Impact of Information Technology on Organizational Performance A Comparative Quantitative Analysis of Pakistan’s Banking and Manufacturing Sectors.

Impact of Information Technology onOrganizational Performance: A Comparative Quantitative Analysis of Pakistan’s Banking and Manufacturing Sectors.. Email: drrana@lahoreschool.edu.pk Key

Impact of Information Technology on

Organizational Performance: A Comparative Quantitative Analysis of Pakistan’s Banking and

Manufacturing Sectors.

Muhammad Shaukat, Assistant Professor, Institute Of Management Sciences, Bahauddin Zakariya University Multan (Pakistan) Email: shoukatmalik@bzu.edu.pk

Prof Dr Muhammad Zafarullah, Vice-Chancellor, Bahauddin Zakariya University

Multan(Pakistan) Email: vc@bzu.edu.pk

Prof Dr Rana Abdul Wajid, Director, Centre for Mathematical and Statistical Sciences, Lahore School of Economics, Lahore(Pakistan) Email: drrana@lahoreschool.edu.pk

Key Words: Information Technology, Organizational Performance, IT in Banking and Manufacturing sectors

Abstract

One of the major developments which had profound impact on the economic growthpattern in the world in the new millennium has been the strides in the domain ofInformation Technology sector The world has observed significant growth of applications

in diverting areas of Information Technology Information Technology has permeatednearly every aspect of modern business operations and communications This technologyreally has drastically changed the working of today’s organizations and is being used both

by developed and developing countries for performance improvements Similar to otherdeveloping countries, this technology is also being applied in all the organizations ofPakistan Information Technology is also one of the most exciting areas of research that hasbeen the focus of intense interest throughout the globe over the decades but little has beendevoted to examining the impact of Information Technology on Pakistani organizations This study examines the impact of IT on organizational performance in quantitative terms

of Pakistan’s manufacturing and banking sectors over period of 1994-2005 The primarydata was collected through in-depth interviews, official documents and field surveys of 48companies, 24 in manufacturing sector(12 local and 12 foreign) and 24 in bankingsector(12 local and 12 foreign) The data was tested by applying different statistical andfinancial techniques The results of the research have led to the conclusion that InformationTechnology has positive impact on the organizational performance of all the organizations

but the banking sector performance outstrips the performance of manufacturing sector andlocal banking sector of Pakistan dominate the scene by implementing world class IT

systems.

INTRODUCTION

Information Technology is a powerful force in today’s global society The advent ofcomputers and Information Technology (IT) has been perhaps the single massive driveimpacting organizations during past few decades Information Technology or IT isrevolutionizing all the living ways No doubt, it has given a new meaning to the word

“Convenience” Information Technology has drastically changed the business landscapesand word “IT” has become the “Catchword” of the modern life today InformationTechnology has become, within a very short time, one of the basic building blocks ofmodern industrial society The effective use of IT is an essential element of competing in afast-paced, knowledge based economy Information Technology is the major contributor tothe progress of the developed countries(Drucker, 1992; Lang,2002; Vasudevan,2003)

The developing countries are increasingly deploying IT to solve their developmentalproblems by investing in it from their own sources as well as by borrowing from differentinstitutions(Odedra & Kluzer, 1998) Lending for IT by the World Bank has also been quitepervasive and growing at six times growth rate of total banks’ lending A study has shownthat the significant IT components were present in over 90% of all world bank’s lending indeveloping countries(Harris & Davision, 1999) It is also estimated that total annualworldwide expenditure on Information Technology (IT) probably exceeds 1.5 trillion USdollars per year and is growing at about 10% compounded annually (Anandarjan et al.,2002)

Information Technology also creates a serious dilemma for management today ITinnovations have the potential for changing the competitive game for any organization Onthe other hand, the size of IT investments put increasing pressure on managers to asses itsbusiness value One key to this dilemma is to improve the ability to measure and track theimpact of IT on productivity Alongside, the seemingly inexorable rise in IT investment

during the last 20 years, there have been considerable uncertainty and concern about theproductivity and efficiency impact of IT being experienced in work organization However,

in quest of improving efficiency and effectiveness the companies are making heavyinvestments in Information Technology These enduring magnitudes of investment inInformation Technology so has drawn attention of many researchers, managers and policymakers to the impacts of IT on growth and productivity The expectation was that increasedinvestment in IT would naturally lead to increase performance of organization But despitethe massive investments in IT both in the developed and developing economies, the impact

of IT on productivity and business performance continued to be questioned (Wilcock, et al,1998) Despite hundreds of studies carried out, scholars remained deeply divided into twogroups which can be identified as “Productivity Paradox-IT has no impacts onproductivity”(Turner, 1985, Loveman, 1988,1994; Roach, 1988; Mitra & Cyaya, 1996;Strassman(1997); Dasgupta & Sarkis(1999) etc.), and “Productivity Payoff-IT doesimprove productivity” (Bender, 1986, Mody & Dahlman, 1992); Raheim & Pennings,1987; Harris & Katz, 1991, Brynjolfsson, 1993, 1996, Brynjolfsson, & Hitt, 1994, 1997,1998; Attewel, 1991; Karemer, et al, 1994; Dewan & Kraemer, 1998, Quinn, et al, 1994 ;

Ng, 1996, Weill, 1992, Mehmood & Mann, 1993)

The goal of every information systems, based in any organization is to improveperformance on the job and this performance efficiency is only achieved when IT isaccepted and used warmly by the concern employees in organizations (Venkatesh et al.,2003) In their quest for development, many developing countries put great hope in use of

IT Yet, the challenges of IT diffusion in these countries are by no means identical to theones in the developed countries The challenges faced by developing countries inharnessing the full potential of IT are not really very different from those of that confronted

by the developed countries(Khan, 2003) Information Technology now is the mostpreferred choice of all developing and developed countries to upgrade their economies andbecome competitive in the global market place The IT based economies have streamlinedthe most complex economies of the world and enhanced the productivity to the level where

an economy such as US has wriggled out of the entire trillion plus dollars national deficit

and turned into a surplus in recent years The world economy now has moved from value basic industries to a fast paced high-value information based economy

low-Motivation for this Study

The impetus for this research came from the main reason that in modern organizationsInformation Technology is a key to competitiveness and economic growth It has no doubtthe greatest influence on the global economy Like other countries Pakistan has alsoaccepted this challenge of 21st century by making efforts in the development of InformationTechnology A decade ago IT had very little introduction in the country, but very soon withthe efforts both on private and government fronts the concept of IT has become verypopular with all Pakistani organizations Pakistani manufacturing and banking industriesare the major users of IT products The central thesis of the present study is to seek theimpact, which Information Technology has on organizational performance of Pakistanicompanies working in above mentioned sectors

Literature Review

Definition of the concept of Information Technology

Information Technology has been defined in various ways by different authors Over theyears, IT has been conceptualized and measured differently by different researchers Themajority of the authors, however, parallel Information Technology with computer systems.Frenzel(1999) for example defines IT as “Information Technology is the term thatdescribes the organization’s computing and communications, infrastructure, includingcomputer systems, telecommunication networks, and multimedia (combined audio, text,and video) hardware and software” Shelly et al(2005) narrate that “IT includes hardware,software, databases, networks, and other related components which are used to buildinformation systems” Many other researchers also have come up with the same idea andsay that “IT is the technology that supports activities involving the creations, storage,manipulation and communication of information together with their related methods and

management applications” (Martin et al., 1999; Gupta,2000; Kendall & Kendall ,2000;Chan, 2000; Poku & Vlosky, 2002) However, William & Sawyar, 2005 define InformationTechnology as a general term that describes any technology that help to produce,manipulate, process, store, communicate, and/or disseminate information This definitionmay be regarded as the comprehensive one, as it covers all aspects discussed by differentresearchers and includes all the components and processes needed to carry out informationprocessing work in the organization So it can be said that that IT concept came from amerging of computer with telecommunications technologies, when computer andcommunications technologies are combined, the result is Information Technology or

‘infotech’

Information Technology Developments In Pakistan

The process of computerization in Pakistan started since 1957 when a company named

‘Packages Ltd.” started using computer for its work Since then IT usage is increasinggradually Though in the beginning Pakistani government was slow in adoption anddiffusion of IT but now it is at forefront of all government priorities In Pakistan, realizingthe global revolution in Information Technology, the government has liberalized itspolicies with regards to hardware & software imports since 1985 The custom duties onelectronic goods were also reduced drastically, but the real quantum jump was experienced

in early 90s, which can be termed as IT revolution in Pakistan and satellite communicationtechnology was introduced In 1991, 90% telephone lines were converted to digital In

1995, Internet Service Providers (ISPs) started providing Internet facility to Internet usersand now there are more than 132 ISPs in operation all over the country providing internetfacility to more than 3,000,000 users1

It is all in 2000s, that the government started giving a lot of emphasis to IT sector New ITeducational institutes are opened & IT professionals are hired to impart IT training inuniversities Nationwide IT seminars, forums, exhibitions and competitions are beingarranged to create IT awareness among the people Computer as a subject have beenintroduced in schools & colleges Cyber Cafes are being opened to create awareness forInternet use Telephone network has been enhanced and in rural areas, telecommunication

1 www.moitt.gov.pk

facilities are provided through small exchanges and PCOs By doing so links betweenPakistan & other countries have been improved significantly (Imam 2002).

Information Technology is now also being used in all government organizations Now theGovernment of Pakistan is taking all steps to make Pakistan an IT super power by adopting

IT as a national program so as to enable personal and national growth The country’scurrent ‘IT Policy and Action Plan’ intends to involve all walks of life, e.g., industry andcommerce, banking and insurance, finance, revenue, communication, media, humanresource development, defense etc.(Rehman, 2005)

The computerization in the country which was initially monitored by the Ministry ofScience & Technology(MOST), now is being managed by a separate ministry ofInformation Technology since November 2002 This ministry is maintaining firmness andviscosity with the policy and achievements made in the IT & Telecommunications sectorssince its inceptions and to cope with modern challenges and meeting requirements of the ITand Tele-communications, the policy is regularly updated Many other departments/institutions like Electronic Government Directorate, Pakistan Computer Bureau, PakistanSoftware Export Board, Pakistan Telecommunication Authority, Computer Society ofPakistan, Pakistan Software Houses Association (PASHA)2 etc are working side by sidethe Ministry of Information Technology to help forward IT in the country To provideprotection and enhance the confidence of users, providers and facilitators of informationservices, legislation based on the recommendation of the working group comprising IT andlegal experts have been framed Action in the area of digital signature act intellectualproperty and copy right act and the consumer protection act has been started.(Kazmi,2005)

According to some estimates, in Pakistan presently there are around 2,100 mainframe andminicomputers in the country with nearly half of them being in the government sector.Liberal import policy and reduction/removal of duties has led to a burgeoning usage of PCsand servers (Osama, 2005) It is estimated that nearly half a million PCs are added each

2 PASHA is a representative body of software developer of Pakistan It was found in late 1992 by 9 software hoses and now have about 350 members national wide: www.moitt.gov.pk

year, representing a three fold increase in annual volume over the decade straddling the 21stCentury Analysts estimate that this rate of growth could very well quadruple by 2010 TheFederal Government of Pakistan has laid great emphasis on expedition towards the

intensity of Information Technology in a variety of fields (Ghauri, 2003; Pasha, 2005).

To conclude all efforts of the government it can be said that the Government of Pakistannow is giving all-out support and push to IT sector Millions of dollars are being invested

by the government in IT, and majority being spent on human resource development andenabling infrastructure provision The Government of Pakistan is leading the technologyrevolution in the country in various projects aimed at improving infrastructure, humanresource development and integrating IT in the public and private sector (Kazmi, 2000)

Information Technology And Pakistan’s Banking Industry

Financial sector appears to be a clear leader in the growth of IT It was among the first toincorporate electronic data processing in its operations, through check handling,bookkeeping, credit analysis and ATMs Mayer(1987) while narrating the history ofcomputer usage in banking demonstrates that the use of computers in banking first began inthe early 1950s, when the first large commercial computer was built for Bank of America.Initially, computers were used to process check transactions through magnetic ink characterrecognition With the introduction of first automated clearing house in the early 1970’selectronic funds transfer (EFT) was made possible, and then ATM was introduced.Automated Teller Machine (ATM)3 is one of the most significant technologicalinvestments made by the commercial banks ATM’s introduced the power of computertechnology to the general public and made banking convenient for consumers Today,ATM’s deliver banking service 24 hours a day, 7 days a week to more than 22 millionspeoples only in USA The banks increasingly have turned toward ATM and othercomputer technology like prepaid cards, loyalty cards, debit cards and even chip cards, toreduce the high costs associated with maintaining traditional “brick and mortar” branchesstaffed by tellers Koepp(2000) Franke(1987); Martini(1999) Now the banks are usingInformation Technology in back-office (check and accounts) processing, mortgage and

3 Don Wetzel developed ATM in 1973 and it was first installed at Chemical Bank in New York (Shelly et al(2004) pp5.39.

loan application processing, and the electronic funds transfer to more strategic innovationssuch as automated teller machines and new kinds of securities (Nsouli,2002)

The financial sector in Pakistan can be grouped into banking and non-banking financialinstitutions (NBFIs) Banking institutions include large public sector scheduled banks,private sector banks and foreign banks, while NBFIs include development financeInstitutions (DFIs), private sector investment banks, leasing companies and modarbas Thebanking industry in Pakistan has seen great transition during fifty-nine years of his history,especially since early 1970s The banking nationalization in 1974 and then privatizationand liberalization in early 1990, are termed as major restructuring years of the entirebanking industry of Pakistan At the time of inception of Pakistan in 1947, only few bankbranches existed in the country, which were concentrated mainly in the urban areas.Moreover, Pakistan was without a central bank of its own till June 30, 1948 However, byearly 1990s the banking sector had spread to every nick and corner of the country

The market for banks is diverse in Pakistan comprising Nationalized Banks, Private Banksand Foreign Banks In 1993 there were 33 commercial banks in Pakistan 14 being local &

19 foreign By the end of 2001 due to government liberalization policy to setup a privatebank, the number has increased to 43, 24 being local & 19 as foreign But by the end of

2005, with some mergers there were 38 commercial banks 14 being foreign and 24 beinglocal Total number of scheduled banks branches stood at 7,075 as on 30th September,

2005 There is a phenomenal progress in banking sector of Pakistan It recorded anincrease of 99% growth in profit in only one year i.e 20054 NBP, HBL, MCB, ABL,UBLare considered five large banks and are very dominant in the banking industry , in term oftotal number of branches, deposits and advances, collectively accounting for 78% and 77%

of total deposit and advances respectively Most of the local banks are in private sectornow, and many of them have started business since 19925 The introduction of computer inbanks in Pakistan started in 1965 when the main commercial banks in private sector i.e.Habib Bank, United Bank and Muslim Commercial Bank started acquiring computers to

4 The daily Dawn: “Banks profit grew 99pc in 2005”, Tuesday March 21, 2006 pp9

Mahmood Javed (2006) “Another productive year for Banks” Money Plus July 17,2006.

5 Pakistan banking infrastructure statistic: State Bank of Pakistan’s report 30-09-2005.

regulate their banking work Since that time there is a massive investment in IT in bankingsector (Akhtar, 2006) This is bore out by the fact that during fiscal year 2003-2004, overUS$ 200 millions was invested by the financial services sector into InformationTechnology products and services6 Shafiq(2002) says that not only this but also thebanking sector has dramatically increased its dependence on use of IT, and it is evident bythe growth in the number of branches that are connected online In Pakistan almost allnational and multinational banks are using Information Technology to increase theirperformance Most of the Pakistani banks (local and foreign), have launched their websites and have uploaded many things on web including accounts opening forms and loanapplications Likewise, the number of Automated Teller Machines(ATMs) and the use ofautomated cheque clearing and other back end systems within the banking communityhave increased7

There have been great advances in Pakistan banking technology in the past several years.The most recent automated banking systems like Misys, Sibel, and Fidility etc are beinginstalled in many of the Pakistani banks Kazmi(2004) points out that most of the banksoperating in Pakistan however, have been making huge investments in three key areasnamely 1) expansion of the branch network 2) up gradation of the existing infrastructure 3)adaptation of the new technologies with their ultimate objective is to offer a complete

electronic banking facility Table 1 presents a real picture of E-Banking infrastructure

statistic of Pakistan till September 2005 Ahmed(2003) posits that the huge investments bythe commercial banks in technology has ushered a new era of convenience and improvedquality of services in Pakistan The banks are offering Internet and mobile banking but ithas not made major impacts yet In the end to mention another big achievement in paymentarea is RTGS setup by State Banks of Pakistan for interbank settlement

6 “Status Of IT Industry Of Pakistan, The Dawn, 28 th February, 2005.

7 Approximately 2174 ATMs have been installed by different banks till May 2007 in different cities of Pakistan (The Dawn, June 22, 2007) Out of Total 7674 Branches, 4091 (53%) are Online Jang 31-5-2007

Table 1

Information Technology And Pakistan’s Manufacturing Industry.

Automation in manufacturing organizations goes back to 1900 Around the year 1900,factory mechanization facilitated mass production to meet the consumers’ demands forimprove products In the year 1930, transfer lines and fixed automation were created tofacilitate mass production This resulted in the development of programmable automation

By the year 1950, numerical control (NC) was developed as an innovative approach toprogrammable automation With the development of commercially available computertechnology, the application of computer in manufacturing started to emerge by producing avariety of new technologies By the year 1955, the introduction of computer aideddesign(CAD) and development of NC resulted which lead to the evolution of system likecomputerized numerically controlled machine tolls (CNC) By the year 1970, development

in CAD applications and Computer Aided Manufacturing (CAM) based systems, ComputerAided Engineering(CAE),Material Resource Planning(MRP), Flexible ManufacturingSystems (FMS),which are collectively named as AMTs-Advanced ManufacturingTechnologies was made(Negalingam and Lin, 1999) AMT provided flexibility as well asdata driven computer integration for a manufacturing organization, in which themanufacturing technology utilized is intelligent enough to urge forward the activities withless human interventions Industrial robots, automated guided vehicles, and automatedstorage and retrival systems are also introduced These applications can be connected viaLocal Area Networks(LAN) to from computer Integrated Manufacturing(CIM) andexternally, across organizations and space, via Electronic Documented Interchange (EDI)(Sohal, 1999)

The technology advancement in the world over is so rapid and wide spread that isolatesmanufacturing and technology from each other is merely an impossible proposition.Information Technology is becoming critical to many manufacturing organizations thatwant to be a world-class manufacturer as IT often provides a manufacturing basedadvantage Information Technology can assist manufacturing firms in developing theirstrategic roles In today’s competitive global market, for the survival of any industry,manufacturing companies need to be pliable, adaptive, responsive to change, proactive and

be able to produce a variety of products in short time at a lower cost (Ho, 1996) Hence,manufacturing companies are compelled to seek advanced technologies by integratingmanufacturing facilities and systems in an enterprise through computers, its peripherals andcommunication network to transform island of enabling technologies in to a highlyinterconnected manufacturing systems Today, the capability of producing high qualityproducts according to diverse customer requirements with short delivery times has becomethe characteristic of order-qualifiers for manufacturing industries Furthermore, non pricefactors, such as quality, product design, innovation and delivery services are the primarydeterminants of product success in today’s global arena(Shaw, 2000) Implementingintegrated advanced technologies is an effective approach towards solving the problems ofdecreased productivity, labor cost and consequent rise in unit costs, which are continuallyplaguing present day manufacturing manager Implementing advanced manufacturingtechnologies (AMTs) provides opportunities to achieve competitive advantage in anintermediate-to long-term time frame (Sohal, 1999) The Internet based distributed systemsmotivated the industries to utilize IT in all areas Advances in software technologies havebeen transforming the world of integration into compatibility systems and devices byestablishing an open connectivity standards, agreed by the manufacturers, which willprovide plug-and-play communication and interoperability between field devices, controlsystems, and enterprise wide business applications(Kumar, et al, 2004).

Pakistan industrial sector remains a relatively small part of the total economy Pakistan’smanufacturing sector has grown rapidly but remains inefficient and lacks diversification Inpractice, Pakistan’s industrialization process has largely been governed by trade and tariffpolicies which are driven by revenue and/or balance of payments considerations rather than

by a coherent industrial policy framework (Kemal, 1999) Overall manufacturing isgrowing at a much faster pace than agriculture and services and if this pace is sustained, itsshare in GDP is likely to rise further in the medium term8 Various factor includingaccommodative monetary policy, financial discipline, consistency and continuity inpolicies, strengthening of domestic demand is continuously improving to improvecontribution of manufacturing sector In Pakistan both large-scale, multinationals, local and

8 Pakistan Federal Bureau Of Statistics, 2004.

small scale domestic and international companies are operating which are producing goods

of almost all kind (Saeed, 2003)

Revolutions beget openings of one kind or the other The IT revolution would semblance tohave opened a beneficial window of opportunity for the Pakistani manufacturingorganizations After that many other companies in this sector started using computer toincrease their productivity Now IT usage in manufacturing and industrial sector is verycommon Within the industrial sector, the use of Enterprise Resource Planning softwarepackages such as SAP and Oracle have become commonplace.9(Rizvi, 2005; Shahid, 2005;Mujahid, 2003)

Organizational Performance

The performance as stated by Wheelen and Hunger(2000) is an end result of an activity and

an organizational performance is accumulated end result of all the organization’s workprocess and activities Managers measure and control organization performance because itleads to better asset management, to an increased ability to provide customer value, toimprove measures of organizational knowledge and measure of organizational performance

do have an impact on an organization’s reputation When the performance of theorganization is assessed, the past management decisions that shaped investments,operations and financing are measured to know weather all resources were used effectively,weather the profitability of the business met or even exceeded expectations, and weatherfinancing choice were made prudently The most frequently used organizationalperformance measures include organization efficiency(productivity), organizationaleffectiveness and industry ranking (Wetherbe,1999; Turban, et al, 1999 & 2001) As thispaper focuses on measurement of efficiency and effectiveness part of organizationalperformance, therefore, these concepts are elaborated in detail

In the academic literature efficiency is defined by many ways, Witzel(1998) for examplelooks at the origin of the term and finds that it has two meanings: technical efficiency orensuring that systems and process work to their optimal level, and total efficiency, orensuring that the organization as a whole is fit to meets its goals Edwards(2001) says that

“Efficiency is minimum utilization of resources and getting maximum output”

9 Report from Federal Ministry Of Industries, 2004

Druker(2002) defines efficiency as “It is doing job successfully without wasting time orenergy While defining effectiveness Hosmer(1982) says that “Effectiveness means howwell the job gets done” McClenahen (2000) defines effectiveness in a way that “It is extent

to which an organization realizes its goal” Oz (2002) defines effectiveness, as “It is thedegree to which a goal is achieved” According to Robbins & Coulter(2002)

“Effectiveness is “doing the right things” to achieve organization goal

Measuring Impact Of Information Technology On Organizational Performance.

As Walrad & Moss(1993) state that efficiency and effectiveness do not means the samething In fact, they are often natural enemies Often one can have one, or the other, but notboth (Unless one is lucky or one want to spend a lot of money) Being efficient means thatone spends less time on something, one spends less money on something or one spends lessefforts (or number of workers) on something Being effective means that one does his jobwell In other words, the output (finished product) is of high quality It is a rare anddelightful occasion where a solution to a problem is both efficient and effectiveness; oneusually has to decide which he prefers, because one usually cannot have both.Maggiolini(1999) rightly assessed that efficiency and effectiveness are entirely unrelated,

so as their measurement

In an IT context when we measure the effectiveness, we basically measuring the capacity

of the outputs of information systems or of an IT application to fulfill the requirements ofthe company and to achieve its goals, making this company more competitive In the same

IT context the efficiency is the measurement that how cheaply can you get things done, andare the people to whom you provide IT services (the stakeholders) happy with the levels ofservice being delivered? and does it reduced the operational expenses?

Various studies have been undertaken to measure the impact of IT on managementperformance (efficiency & effectiveness) of business organizations using differentperformance indicators which according to Dyson(2001) are considered key factors Thesevariables capture all activity levels and performance measures and common to all units andcover the full range of resources used These variables include income, customer

satisfaction, supplier/customer links, company image, job interest of employees, stakeholders confidence, interoffice links Researchers like Huber(1996), Parthasamthy andSethi(1993), Kelly(1994), Earls(1996), Rumizen(1998), O’Dell(1999) etc haveinvestigated the impact of IT on incomes/profits of the companies and found positiveimpact Whereas, Farkline(1997), Marton and Chester(1997), Olalla & Fassas(2000),Schmidtel et al(2001), Zee(2004) etc have seen the increase/decrease in above qualitativefactors after implementation of IT They have concluded that IT has ultimately increasedcompany image, job interest of employees, stake holders confidence, interoffice link etc.This study measures the organizational performance in respect of increase/decrease inincome/profits and no of employees of Pakistani companies operating in banking andmanufacturing sectors with relation to IT implementation.

Research Propositions

The Sample

There are two population groups for this research One is the banking sector local andmultinational and the other is large manufacturing organizations again both local andmultinationals, which are making use of Information Technology The reasons to select theabove-mentioned sectors are that; 1) the banking sector of Pakistan is the most organizedsector of the service industry and highly IT user 2) this sector has made much moreinvestments in IT than any other sectors to achieve high performance 3) IT has met greaterintroduction in banking sectors for performance improvements since 1992 because of throatcut competition after establishment of many new banks in the private sector andprivatization of many nationalized banks The second sector of study i.e manufacturing isthe next best user of Information Technology A large number of local and foreignmanufacturing companies working in Pakistan are using IT for their business processessince long Many companies in both the sectors have state-of-the-art technologies forimproving their performance The management of these organizations has also madenumerous investments in I.T with the hope to increase their efficiency

In the sample from the above sectors 48 companies, 24 in banking sector (12 foreign, 12local) and 24 in manufacturing sector (12 foreign, 12 local) were taken List of sample

companies is given in Annexure II There are about 40 commercial banks operating in

Pakistan Out of these 40 banks, 24 banks are included in the sample because of the reasonsthat many other banks are either set up in few years back or do not have well establishednetwork in Pakistan, therefore, they do not serve the purpose of this research There is nodefinite information available relating to the size of large manufacturing sector It isestimated however that about 2000 large-scale manufacturing units are operating inPakistan Therefore, in the sample, from the manufacturing sector, a total of 24 bigorganizations were randomly included The sample size could have been increased but thenature of problem seems to be similar in each case So the chosen sample size is considered

to be sufficient The companies selected are using latest Information Technology and havewell established IT set up

Data Collection

The participants in the study were categorized as follows; the senior managers of finance,human resources, marketing and IT departments of the companies in sample The data wascollected from in-depth interviews using a structured close-ended questionnaire, and fromofficial documents, detailing different aspects pertaining to the study During the process ofdata collection, follow-up letters and telephone calls were also made to the respectivecompany

Data Limitations

In this research the research problem has been analyzed for the last decade i.e from 1994

to 2004, because of the reasons that many companies operating in Pakistan were either notusing IT before 1994 or IT had very little introduction and computers were being usedmerely as a word processing tools So it was difficult to measure any of significant ITimpact on management performance before above period Most of the companies initiallydeclined to provide any financial(IT expenses and Income) data citing confidentiality andbusy schedules as reasons However, by help of SBP and SECP, the researchers managed

to collect some data in one year period from these companies Therefore, Income & ITexpense analysis for test of hypothesis is limited to those companies and for those years for

which the data is received So for analyses of Income Vs IT expense, the companies are

divided into two groups as given in Table 2 & 3 below The response rate for data was

42% for the year 1990-2004 and 67% for the year 1999-2004

Data Analysis Methods:

The statistical software packages named SPSS 12.0 and Minitab 14.0 have been used foranalysis According to the problem/requirement, statistical techniques such as linearregression model, t-test, One Way ANOVA and ratio analysis have been applied Theproceeding discussion presents the analyses/results of the hypothesis of the study withconclusion at the end The research hypothesis stated at the beginning, is then taken asalternative hypothesis in the statement of statistical hypotheses

Table 2: Group 1: (Companies for which data was available for year 1990 to 2004

C Foreign Manufacturing D Local Manufacturing

Table 3: Group 2: In this group three more companies in each sector of group 1 are added and the data is available for the years 1999-2004

4 Simens Pakistan Ltd 4 Service Industries

5 Uni Lever Pakistan Ltd 5 Packages Ltd

6 Bata Pakistan Limited 6 General Tyre Ltd

7 L.G Pakistan Limited 7 Indus Mtors Ltd

8 Reckitt Benkiser Limited 8 Honda Atlas Ltd

Research Hypothesis

This section examines the performance of both the sectors of economy i.e banking andmanufacturing in term of increase/decrease in net income and no of employees.Increase/decrease in incomes has been observed for all companies in both the sectors andfor each conditions two different research hypotheses have been tested as under;

“Implementation of IT has impact on the performance of an organization”.

This can be translated in form of statistical hypotheses as:

H0: IT has no impacts on performance of the organizations

H1: IT has impacts on performance of the organizations

In order to test the above hypotheses, the performance of an organization has beenmeasured by measuring:

(a) Increase/decrease in net income, after implementation of IT

(b) Increase/decrease in the proportion of IT employees as the IT is implemented

Time series data was available for these variables Simple linear regression model wasfitted taking IT expenses and time as independent and income as dependant variables.

Summary of regression results are presented in Tables 4(a,b,c,d) to 5(a,b,c,d) and 6

Results And Discussions

In the discussion below we examine the impact of IT on organizational performance byperforming the quantitative analysis of net income, IT expenses, total and IT employees Ininterpretation, results of each company are discussed separately then comparison has beenmade between the Local & Foreign Banks, Local and Foreign Manufacturing Companies,Banking and Manufacturing Sectors The discussion is also made on all the companiesoverall

i) Banking Sector

a) Foreign Banks: The regression analysis shows that IT has no impact on theincomes of the Bank of Tokyo, Deutsche Bank and HSBC bank as p-values or marginalsignificance levels for these banks are above 0.05 IT has positive impact on theincomes of ABN Amro and Habib Bank AG Zurich as p-values or marginalsignificance levels for both these banks are far below 0.05 All regression coefficientsare positive showing that with the increase in expenditure on IT, the incomes of thesebanks have substantially increased Analysis is also made for all foreign banks as a

whole for group 1 and group 2(Tabel 2 & 3) For both groups, it was found that IT has

significant positive impact on income of all foreign banks operating in Pakistan

(p-value < 0.05).

Regression Results Summary ( = 0.05)

For Banking Sector

Table 4(a) Year 1990-2004

 coefficient t-Statistics p-value

9 National Bank of Pakistan 7.316 2.510 026

Regression Results Summary ( = 0.05) For Manufacturing Sector

Table 4(b) Year 1990-2004

 coefficient t-Statistics p-value

Regression Results Summary ( = 0.05)

For All Companies

Table 4(c) Year 1999-2004

 coefficient t-Statistics p-value

2 All Banking Sector: n=10 0.04.57 6.159 000

Regression Results Summary ( = 0.05)

For All Companies

Table 4(d) Year 1999-2004

 coefficient t-Statistics p-value

2 All Banking Sector n=16 0.04879 7.903 000

5 All Local Manufacturing n=8 0.03068 2.680 010

Regression Results Summary ( = 0.05)

For Banking Sector

Table 5(a) Year 1990-2004

 coefficient t-Statistics p-value

Table 5(b) Year 1990-2004

 coefficient t-Statistics p-value

1 All Manufacturing Companies: n=10 118 285 776

2 All Foreign Manufacturing: n=5 -.275 -.423 674

For all Companies

Table 5(c) Year 1999-2004

 coefficient t-Statistics p-value

1 All Manufacturing Sector: n=5 -0.0153 -.648 519

2 All Local Manufacturing: n=5 0.01588 1.165 254

3 All Foreign Manufacturing n=5 -0.03544 -1.210 236

Regression Result s Summary ( = 0.05)

For all Companies Table 5(d) Year 1999-2004

 coefficient t-Statistics p-value

1 All Foreign Manufacturing n=8 -0.005.53 -.203 840

Years: Independent variable IT Employees %age to Total Employees: Dependent variable

As depicted in Annexure II, total no of employees in foreign banks have been

increased continuously from the year 1990 to 2004, despite of the facts that IThas been applied in all operations of the banks The IT has not reduced thenumber of employees as anticipated by some circles due the reasons that most

of the banks in this sector have introduced new products or services during thisperiod, so the work load has increased therefore staff strength has alsoincreased It has also been observed that there are floating trends in the

strength of IT employees As Annexure II indicates that IT employees have

increased for years 1990-1993, decreased from 1994 to 1997 but againincreased from 1998 onwards and that increase is due to increase in ITactivities because of raised volume of transactions, introduction of newproducts/services and increasing competition with the local banks in offeringonline/ computerized services The net income for these banks for the years