFn + ZiOPM4 = a4 × CSF1 + b4 × CSF2 + c4× CSF3 + …. + ki × CSFn + ZiOPM5 = a5 × CSF1 + b5 × CSF2 + c5× CSF3 + …. + ki × CSFn + Zi
Exploratory Factor Analysis
Factor Model 1a
New set of constructs: CSF1’,CSF2’,……,CSFm’
Factor Model 1b
New set of constructs: OPM1’,OPM2’,……,OPMn’
Four-step Approach of Research Methodology
4.1 Research Strategy and Design (1)
4. Research Methodology
P. 33
Extensive literature review by conducting the keywords search but not limited to: “critical success factor” “critical success factors” “organizational performance” “bank performance” “retail banking” “banking” “banking industry”
Identification of the initial constructs and their corresponding measurement indicators of the critical success factor and organizational performance measures pertinent to retail banking in the digital era
Conducted literature review by searching journals in the perspectives of: banking and finance innovation and information technology service quality marketing and management
For the sake of supplementing the findings of academic journals, this study alsoreviewed consultancy reports related to the CSFs of retail banking in the digital erafrom organizations and professional firms, such as Boston Consulting Group, Bain &Company Inc., PricewaterhouseCoopers Private Limited etc.
Supervisory manuals and reports of various regulators were also considered,reviewed, and referenced, say Organization for Economic Cooperation &Development (2014), European Central Bank (2016), and The FinTech FacilitationOffice of HKMA (2016)
4.1 Research Strategy and Design (2)
4. Research Methodology
P. 34
To ensure proper data collection, the structured survey questionnaire was designedwith reference to Cheng & Choy (2013). The period of this process wasapproximately 1 year
Questionnaire Design
Part 1 – Critical success factors of retail banking in the digital era with different preference levels
Part 2 – Organizational performance measures pertinent to retail banking in the digital era
Part 3 – Demographic data of the respondents and their banks
Survey questions were divided into three sections :
Part 1 – “Perceived level of importance” of respective measurement indicator of thecritical success factors and organizational performance measures –significantly important = 5, important = 4, neutral = 3, less important = 2,and significantly unimportant = 1
Adopted Likert scale (Rai et al., 1996) for Parts 1 and 2
Part 2 – “Your bank’s performance as compared with the industry’s average” ofrespective measurement indicator of the critical success factors andorganizational performance measures – significantly better = 5, better = 4,same = 3, worse = 2 and significantly worse = 1
“Not Applicable (N/A)” was a possible selection if the respondents considered anyquestion to be irrelevant or if they were not certain of its meaning
4.1 Research Strategy and Design (3)
4. Research Methodology
P. 35
Ensuring content validity is critical to assess the appropriateness of the summary scale and respective conceptual definitions (Hair Jr. et al., 2010)
Where content validity is accurately established, a proper coverage of relevant dimensions prevails
Content Validity
Prof. Eric Ngai, Department of Management and Marketing, Faculty of Business of the Hong Kong Polytechnic University
Dr. Peter Lee, Associate Professor, Department of Logistics and Maritime Studies, Faculty of Business of the Hong Kong Polytechnic University
Two academicians
The experts possess the profound knowledge and experience related to the scope and nature of this researchstudy. Their expertise provided invaluable feedback on the capability of each question to measure therelevant constructs and measurement indicators, and fine tune the survey questionnaire (Copper & Emory,1995; Eng & Spickett-Jones, 2009)
Panel of Experts
Three industry practitioners
Mr. Kong Khoon Tan, President and Chief Executive Officer of Hong Leong Financial Group Berhad
Mr. Sunny Cheung, Chief Executive Officer of Octopus Holdings Limited
Mr. Angus Choi, Chief Executive Officer of JETCO
4.1 Research Strategy and Design (4)
4. Research Methodology
P. 36
738M in
2017
World’s largest population of internet-users
95% in
2016
World’s highest percentage of
cell phone internet usage
Top 4 cities
in 2016
Highest GDP cities in China by
2016 GDP(excluding
Hong Kong)
2017 China Urban Competitiveness
Report
Top 10 in
2016
69% in
2017
Highest level of FinTech
Adoption Index
22 retail banksin Hong Kong
69 retail banks in Mainland China and Hong Kong194 management offices of
the retail banks are identified in Beijing, Shanghai, Guangzhou,
Shenzhen and Hong Kong
Targeted Retail Banks in Mainland China and Hong Kong
Sampling Banks in the Five Major Cities of Mainland China
Beijing
Shanghai
Guangzhou
Shenzhen
Hong Kong
4.1 Research Strategy and Design (5)
4. Research Methodology
P. 37
Analysis of the Respondents
Methods of Data Analyses
Profile Analyses Non-Response Bias Test
Purification of Items
Reliability Test (Cronbach's α, > 0.80)
Presence of Correlations Among Variables and Appropriateness of Factor Analysis
Kaiser-Meyer-Olkin (> 0.50) Bartlett’s Test of Sphericity
Corrected Item-Total Correlation (> 0.50)
Exploratory Factor Analysis (> 0.50; ideal if > 0.7)
Corrected Item-Total Correlation
Reliability Test (Cronbach's α)
Test for Reliability & Internal Inconsistency)
Scale Validity
Convergent Validity (> 0.5) Discriminant Validity
Measurement Instruments
Bartlett’s Test of Sphericity
Critical Success Factors of Retail Banking in
the Digital Era
Organizational Performance Measures Pertinent to
Retail Banking in the Digital Era
Kaiser-Meyer-Olkin (> 0.50)
Multiple Regression Analysis (> 0.5 )
3. Multicollinearity 4. Regression Model
1. Regression Equations 2. Hypothesis Setting
5. Residual Analysis
4.2 Data Analysis Methodology
4. Research Methodology
P. 38
5.1 Data Collection
5.2 Purification of Items & Factor Analysis
Corrected-Item-Total Correlation Test Reliability Test Exploratory Factor Analysis Identification of Independent and Dependent Variables
5.3 Hypothesis Setting, Revised Theoretical Framework, and Regression Model
5.4 Identification of the Independent and Dependent Variables
5. Data Analysis
P. 39
194 management offices of the retail banks are identified in ∗ Beijing ∗ Shanghai ∗ Guangzhou∗ Shenzhen∗ Hong Kong
Targeted survey respondents are senior managers of these retail banks who were reasonably expected to be experienced and capable senior executives nominated by executive management
This study collected 119 returned and valid responses from 194 disseminated survey questionnaires, with a return rate of 61% which exceeds the 24% regarded as appropriate for firm-level research that targets a firm’s top management (Pervan, 1998)
1 Those who fully responsible for or had substantial influence over strategic planning and direction setting for digital transformation (56%)
2 Those who fully responsible for or had substantial influence over the development of digital banking products and services (62%)
3 Those who fully responsible for or had substantial influence over technology and innovation related to digital banking products and services (50%)
4 Those who fully responsible for or had substantial influence over OP during digital transformation (55%)
5.1 Data Collection
5. Data Analysis
P. 40
Data Analysis ProceduresCriticalSuccess Factors
Organizational Performance
MeasuresTotal
Initial number of constructs and their corresponding measurement indicators identified by extensive literature review and research studies
92 53 145
Number of measurement indicators eliminated by Corrected-Item-Total Correlation Test (> 0.50) (26) (10) (36)
Number of measurement indicators eliminated by Reliability Test (Cronbach's α) 0 0 0
Number of measurement indicators before Exploratory Factor Analysis (EFA)
66 43 109
Number of measurement indicators eliminated by EFA for factor-modeling (> 0.50; ideal if ≥ 0.7) (32) (15) (47)
Number of measurement indicators after EFA for factor-modeling
34 under a five-factor model
28 under a five-factor model
62
5.2 Purification of Items and Exploratory Factor Analysis
5. Data Analysis
P. 41
Independent Variables – Critical Success Factors of Retail Banking in the Digital EraFive-factor model of Critical Success Factors with 34 measurement indicators
Label Assignment Number of ItemsTechnological Innovation (TI) 11Regulatory Compliance and Risk Management (RCRM) 8Service Quality (SQ) 6Human Resources Management (HRM) 5Organizational Flexibility (OF) 4
Label Assignment Number of ItemsDigital Marketing Performance (DMP) 7Digital Financial Performance (DFP) 6Integrative Service Performance (ISP) 6Digital Operational Performance (DOP) 9
Dependent Variables – Organizational Performance Measures of Retail Banking in the Digital Era
Four-factor model of Organizational Performance Measures with 28 measurement indicators
5.3 Hypothesis Setting, Revised Theoretical Framework, and Regression Model (1)
5. Data Analysis
P. 42
Hypothesis Setting:
Hypothesis 1 (H1): TI, RCRM, SQ, HRM, and OF are positively associated with DMP in the digital era of retail banking
Hypothesis 2 (H2): TI, RCRM, SQ, HRM, and OF are positively associated with DFP in the digital era of retail banking
Hypothesis 3 (H3): TI, RCRM, SQ, HRM, and OF are positively associated with ISP in the digital era of retail banking
Hypothesis 4 (H4): TI, RCRM, SQ, HRM, and OF are positively associated with DOP in the digital era of retail banking
5.3 Hypothesis Setting, Revised Theoretical Framework, and Regression Model (2)
5. Data Analysis
P. 43
Model Independent Variable Dependent Variable Value
1Technological Innovation (TI) Digital Marketing Performance (DMP)
b = 0.734p ≤ 0.001
Organizational Flexibility (OF) Digital Marketing Performance (DMP)b = 0.296p ≤ 0.001
2Technological Innovation (TI) Digital Financial Performance (DFP)
b = 0.937p ≤ 0.001
Human Resources Management (HRM) Digital Financial Performance (DFP)b = -0.223p ≤ 0.05
3Technological Innovation (TI) Integrative Service Performance (ISP)
b = 0.598p ≤ 0.001
Service Quality (SQ) Integrative Service Performance (ISP)b = 0.220p ≤ 0.05
4 Technological Innovation (TI) Digital Operational Performance (DOP)b = 0.708p ≤ 0.001
• Technological Innovation (TI) was found to be the most important CSF and it was significantlyassociated with all OP measures pertinent to retail banking in the digital era
• TI is a critical capability in coping with changes in the market environment (Chowdhury & Quaddus,2017). A combination of two CSFs – Technological Capability and Innovation Capability, and TIreflects their influence on OP measures pertinent to retail banking in the digital era
5.4 Multiple Regression Analysis – Results of Hypothesis Testing (1)
5. Data Analysis
P. 44
Critical Success Factors
Organizational Performance Measures
Digital Marketing Performance (CSP)
Digital Financial Performance (FP)
Integrative Service Performance (ISP)
Digital Operational Performance (DOP)
Technological Innovation (TI)
Service Quality (SQ)
Human Resources Management (HRM)
Organizational Flexibility (OF)
Regulatory Compliance and Risk Management (RCRM)
N/A – The distinct nature of RCRM is not significantly associated with any of the OP measure, but is considered as the success factor (though not critical). Once the RCRM standards that are required by key stakeholders are fulfilled, its further enhancement does not further contribute significantly to any OP measure
Independent VariablesModel Fit
Constant TI RCRM SQ HRM OF
Model Dependent Variables
Coefficient (Std. Err)
Coefficient (Std. Err) VIF Coefficient
(Std. Err) VIFCoefficient
VIFCoefficient
VIFCoefficient
VIF R Square F Sig. F(Std. Err) (Std. Err) (Std. Err)
1 DMP-0. 137 0.734***
5.1660.185
2.748-0.072
3.491-0.123
2.4340.296***
2.024 0.712 55.981 0.000(0.246) (0.131) (0.104) (0.081) (0.076)(0.099)
2 DFP-0.255 0.937***
5.1660.034
2.7480.161
3.491-0.223*
2.4340.119
2.024 0.649 41.775 0.000(0.246) (0.131) (0.099) (0.104) (0.081) (0.076)
3 ISP-0. 423 0.598***
5.1660.189
2.7480.220*
3.4910.139
2.434-0.071
2.024 0.718 57.652 0.000(0.255) (0.136) (0.103) (0.108) (0.084) (0.079)
4 DOP-0.133 0.708***
5.1660.089
2.7480.158*
3.491-0.051
2.434-0.084
2.024 0.650 41.984 0.000(-0. 277) (0.148) (0.111) (0.117) (0.091) (0.086)
* p<0.05 ** p<0.005 *** p<0.001
5.4 Multiple Regression Analysis – Results of Analysis (2)
5. Data Analysis
P. 45
6.1 Company Background: The China Merchants Bank
6.2 China Merchants Bank’s Critical Success Factors and Organizational Performance
Technological Innovation Service Quality Human Resource Management Organizational Flexibility
6.3 Comparison with Another Retail Bank in China (the Industrial and Commercial Bank of China)
Technological Innovation Service Quality Human Resource Management Organizational Flexibility
6. Results Validation (Case Study) – The China Merchants Bank
P. 46
CMB was founded in Shenzhen in 1987 as the first joint-stock commercial bank in China
Vision-Mission-Value
Established a clear vision, mission and values on business direction, objectives, and goals for its First Transformation, Second Transformation, and Transformation without Confirmed Destiny
All-in-One Card
All-in-One card, with integrated banking and transaction functions, are accessed by internet banking, launched in 1995
Recognized as a pioneer in retail banking
Sunflower Wealth Management
Tapped China’s affluent retail banking customers in 2002
Pioneer banks in China in adopting a customer segmentation strategy to fulfill the wealth management needs of different customer
Digital Transformation
Positioned as a digital bank
Digital transformation will be the most crucial task of CMB in the next three to five years
Expanded its footprint to more than 130 cities in China, with five overseas branches and three overseasrepresentative offices
As of the end of 2017, CMB had more than 1,800 branches and more than 70,000 employees
Key Milestones of CMB
6.1 Company Background – The China Merchants Bank (CMB)
6. Results Validation (Case Study) – The China Merchants Bank
P. 47
Critical Success Factors
China Merchants BankOrganizational Performance
Measures
Technological Innovation (TI)
Digital banking, Online payment, e-commerce platform, Big data analytics,Product development innovation, Technological innovation, Biometricalauthentication, Artificial intelligence
All Performance(DMP, DFP, ISP, DOP)
Regulatory Compliance and Risk Management (RCRM)
Comprehensive, Professional, Independent and balanced management, Balance between efficiency, Quality and scale
All Performance(DMP, DFP, ISP, DOP)
Service Quality (SQ)
Customer-centric product and service solutions, Embed “Change forCustomers” as core value in business approach, All-in-One card, Customersegment strategy: SWM, Private banking, Mobile banking, Digital bankingproducts and services
Integrative Service Performance
(ISP)
Human Resources Management (HRM)
Strong leadership with Vision, Mission and Values, Light operation bank,Performance-linked compensation structure, Employee stock ownershipscheme, CMB University and multi-level training framework, Managementseminars on innovation, Digital transformation
Digital Financial Performance
(DFP)
Organizational Flexibility (OF)
Open-minded entrepreneurial culture, “Talent and Innovation” approach,Dual-model information technology research and development model, Datasoftware centers, FinTech innovation project fund
Digital Marketing Performance
(DMP)
6.2 Summary of the Critical Success Factors and Their Influences on the Organizational Performance of the China Merchants Bank
6. Results Validation (Case Study) – The China Merchants Bank
P. 48
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
TechnologicalInnovation (TI)
Ambition to be a “digital bank”
Developed core technology platform that supports big data, cloud computing, and artificial intelligence
Launched various innovative digital banking products:- Cloud Mortgage, which received “2017 Best
Mortgage and Housing Loan Product in Pan Asia Pacific Region”
- Cardless ATM withdrawal- Instant online loan product- Online payment platform for
microenterprises- CMB Mobile Banking APP 6.0 and CMB
Life APP, with over 45 million active users in 2017. CMB Mobile Banking APP 6.0 is equipped with robo-advisory service, biometric authentication, artificial intelligence, cloud computing, and big data
Dedicated resources to build its technology innovation capability and enhance overall Internet finance framework covering e-commerce, payments, and social networking
Launched various innovative digital banking products:- Online payments- ICBC e-investment- ICBC Smart, an intelligent robot for
communication with customers- ICBC Mall- ICBC Mobile, with over 250 million
users as of 2017
Received eight technological and scientific achievements in 2016, and holds 456 patents
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (1)
6. Results Validation (Case Study) – The China Merchants Bank
P. 49
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
Regulatory Compliance and Risk Management (RCRM)
Established a corporate governance mechanism and scientific decision-making methodology
Adopted Light Operation Bank model and reinforced its principles of “Comprehensive, Professional, Independent and Balanced Management”
Board of Directors pursued ongoing improvement in risk management and executed excellence of “Keeping balance between efficiency, quality, and scale” in 2015. An enhanced regulatory compliance and risk management principle, “quality goes first based on compliance and risk control,” has been in place since 2017
Received “Bank with Best Corporate Governance in China” award in 2014
Established sound risk management framework, including risk per-judgment, dynamic adjustment, and control ability through digital technology and business practices
Launched ICBC e-security, a risk information service product that supports security monitoring and resolutions to prevent internal and external security threats
Was ranked number one in CBRC’s information technology regulatory rating for 4 consecutive years
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (2)
6. Results Validation (Case Study) – The China Merchants Bank
P. 50
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
Service Quality (SQ) Customer-centric product and service solutions
Core value of “Change for Customers” embedded in its business approach
Launch of new products to fulfill customer needs:- All-in-One card- Customer segment strategy: SWM; private
banking- Mobile banking; digital banking products,
and services
Provides full suite of personal banking products and services according to customer needs
Launch of new products to fulfill customer needs:- Customer segmentation strategy: Wise
Gold and ICBC private banking- ICBC Cloud Manager to provide multi-
channel communication with customers- Secondary account service
Established customer experience index, service monitoring, and supervision mechanisms
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (3)
6. Results Validation (Case Study) – The China Merchants Bank
P. 51
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
Human Resources Management(HRM)
Effective and forward-looking leadership that developed and effectively reinforced the bank’s VMV:- Vision: be the best commercial bank- Mission: provide the newest and best
financial services to customers- Values: service, innovation, and stability
Top-down commitment from board of directors through internal and external media communications
Top-down commitment to develop retail banking business as a strategic business focus in the bank’s “first transformation” and “second transformation.” Besides, the board of directors announced the “Fintech Innovation Project Fund” in 2016 and the “Digital Bank” ambition in 2018. The strong leadership effectively draws staff commitment to support the bank’s digital transformation ambition
Effective and forward-looking leadership that developed and effectively reinforced the bank’s VMV:- Vision: Be the most profitable, most
prestigious, and most respected first-class international financial institution
- Mission: Provide services to customers, compensation to shareholders, opportunities to employees, and contributions to society
- Values: integrity, people orientation, stability, innovation, and prestige
Human resources strategy: “Bank of best talent”
Promote ongoing leadership and managerial development through comprehensive training framework:- Established ICBC University- Launched the “Top 10 Special Talent Training
Project”- International training program for top talents- Developed electronic library system
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (4)
6. Results Validation (Case Study) – The China Merchants Bank
P. 52
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
Human Resources Management(HRM)
Ongoing leadership and managerial development through comprehensive training framework:- Established CMB University- Arranged innovation and digital banking
seminars
Performance-based compensation model to link employee compensation with the bank’s business objectives. Launched employee stock ownership scheme in 2017
Open internal recruitment process to encourage staff development and flexibility
Adoption of performance-based compensation model to link employee compensation with the bank’s business objectives
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (5)
6. Results Validation (Case Study) – The China Merchants Bank
P. 53
Critical Success Factor China Merchants Bank Industrial and Commercial Bank of China
Organization Flexibility(OF)
Board-level commitment to build a commercial banking ecosystem with an open-minded entrepreneurial culture
“Talent + Innovation” approach
“Dual-Model” information technology research and development model
Establishment of three software centers and two data centers that supports the bank’s technology development
Establishment of Fintech Innovation Project Fund
Proactive encouragement of new ideas, new products, and new services to support structural reform and transformation
Establishment of Digital Finance Department
Establishment of seven innovative laboratories to raise the capacity to further support digital transformation
6.3 Comparison of the Critical Success Factors Between the China Merchants Bank and the Industrial and Commercial Bank of China (6)
6. Results Validation (Case Study) – The China Merchants Bank
P. 54
7.1 Theoretical Implications
7.2 Managerial Implications
7.3 Limitation and Future Research
7.4 Conclusion
7. Implication and Conclusion
P. 55
Critical Success Factors
and Organizational Performance
Measures
Provide a better understanding of the Critical SuccessFactors (CSFs) and Organizational Performance (OP)measures of retail banking in the digital era
In addition to the extensive review of theacademic literature and consultancy reports, thestatistical results of the data analysis proved theexistence of positive relationships between theCSFs and OP measures
Six theories, comprising Porter’s Generic Strategies, Resource-Based View, Competence-Based Theory, Dynamic Capability Theory, Resources Dependence Theory, and Organizational Culture Theory, were identified as the most appropriate theoretical foundations and supports of this study
This study revealed that in the digital era, theCSFs of retail banking have importantimplications for OP
Retail banks increasingly plan to allocateinvestment and resources to engaging in digitalbanking innovation
The findings of the CSFs’ significantassociation with the OP measures can helpretail banks establish competitiveadvantages
The design, methodology, and findings ofthis study shall provide a framework forresearchers to apply in similar subsequentresearch of other industries
This study developed a survey instrument toeffectively measure the CSFs and OP measures
7.1 Theoretical Implications
7. Implication and Conclusion
P. 56
Critical Success Factors
and Organizational
Performance Measures
The study of CSFs and their positive associationswith OP measures in the digital era offered importantpractical insights
The allocated funds and costs of a majority of retailbanks for digital banking development were typicallynot high enough
Bank managers should consider makingfurther investments in innovation,including the allocation of further humanresources, to develop, and enhance theirdigital banking products and services
This study revealed that management of retail banksin China typically express high satisfaction regardingtheir banks’ progress in digital transformation The results of this study provide tools and guidelines to
help bank managers plan and implement strategies inresponse to the increasing number of retail bankingcustomers who use retail bank and non-bank digitalfinancial services
This study revealed that retail banks seeking toimprove their results in Digital MarketingPerformance, Digital Financial Performance,Integrated Service Performance, and DigitalOperational Performance in the digital erashould focus their efforts and investments on theCSFs of Technological Innovation, ServiceQuality, Human Resources Management, andOrganizational Flexibility
The results of this study providedinformative directions, foundations, andhypotheses for planning both now and insubsequent phases of digitization
Regulatory Compliance and Risk Management is adeterminant of the four OP measures. Banks must meet thebasic expectations of regulators, and thus the capacity tobuild effective risk management frameworks andmechanisms
7.2 Managerial Implications
7. Implication and Conclusion
Critical Success Factors
and Organizational Performance
Measures
P. 57
This study was restricted to the retail banks in China, including Hong Kong. Thus, this study focused on the nation withthe highest FinTech Adoption Index among 20 major countries according to EY FinTech Adoption Index 2017
Comparative studies between differentcountries, cities or cultures could beconsidered with the objective ofproviding in-depth analyses of therelationships between the CSFs and OPmeasures of retail banking in the digitalera
The industry domain of this study, i.e.,the retail banking sector, might haveprovided different results fromprospective studies on corporatebanking or other financial servicingindustries
Certain mediators, moderators, and controlvariables could be considered and applied infuture research to expand this frameworkfor retail banking in the digital era
Retail banking customers may havedifferent expectations and perceptions ofthe relevant CSFs. Future research onCSFs could consider shifting the scope ofstudy from retail bank managers to retailbanking customers
Critical Success Factors
and Organizational Performance
Measures
7.3 Limitation and Future Research
7. Implication and Conclusion
P. 58
This study presents an exploratory study of the Critical Success Factors of retail banking in the digital era andaddresses the constructs of the Critical Success Factors and Organizational Performance Measures based on relevantliterature and supplementary consultancy reports. The approach of research methodology and procedures for dataanalysis of this study are summarized in this study. A total of 119 valid responses were collected from 194management offices of retail banks in five major cities in China including Hong Kong. The analysis of collectedsurvey data identified the top five Critical Success Factors (i.e., Technological Innovation, Service Quality, HumanResources Management, and Organizational Flexibility), implying that retail banks should be able to achieve theirbusiness objectives by focusing on these Critical Success Factors in the digital era
In the last century, retail banking has undergonemany changes, and banks have been challengedby banking and non-banking competitors,stringent regulations, and digital disruption. Theevolution of retail banking has accelerated inrecent years amid the dramatic changes in thebanking landscape
By adopting such a focus, management teams ofretail banks can formulate improved strategic plansto deliver digital banking products and services. Inturn, it should enhance Organizational Performance,enabling the respective retail bank to outperformtheir bank and non-bank competitors in the digitalera
7.4 Conclusion
7. Implication and Conclusion
P. 59
Thank You
Your invaluable comments are most
welcome
P. 60
Appendix
P. 61
Appendix 1
Country orRegion Name 1990 2000 2005 2010 2011 2012 2013 2014 2015 2016
China 0.0 1.8 8.5 34.3 38.3 42.3 45.8 47.9 50.3 53.2
European Union 0.1 20.6 51.0 70.6 71.5 73.7 75.5 77.1 78.4 80.8
France 0.1 14.3 42.9 77.3 77.8 81.4 81.9 83.8 84.7 85.6
Germany 0.1 30.2 68.7 82.0 81.3 82.3 84.2 86.2 87.6 89.6
Hong Kong 0.0 27.8 56.9 72.0 72.2 72.9 74.2 79.9 84.9 87.3
Japan 0.0 30.0 66.9 78.2 79.1 79.5 88.2 89.1 91.1 92.0
United Kingdom 0.1 26.8 70.0 85.0 85.4 87.5 89.8 91.6 92.0 94.8
United States 0.8 43.1 68.0 71.7 69.7 74.7 71.4 73.0 74.6 76.2
Source: World Development IndicatorsSeries: Individuals using the Internet as a percentage of the population
Percentage of Internet Users among Total Population of Major Countries
• In 2016, global digital retail sales were US$1,915 billion, accounting for 8.7% of total global retail sales
• China and the United Statescontributed to 47.0% and 20.7%of these digital retail sales,respectively, i.e., the two nations’total share was almost 68.0%(DBS Bank & EY, 2016)
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Country orPopulation
Internet Internet
Region Name Users Penetration
China 1,388,232,693 738,539,792 53.2%
European Union 506,279,458 433,651,012 85.7%
France 64,938,716 56,367,330 86.8%
Germany 80,636,124 72,290,285 89.6%
Hong Kong 7,401,941 6,461,894 87.3%
Japan 126,045,211 118,453,595 94.0%
United Kingdom 65,511,098 62,091,419 94.8%
United States 126,045,211 118,453,595 94.0%
World Total 7,519,028,970 3,885,567,619 51.7%
Appendix 2
Source: Internet User Statistics as of June 30, 2017, Miniwatts Marketing Group
Internet Penetration of Major Countries
• According to MiniwattsMarketing Group, as of June 302017, China had the world’slargest Internet user population,i.e. 738.5 million although itsInternet penetration rate was notthe highest – 53.2%
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Appendix 3
Source: EY FinTech Adoption Index (2017)
FinTech Adoption Index of Twenty Major CountriesMarket FinTech adoption Index
China 69%India 52%United Kingdom 42%Brazil 40%Australia 37%Spain 37%Mexico 36%Germany 35%South Africa 35%United States 33%Hong Kong 32%South Korea 32%Switzerland 30%France 27%Netherlands 27%Ireland 26%Singapore 23%Canada 18%Japan 14%Belgium & Luxembourg 13%Average adoption rate of 20 markets 33%
Channels of Internet Users in China 2015 2016
Desktop personal computer 68% 60%
Laptop computer 39% 37%
Mobile phone 90% 95%
Tablet 32% 32%
Television 18% 25%
Channels of New Internet Users in China 2015 2016
Desk top personal computer 39% 23%
Note book computer 8% 14%
Mobile phone 72% 81%
Channels Adopted by Internet Users in China
Source: China Statistical Report on Internet Development (2017)
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Appendix 4
Comprehensive Economic Competitiveness Index 2016 Sustainable Competitiveness Index 2016 Liability Competitiveness Index 2016
1 Shenzhen Hong Kong Hong Kong2 Hong Kong Wuxi Beijing3 Shanghai Guangzhou Shanghai4 Taipei Macao Shenzhen5 Guangzhou Xiamen Guangzhou6 Tianjin Hangzhou Hangzhou7 Beijing Shenzhen Nanjing8 Macao Nantong Macao9 Suzhou Nanjing Qingdao10 Wuhan Shanghai Dalian
Source: The Hong Kong Institute of Asia-Pacific Studies at The Chinese University of Hong Kong
2017 China Urban Competitiveness Report
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Appendix 5
Source: 2016 and 2017 Annual Reports of BEA, HASE, CCBA, HSBC, and BOCHK
Contribution of Hong Kong Retail Banking Business to Banks’ Financial Performance in 2016 and 2017
Banks Financial Performance Indicator
Description of Retail Banking
Business
2016 2017Contribution of
Retail Banking BusinessAmount
HK$ Million % AmountHK$ Million %
Bank of East Asia Limited (BEA) Profit before taxation Personal Banking andWealth Management 2,190 48 3,023 40
Hang Seng Bank Limited (HASE) Profit before taxation Retail Banking andWealth Management 8,867 46 12,459 53
China Construction Bank (Asia) Corporation Ltd (CCBA) Profit before taxation Retail and Commercial
Banking 1,313 37 1,607 41
HSBC Profit before taxation Retail Banking andWealth Management 41,260 27 41,822 36
Bank of China (Hong Kong) Limited (BOCHK) Profit before taxation Personal Banking 7,538 26 8,055 23
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Appendix 6
Source: Hong Kong Monthly Digest of Statistics (2017) — the Four Key Industries and Other Selected Industries in the Hong Kong Economy
Value Added of the Four Key Industries of Hong Kong in 2000 – 2016
Value Added of the Four Key Industries
Year 2000 2005 2010 2016
Value added at current prices HK$ Million
Banking Share
HK$ Million
Banking Share
HK$ Million
Banking Share
HK$ Million
Banking Share
1 Financial services 164,200 189,700 283,800 429,200
1a Banking 101,300 103,200 156,500 270,200
2 Tourism 302,800 44,500 74,600 112,600
3 Trading and logistics 135,800 393,000 439,600 523,500
4 Professional services and other producer services 633,700 149,800 216,100 302,400
Four Key Industries = 1 + 2 + 3 + 4 1,283,000 16.0% 777,100 13.3% 1,014,100 19.4% 1,367,700 19.8%
Gross Domestic Product (GDP) of Hong Kong164,200 7.9% 1,378,000 7.5% 1,737,300 11.1% 2,417,900 11.2%
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Employment in the Four Key Industries
2000 2005 2010 2016
Employment Number Banking Share Number Banking
Share Number Banking Share Number Banking
Share
1 Financial services 169,100 179,400 216,700 253,100
1a Banking 77,100 75,200 91,700 102,200
2 Tourism 115,300 165,000 215,100 258,900
3 Trading and logistics 764,800 815,600 778,200 730,700
4 Professional services and other producer services359,200 404,500 460,100 532,600
Four Key Industries = 1 + 2 + 3 + 41,408,400 5.5% 1,564,400 4.8% 1,670,100 5.6% 1,775,300 5.5%
Total employment in Hong Kong3,211,600 2.4% 3,343,000 2.2% 3,478,600 2.7% 3,787,800 2.6%
Appendix 7
Source: Hong Kong Monthly Digest of Statistics (2017) — the Four Key Industries and Other Selected Industries in the Hong Kong Economy
Employment of the Four Key Industries of Hong Kong in 2000 – 2016
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Appendix 8
Summary of TheoriesPress Releases
A New Era of Smart Banking
The Hong Kong Monetary Authority (HKMA) today unveiled a number of initiatives that prepare Hong Kong to move into a New Era of Smart Banking. In a keynote speech delivered during the Annual Banking Conference of the Hong Kong Institute of Bankers, Mr Norman Chan, Chief Executive of the HKMA, outlined how the HKMA will take lead and help the banking sector to rise to a higher level and embrace the enormous opportunities brought about by the convergence of banking and technology
The initiatives to be launched by the HKMA include:1. Faster Payment System (FPS)2. Enhanced Fintech Supervisory Sandbox (FSS) 2.0 3. Promotion of Virtual Banking4. Banking Made Easy initiative5. Open Application Programming Interface (API)6. Closer cross-border collaboration7. Enhanced research and talent development
Hong Kong Monetary Authority29 September 2017
Source: The Hong Kong Monetary Authority(https://www.hkma.gov.hk/eng/key-information/speech-speakers/ntlchan/20170929-1.shtml)
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Theories
1 Absorptive capacity theory 36 Game theory 71 Resource dependency theory
2 Actor network theory 37 Garbage can theory 72 SOIPSVM
3 Accountability theory 38 General systems theory 73 Self-efficacy theory
4 Adaptive structuration theory 39 General deterrence theory 74 SERVQUAL
5 Administrative behavior, theory of 40 General Strain theory 75 Signaling theory
6 Agency theory 41 Generic Strategies (Porter) 76 Social bond theory
7 Argumentation theory 42 HMSAM 77 Social capital theory
8 Behavioral decision theory 43 Hermeneutics 78 Social cognitive theory
9 Belief action outcome framework 44 Illusion of control 79 Social exchange theory
10 Boundary object theory 45 Impression management, theory of 80 Social influence theory (of Kelman)
11 Chaos theory 46 Information processing theory 81 Social learning theory
12 Cognitive dissonance theory 47 Information warfare 82 Social network theory
13 Cognitive fit theory 48 Institutional theory 83 Social shaping of technology
14 Cognitive load theory 49 International information systems theory 84 Socio-technical theory
15 Competence-based theory 50 Keller's motivational model 85 Soft systems theory
16 Complexity theory 51 Knowledge-based theory of the firm 86 Stakeholder theory
17 Contingency theory 52 Language action perspective 87 Structuration theory
18 Critical realism theory 53 Information asymmetry theory (lemon market) 88 SPMT
19 Critical social theory 54 Management fashion theory 89 Task closure theory
20 Critical success factors, theory of 55 Media richness theory 90 Task-technology fit
21 Customer based discrepancy theory 56 Media synchronicity theory 91 Technological frames of reference
22 Customer focus theory 57 Modal aspects, theory of 92 Technology acceptance model
23 Deferred action, theory of 58 Multi-attribute utility theory 93 Technology dominance, theory of
24 Delone and McLean IS success model 59 MISC 94 Technology-organization-environment framework
25 Design theory 60 Organizational culture theory 95 Technology threat avoidance theory
26 Diffusion of innovations theory 61 Organizational information processing theory 96 Theory of collective action
27 Dynamic capability theory 62 Organizational knowledge creation 97 Theory of planned behavior
28 Elaboration likelihood model 63 Organizational learning theory 98 Theory of reasoned action
29 Embodied social presence theory 64 Portfolio theory 99 Theory of slack resources
30 Equity theory 65 Process virtualization theory 100 Transaction cost economics
31 Evolutionary theory 66 Prospect theory 101 Transactive memory theory
32 Expectation confirmation theory 67 Protection motivation theory 102 Unified theory of acceptance and use of technology
33 Feminism theory 68 Punctuated equilibrium theory 103 Usage control model34 Fit-Viability theory 69 Real options theory 104 Work systems theory
35 Flow theory 70 Resource-based view 105 Yield shift theory of satisfaction
Source: University of Colorado and the Marriott School of Management of Brigham Young University
Full list of the 105 theories as considered and reviewed by this study in selecting the most relevant and appropriate six theories for academic support of studying critical success factors and organizational performance
Appendix 9
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