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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

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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)

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* 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)

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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


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1. Introduction


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)


2.1 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


2.1 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)


2.2 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


2.3 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


2.4 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



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



Capability Human



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



Capability Human



Capability Risk


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



Capability Organizational


Capability Risk


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)Capgemini Consulting

(2016)Efma & Edge Verve

Systems Limited (2016)The FinTech Facilitation

Office of the HKMA (2016)Deloitte (2017b)McKinsey China (2017a)



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Table 1Extensive literature review on the

constructs of critical success factors of the servicing industry


constructs of critical success factors of the banking industry


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



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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


the constructs of the organizational performance

measures of the servicing industry


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



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)


Measures of the Banking Industry

Previous Studies






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)


Measures in the Digital Era

Previous Studies






Callaway & Jagani (2015)Stoica, Mehdian, & Sargu

(2015)Tunay, Tunay, & Akhisar

(2015)Wongsansukcharoen,

Trimetsoontorn, & Fongsuwan (2015)Siddik, Sun, Kabiraj,

Shanmugan, & Cui (2016)


Measures of Retail Banking in the

Digital Era

Consultancy Reports






PricewaterhouseCoopers Private Ltd. (2011)Capgemini Consulting

(2012)International Finance

Corporation (2012)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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constructs of organizational performance measures of the

servicing industry


constructs of organizational performance measures of the

banking industry


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



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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


3.2 Hypothesis Setting (1)

General Hypothesis Setting

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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


3.2 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)


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)



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



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



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



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


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)


P. 47


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)


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


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)


P. 49



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



P. 50


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



P. 51


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



P. 52


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



P. 53


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



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


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


P. 56


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




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



Measures

7.3 Limitation and Future Research


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


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)

P. 62

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%

P. 63

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)

P. 64

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

P. 65

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

P. 66

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%

P. 67

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

P. 68

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)

P. 69

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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