Journal of Information Systems Research and

Innovation
10(3), 15-19, December 2016

The Impact of Information Systems in Ethiopian Commercial Banks

Elshalom Endrias Essay

Author Contact Detail:

Addis Ababa University, Algeria Street, Addis Ababa, Ethiopia

Published online: December 2016

© 2016 JISRI All rights reserved

leapfrog earlier stages of development (Kamel, 2005).

Abstract Information System(IS) is revolutionizing the Additionally, there is growing evidence that
operations of business organizations; by giving a vital information
opportunity and by enabling work efficiency and
maximize productivity. IS is becoming the main
determinant for all activities of the organization. The
availability of permeating and continuous information
is becoming a determining factor of World‟s economy.
Quantitative research approaches were followed and
this research is more of behavioral science research.
Stratified sampling is used in order to divide the total
population into two strata, so as to select one public
bank and four private banks, from public bank strata,
solely Commercial Bank of Ethiopia, and from private
bank strata, Awash International, Birhan International,
Debub Global and United Bank were selected. A
confidence level of 95% and confidence interval of 8%
was taken to calculate sample size using Cochran
formula; SPSS Version 20.0 is used for analyzing data.
This study evaluates the overall information system
impact in Ethiopian commercial banks and the impact
of IS components. The study used strategic
management grid model to evaluate the impact of IS.
Also, the impact of People, Hardware and Network,
Software and Database, Service Delivery and IT
Governance were also evaluated in order to identify the
overall IS impact in Ethiopian banks. The overall IS
has strategic impact.

Keywords: Information System; Commercial Banks;

strategic management grid

1. INTRODUCTION

Information System (IS) is progressively becoming a

precious and powerful tool driving development,
supporting growth, promoting innovation, and
enhancing competitiveness. Emerging information
system offers opportunities for developing nations to

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technology infrastructure. The banking industry of
system is becoming an increasingly powerful tool Ethiopia is in the midst of an Information system
when used as part of an overall development strategy revolution (Misrak, 2015). A combination of regulatory
coupled with partnerships between governments, and competitive reasons has led to increasing
business, and civil society. The banking sector is an importance of total banking automation in this industry.
example in which information system have had great
impact. It is important to note that the banking 2. BANKING AND INFORMATION SYSTEM
industry was one of the very first to utilize
information technology back in the 1960s in the There is growing evidence that shows information
world, and has thus a record of influencing the system is becoming an increasingly powerful tool for
development process through the technology (Kamel, the overall development strategy (Kamel, 2005).
2005). IS has led the move from brick banking to Information system holds many advantages. The
concept of 'click banking' (Oppong, Adjei & Poku, impact information system is felt across many
2014). However, some of the implementations of industries and sectors. The banking sector is an
information technology in the banking sector in the example in which information system have had vital
context of developing nations are often hindered by a implications. As Krishna (2015) stated, ICT
number of challenges, including lack of stability of the developments are becoming a mandatory to meet
legislation, weak financial sector, poor technological challenges of growth and in diversification of service.
infrastructure, and relatively small Internet and Today, the banking industries are growing intensely
computer penetration (Lawrence & Tar, 2010). In towards customer needs and wants especially in
recent years, developing nations are increasingly availability and diversification of services. Customer
services and customer satisfaction are the prime work
investing in building up and improving their
of
any system. Information system has been the reason for among organizations” (Me Farlan, McKenny & Pyburn,
many new innovations including product designing and 1983) as cited in (Rawani & Gupta, 2002). Now, the
service delivery in the banking and finance industries question is who is a player and who is spectator? What
(Vijayaragavan, 2014). “Technology has opened new is the responsibility of IS? What is the boundaries of IS
product and services, new market and efficient delivery and operational activities or organizational strategy and
channels for banking industry” (Shah, 2014). IS strategy? What is the affiliation between vision of the
organization and the role of IS? Is IS allowed to impact
3. PROBLEM STATEMENT on strategic plan? And what is the impact of IS? There
is a gap between what managers understand about IS
Banking industry is one of the biggest users of IS. IS and its impact on the banks overall objective and its
have given banks a potential they could only dream, potential benefits and impacts.
and also given customers high expectations which may
result in dissatisfaction of users. The introduction of IS 4. THEORETICAL FRAMEWORK
service by the bank has positively impacted the rate at
which customers visits banking halls and service McFarlan and McKenney, in 1983, devised a very
provided (Obiri-Yeboah, Djan, & Kwarteng, 2013). As useful grid for assessing a company‟s use of IT a
Misrak (2015) stated “Information technology has a model called the „Strategic Grid Method‟ (Corboy,
big role almost in all business sectors.” The role at 2007). By addressing four „quadrants‟:
which IS is playing should be measurable and support; factory; transition/turnaround; and strategy,
identified. Information Communication Technology each of which represents a situation for the
(ICT) is not considered by management in the strategy company, McFarlan‟s model and explanation on how
plan of the business. Instead, it is perceived as a tool IS or IT is related to strategy and business operations in
for operation and automation in the organization a company (McFarlan & McKenney, 1983). Though, it
(Galliers & Leidner, 2003). Traditionally, information is observed that the method does not provide us with
system has viewed as playing only supportive role by valid operational measures which could potentially have
its practitioners. Nowadays, IS moved from its great use in empirical research studies (Al-Hatmi,
“traditional role as an application of back office 2012). According
support to one offering opportunities for gaining
significant competitive advantage” (Rawani & Gupta,
2002).

IS has been playing operational or supportive role and

many companies forgot the other role of IS (Galliers &
Leidner, 2003). It is being increasingly viewed as
having the power and ability to change main
organizational directions, strategy, and redefine
industry. “The level of dependence on IS and, the
potential for using IS for strategic purposes varies
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to Abdullah Al-Hatmi (2012), this method represents Information Systems discipline which are behavioral
the present and future impact of IT application on the science and design science (Purao, et al., 2008). This
business. research is more of behavioral science and adds
elements from design science (Hevner, March & Park,
Depending on the study, a company can be placed in 2004). Because, some of the objectives like identifying
the four quadrants as follows (Corboy, 2007). metrics to measure use of IS, identifying the impact of
IS can be achieved through behavioral science
Low Present: Low Future Impact: - IT has support approach. There are three approaches to conduct
role and has little relevance and simply supports
behavioral science research: Qualitative, Quantitative
existing processes.
and Mixed approaches. Mixed approach is combination
Low Present: High Future Impact: - IT has turnaround of Quantitative and Qualitative approach (Kaufman &
role and it will feature more on the business agenda in L.Kaufman, 2005) (Creswell, 2012). Quantitative
the future. The company believes that IT will have a method measure quantitative or numeric description of
major impact on their business model in the future. trends and attitudes or opinions of a population by
studying the sample population and generalizes or infer
High Present: Low Future Impact: - Here IT is said to on total population (Creswell, 2014). Therefore, in this
have a factory impact. It is important in terms of day- study quantitative methods were employed to ensure
to- day operations but it is not felt that there are any effectiveness of the research process and enhance the
major IT developments on the horizon that will findings by sampling the population and also because
fundamentally alter the nature of the business. of its reliability and objectivity.

High Present: High Future Impact: - Here IT has There are 17 Commercial banks, one Development
strategic role. In this quadrant, IT plays a crucial role bank and one Central bank in Ethiopia. Private and
both in terms of its present impact and in terms of public commercial banks were included. In Ethiopia,
how future IT developments are viewed as impacting there is one public bank; besides private banks, there
on the organization. The role IT strategy plays in the are 16 private commercial banks; and no foreign banks.
formulation of the overall business strategy is critical.
Stratified sampling was employed by dividing the total
population into sub population called strata (Ross,
5. RESEARCH DESIGN 2005). The total population of banks was classified into
two strata which are private banks and public banks.
Two paradigms describe much of the research in the Again
private bank‟s stratum is sub-divided into four order to eliminate repetitiveness. The sixth factor
strata according to their year of experience in business discussed the overall impact of IS in Ethiopian
because it gives equal representing bank from commercial banks by joining the above five
different age of experience. Commercial Bank of components.
Ethiopia from public bank strata and Awash
International Bank, United Bank, Birhan Bank and
Debub Global Bank from the private bank strata were 6.1 The People Component
selected. Sample size is calculated using Cochran
formula with 95% confidence level and The people component scored low present impact and
confidence interval of 8 (Cochran, 1977) (Israel, 1992) high future impact. This located people according to
(Singh & Masuku, 2014) McFalan and McKenney strategic management grid
model on turnaround impact. It is playing high future
impact which may benefit the banks in future while
both quantitative and qualitative data shows latest IT
6. FINDINGS infrastructure and yet there is no enough skilled and
motivated manpower to effectively utilize the
The result of the study is obtained from 5 point Likert infrastructure.
scale questionnaire with 65 factors. The finding of the
research is represented and interpreted as the
following. There are five sub sections which are 6.2 Hardware and Network Component
people, hardware and network, software and database,
service deliver, and IT governance. According to Hardware and network component has high present
Bourgeois, IS has the succeeding component which are impact and high future impact. This according to
software, people, hardware, network and procedure McFalan and McKenney strategic management grid
(Bourgeois, 2014). Procedure component of IS is model, hardware and network is located on strategic
discussed in category of IT governance; and like any impact. The banks are benefiting high impact of
systems information systems also have an output or Hardware and Network right now and it has the
deliverable which is discussed in category of Service capacity to benefit them in future which hold the future
Delivery. Hence, hardware and network components need of the bank. The management should give
and software and database are considered together in appropriate emphasis to hardware and network.
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database component has impact better than low and
6.3 Software and Database Component impact less than high. In this case, further research is
needed to assess the impact of software and database.
Software and database have not high or low impact.
Both present and future impact of software and
database are not neither low nor high. This shows
software and 6.4 Service Delivery

Service delivery has high present impact and low

future impact. This according to McFalan and
McKenney strategic management grid model, service
delivery is located on factory impact. This shows,
commercial banks are giving services which satisfy
their customers for day- to-day activity. In order to gain
high future impact, the banks should evaluate customer
satisfaction and add more banking service and advance
in technology.

6.5 IT Governance

IT governance includes the broader corporate

governance principles while focusing on management
and usability of information systems to achieve the
corporate vision. The impact of IT governance
framework is resulted as follows. IT governance has
low present impact and high future impact. This,
according to McFalan and McKenney model, IT
Governance is located on turnaround impact.

6.6 The Impact of Information System in Commercial

Banks

The overall information system has high present and

high future impact. The people component has
turnaround impact; hardware and network has strategic
impact; software and database needs further research;
service delivery has factory impact and IT governance
has turnaround impact. The overall IS impact has
scored high present impact and high future impact.
According to McFalan and McKenney model, the
overall information system has strategic impact.

7. DISCUSSION
The impact of information system which reflects the
present and future impact of information system on the
Ethiopian commercial banks might vary from banks to
banks. Factors affecting information system is people,
Hardware and Network, Software, Service Delivery
and IT governance and they are measured and
evaluated to assess the role played by information
systems. The performance of the people component is
not good enough to achieve corporate vision through
strategic plan. The technology and banking systems are
unmatched with people skill. If the managements of
commercial banks give a little more attention to the
human resource, the present impact would be high and
the impact could be strategic. The banks are benefiting
high impact of hardware and network right now and it
has the capacity to benefit them in future which hold
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the future need of the bank. Further research is needed both present and future impact of software and
to assess the impact of software and database because database are not neither low nor
high. Every information system has an output or governance and service delivery in addition to the
delivery. The delivery could be tangible product or components they studied. Their finding show that IS is
intangible service. According to McFalan and playing strategic role in Indian commercial banks.
McKenney model service delivery has factory impact.
This means, the bank should restructure its delivery
methods and research the market need and add
additional delivery mechanisms if necessary in order to
achieve high future service delivery impact. The
interview made shows some ways to add deliverables
to the bank and the interviewee stated that. The banks
did not purchase all the necessary deliverability and
functionality of the core banking system even if it has
increased effectiveness and efficiency, yet some
functionality like identification code for each customer
and other functionalities are need to be added. The
other is less number of POS and ATM machines and
enormous downtime has affected the banks service. IT
governance is the decision and accountability model to
encourage use of IT. IT governance goes in to the
broader corporate governance principles while
focusing on management and usability of information
systems to achieve the corporate vision. Lack of IT
strategic roadmap which guides the bank toward
achieving long term according with the mission and
vision of the banks has greatly affected the future
impact of IT governance. Proper placement of IS in
organizational structure is a base for good IT
governance. Not just putting IT Executive on top. It
should also incorporate with other committee members
from business and IT background.

The main objective of this research is to evaluate

impact of information system; and it is done using
strategic management grid framework based on five
constructs of information systems (The People
Component, The Hardware and Network Component,
The Software and Database Component, Service
Delivery and IT governance). The result of the above
five components gave the overall impact of IS by
concatenating them together. The overall IS impacted
the bank by increasing effectiveness and efficiency of
the banks which enabled them minimize cost, increase
accessibility, and by enabling instant transaction.

In (Misrak, 2015) and (Senait, 2011) study, the relation

between IT governance and strategic alignment was
shown clearly and in this study, the relation between IT
governance and impact of information system in
Ethiopian commercial banks is studied. While, using
same model in India, Rawani and Gupta studied role of
information systems in Indian Banks. They found,
information system is playing strategic role in foreign
and private banks, and it is playing support role in
public bank (Rawani & Gupta, 2002). And yet, they
did not study the impact of people or employees, IT
governance and service delivery in the bank. This
study incorporated the people component, IT
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8. CONCLUSION gap and to give further recommendation and also
appropriate attention. If necessary, restructure and
Information systems are becoming very essential tool reorganize IS recourses to utilize high benefits of
to undertake day to day activity. The competitiveness information system.
of the organization is based on the effective use of
information system. The efficient use of information This study has demonstrated the impact of information
system will give organizations with many system in Ethiopian banks. Information system has
opportunities and easy decision making process by strategic impact in Ethiopian commercial banks. In
giving critical data for the manager(s) also allows banking service delivery, Information system has
organization to research new way of doing business. factory impact. The governance of information system
An information system is becoming a change agent in has turnaround impact. This show top managers should
the organization and it is going farther from restructure IS process and should give appropriate
automation of operation and supporting the existing attention so that the banks realize high IT governance
system. Efficient and effective management is present and future impact; and better strategic
necessary to enjoy benefits of IS. alignment of corporate strategy with IS strategy.
However, studding the impact of IS is a difficult
Banks are the major user of information system to endeavor that requires competent methodologies and
create value to operation and increase accessibility framework. This methodologies and frameworks
and productivity. Automation of banking system is a should be reviewed and updated with the evolving
vital need for all banks to attract customers and technology and role of IS. In addition, lack of
survives in the business. Research on the banking standardized metrics of measurement has effect on
industry provides vital information about the measuring the impact of IS (Misrak, 2015). Therefore,
management of information system. Banks use IS researchers should develop standardized metrics for
information system to automate operation and to measuring the impact of IS.
reduce error with increased effectiveness and
efficiency. The primary objective of information
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AUTHOR PROFILE:

Elshalom received the degree in information science,

in 2013 and his masters‟ degree in 2016 from Addis
Ababa University. He also received degree in general
management from Mekane Yesus Management and
Leadership College, in 2013. He is a research student
of Addis Ababa University and PESC Information
Systems College. His interests are in business
information system, information systems project
management, information system management and
system design.

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