The Influence of Alignment on the Post- Implementation Success of a Core Banking Information System: An Embedded Case Study

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1 The Influence of Alignment on the Post- Implementation Success of a Core Banking Information System: An Embedded Case Study Daniel Beimborn E-Finance Lab J. W. Goethe University, Frankfurt, Germany beimborn@wiwi.uni-frankfurt.de Heinz-Theo Wagner E-Finance Lab J. W. Goethe-University, Frankfurt, Germany hwagner@wiwi.uni-frankfurt.de Jochen Franke E-Finance Lab J. W. Goethe-University, Frankfurt, Germany jfranke@wiwi.uni-frankfurt.de Tim Weitzel Chair of Information Systems and Services Otto Friedrich University, Bamberg, Germany tim.weitzel@wiai.uni-bamberg.de ABSTRACT The literature suggests that the success of an information system among others depends on its utilization. In this paper, we argue that operational IT business alignment is an important driver of system usage and thereby of the market success of the supported business process. Using an embedded case study in four branches, the back office, and the IT department of a retail bank, many findings of the recent alignment literature can be supported. Using a strict business process perspective, we also offer new insights by showing that alignment is important for IS success in operations as well and positively influences post-implementation IS usage. In particular, mutual understanding between the units and shared domain knowledge not only between IT and business but also between different business units supported by the same core IS turned out to be very important factors of IS usage that have so far been neglected. 1. Introduction From the rich literature on the resource based view (RBV) of IT we know that it is not IT systems as such yielding utility but rather the way they are used and deployed within a business context. Thus, the usage of IT in business processes seems to be an important factor in achieving business value from IT. Still, investigations of concrete usage situations in daily business and especially in dedicated processes are rare. From the IT Business Alignment literature it is known that alignment processes are necessary to strategically exploit IT [8]. Empirical studies confirm a positive impact of these processes on performance [1][9][10][17]. But, most studies focus on the strategic level of alignment. As a consequence, there are a few studies conducting research on the operational level of alignment and on the linkage between alignment and IS usage in daily business processes. Our research question in this paper thus is: How does operational (i.e. non-strategic) IT business alignment impact IS usage? To address this question, extending existing research [19] we conducted an embedded case study in four different branches plus centralized back office and IT units of a retail bank exploring how operational IT business alignment impacts IS usage in the financial services industry. Applying a process oriented view [12] and the case study with four branches, back office and IT unit all employing identical IT systems, we show how alignment at an operational level positively impacts IS usage. Supporting prior findings, it turns out that the understanding of business needs by the IT staff is a key driver of alignment. Extending the existing literature, we can also show that business internal alignment, though not directly related to the IT, affects IS usage and thereby the entire IT value creation process. This calls for considering this aspect in further studies on IT /07 $ IEEE 1

2 value. The managerial implications are to select managers with work biographies across different organizational units or to foster cross departmental work experience. 2. Related literature 2.1 IS usage The use of IT has to be investigated in detail to explain how IT affects the organization [12]. Various models describe actual or intended usage to be driven by perceived usefulness and ease of use [18]. Although IS usage is widely addressed in literature, the processlevel impact has hardly been analyzed. Before an application can successfully be used, the users have to learn how to interpret its output and how to apply it when performing their business activities [13]. Impacts from IT require appropriate use [16]. In the context of IS usage the nature of the interactions between business and IT units seems to be an important element of a firm s success which is not only restricted to the strategic level but also covers the operational level. Lower level functioning groups have to interact to transform strategy into daily business [6]. Accordingly, we define IS usage in the context of a business process as the extent to which an organization deploys IS to support operational tasks. The use of IS has to be investigated in detail to explain how IS affects the organization [12]. Impacts from IS require appropriate use [16]. Thus, expecting higher benefits from more/higher usage neglects the appropriateness of this usage. Instead of addressing the level of usage, the appropriateness is addressed by determining whether the full functionality of a system is being used for the intended purposes [3]. 2.2 Alignment Literature in alignment is another strand of research engaged in IT business value by focusing on the interaction between the business and the IT domain. There is a general consensus among researchers and practitioners alike that IT business alignment (ITBA) is necessary to improve business performance, but the way how to achieve it, is unclear [5]. Alignment is predominantly viewed under a strategic perspective, whereas research into the structural level is rare and research simultaneously considering both levels seems to be non existent [2]. Drawing on knowledge-based theory, the four alignment domains (IT and business strategy, IT and business structure) of the Strategic Alignment Model (SAM) [8] can be interpreted as different areas of knowledge. To produce an organizational outcome knowledge from the different areas must be applied together requiring the transfer of knowledge [7]. Thus, alignment processes that promote knowledge sharing are essential in determining IT profitability [17]. Research in ITBA is mostly engaged in the strategic fit between the business and the IT domain. These strategies have to be implemented, because strategies are only effective when they are translated into actions readily [5]. The interaction between the business and the IT domain is therefore not restricted to the strategic level, rather strategy has to be transformed into daily business to achieve effects [6]. Therefore, we also incorporate operational IT business alignment. This construct reflects the functional integration at the structural level and represents the link between business and IT structure highlighting the importance of ensuring internal coherence between the organizational requirements and the delivery capability of the IT domain [8]. Additionally to ITBA, we propose and investigate a new alignment type. The structural business internal alignment concentrates on the operational business domain and is defined as the internal consistency within the business structure along the business process. That is, the alignment between the different organizational units engaged in the business process (e.g., sales and back office involved in a bank s credit process). The considerations regarding operational ITBA are adapted to this type. 3. Research model As discussed in the previous section the use of an information system may explain benefits arising from the employment of an application in a business process. Usage in turn seems to be affected by the interaction of IT and business units along all levels from strategy, via development to day-to-day operations. Additionally, as an extension to other studies, the role of non-is alignment i.e., alignment between business units has been closely investigated in this research. Therefore, the goal of this paper is to explore the relationships between usage and alignment as well as skills and experiences of users on an operational level, depicted in figure 1. 2

3 Alignment Business Internal Alignment Business-IT Alignment (appropriate) IS Usage Figure 1: Research model 3.1 Case study methodology We followed the steps as proposed in an embedded single case study approach [20]. After the definition phase the case was selected according to Eisenhardt [4] in that it was selected out of banks serving the retail market for private customers. By choosing the case it is important to control for extraneous variation. As we strived to outline differences in the relationships of the constructs of interest, controlling for all other factors becomes fundamental. We therefore chose an embedded single case study design [20] by selecting four branches and specific headquarter functions from a single retail bank case as embedded units of analysis. Regarding the headquarter functions, we studied the loan back office and the organization department (composed of the IT service group and the so called bank organization group dealing with process redesign and requirements analysis). The advantage of this approach is an identical environment for the embedded units (bank branches and headquarter) in terms of strategies, training concepts, information systems, for example. Differences among the branches relate to the competitive environment and the individual biographies and experiences of the employees. Differences to the headquarter functions relate to the organizational function performed and the corresponding objectives and also to work biographies. While focusing on alignment and usage as opposed to impacts on performance in the following we especially control for the biographies and the experiences of the employees. 3.2 Case study implementation For carrying out the case study, case and interview patterns were developed, discussed within the research community, and then pre-tested with four bank managers. After testing, the adapted documents were used for the actual case study interviews [4][20]. Interviews were conducted in two parts. The first part was carried out with a semi-structured questionnaire to cover a variety of contextual variables while the second part consisted of a structured questionnaire. The interviews lasted between four and five hours and were taken in two steps. The interviews of the first step were carried out at the headquarters of the bank and involved the heads of the IT organization, the back office department, and two managers of the sales department (see below for further details). The latter managers are head of sales for specific sales regions. The second step involved interviews with the directors of four branches. During these interviews which were carried out in the branches additional branch personnel was involved for answering specific questions. The respective director was participating during the whole interview, while the staff was only consulted for particular questions. The interviews at the bank s headquarter were in two parts: First, three representatives of the organization department were interviewed, in particular the responsible manager and a specialist of the bank organization group and the responsible manager of the IT service department. Second, two representatives of the back office were interviewed, in particular, two team leaders, each serving a specific sales region. Data was complemented by reports, process documentation, and academic literature. The interviewees reviewed and validated the collected data as well as the results. This procedure is concordant with the literature in case study methodology [20][4][11]. 4. Case study We first present the research methodology and the instrument construction, followed by the presentation of the research results. 4.1 Case study description In the case study, we focus on a German credit cooperative (anonymous 2006) which will be called K- Bank in the following. K-Bank focuses solely on retail customers and offers only services for these clients, specifically. It has total assets of billion EUR, employees, and serves 150, ,000 customers (due to anonymity reasons the parameters are specified as ranges). In 2004 the number of customers increased by more than 10% and the profit by 7%. In contrast to many other banks in Germany the number of branches 3

4 has not been reduced but strongly increased. During the last five years it increased from eight to 25 which also reflects the strong commitment of the bank s strategy to retail banking. The bank continuously carries out surveys regarding customer satisfaction which show very high and increasing customer satisfaction values. Basis of the customer relationship and also a core service is the free transfer account which is the anchor for the relationship. Other services are based on this account. A further core service is granting credits for building private homes. Beside the branches, K-Bank consists of a headquarter with administration, controlling, call center, back office activities like rating and contracting, IT support, etc. The data center is run by an external service provider owned by twelve credit cooperatives which operate nationwide. This service provider also develops and enhances the information systems or realizes requested changes. The communication between the service provider regarding operational tasks and also development tasks is realized via the organization department of K-Bank. In our case study we focus on the retail sales process in branches of K-Bank that is supported by the back office and the organization department. The reason for the process level is that there is evidence in the literature that the business value of IT should be measured on this level rather than on firm level, industry level, or even national level [14]. The rationale is that a firm comprising several business processes may excel in some and is average or below average in other processes which leads in total to some net effect at firm level. We chose a bank s business process of retail sales ( retail process ). Special attention is given to the granting of building credits to retail customers. In the following, branch activities are briefly described. The employees are so-called bank advisors who are allowed to consult a customer, bank clerks responsible for standard business, and specialized advisors for insurances and building savings agreements. The latter group serves several branches and is present only one or two days in a particular branch. Clients who are already customers and are in need for standard services like a savings account, cash, or help with a remittance are served by the clerks. If a credit or a more sophisticated savings product is requested, a bank advisor will serve the customer. Bank advisors also serve (potential) new customers. If an account has to be opened, this is done immediately at the service point by a bank advisor or a bank clerk using an information system which is called PAS because it supports the so-called passive business. Passive business involves all finance products of the bank except of credits, e.g. savings accounts, overnight money etc. PAS was introduced in It is maskoriented and is seen as a mature and easy to use system. After entered in the branch the data is processed automatically. Credits, especially those for buildings, are supported by another system called ACT. ACT was introduced in 2001 and is mask-oriented, too. Because ACT is only used for credits which are a task for bank advisors, this system is only used by advisors. The process of granting credits cannot be accomplished in the branch, exclusively. There are tasks like finishing a contract or rating of securities which have to be carried out in the centralized back office. Therefore, it uses the same application. The back office is located at the bank s headquarter and thus geographically distant from the branches. Also located at the same site is the organization department. Back office and organization department are located in the same building, just one floor distance. Table 1 shows an overview of the branches taking part in the case. Table 1. Case study embedded units: branches Branch A B C D Employees Number of customers Main competitors Degree of competition 4 (2 advisors, 2 clerks) 7 (4 advisors, 3 clerks) 4 (3 advisors, 1 clerk) 10 (6 advisors, 4 clerk) 3,500 14,000 2,600 13,000 Savings bank, credit cooperative, commercial banks Very strong, employees of the savings bank have order to beat every offer of K-Bank Savings bank, credit cooperative Savings bank Savings bank Strong Moderate Moderate The back office of the bank serving the branches consists of 24 employees organized into three teams serving different regions and thus branches. The back office delivers expert opinion to credit requirements, monitors the credit during its lifetime, takes over intensive care in case that the credit fulfills characteristics of a bad loan, answers questions regarding special requirements, and completes credit information using the same information system as the branches. 4

5 The organization department, in turn, mainly has the following tasks: the bank organization consisting of nine employees (three are dedicated to train sales in using the IS) is responsible for continuous improvement of the business process, conducts analyses of the requirements of the back office and of the branches, discusses bank technical issues, transforms bank technical issues into IT requirements, talks with the IT service group and with the data center that runs and develops the IS used. The IT service group, consisting of 7 employees, is responsible for daily operation, the provisioning of an efficient and reliable IT service, training of users, communication with the data center in case of failures, providing first level support and customizing of software. 5. Results Our case focuses on the use of ACT which is used for the core product building credit. 5.1 Basic setting ACT covers building loans as well as so-called private credits, e.g. for purchasing a car. ACT is based on the same core banking application as PAS and is run by a service provider in a centralized data center. Access to the system is granted via Windows desktop PCs with a GUI for the system and a wide area network provided by a telecommunications services provider. The masks of ACT cannot be customized and contain mandatory and optional fields. To switch to another mask or getting help, a three-letter code must be entered via the keyboard. It takes up to 90 minutes to finish a standard request for a building credit. In the branch the whole task regularly consists of three sub-tasks which are consulting, sales, and processing. Consulting and sales are intertwined and can be done using the finance analysis instrument. These sub-tasks are not supported by information systems. The processing of sub-tasks can be done using ACT. The use of ACT at the service point in front of the customer is voluntary, but it must be used sometimes for getting the data processed. When hired, all employees of the branches get an introductory training at the bank s headquarter, in particular in the back office department. This training also includes the introduction to ACT. Furthermore, a specific training crew visits each branch for three days per year to train and to refresh the use of all information systems. All branch employees have a banking education, no advanced IT training, and no professional IT work experience. Beside the trainings provided to the branch employees, three further sources supporting the use of ACT exist. These are a manual, experience of other branch employees, and in most cases phone contact to the IT support department located at K-Bank s headquarters. The manual covers all business processes of the branch including the use of all information systems in a high level of detail and is updated once a week. Even though this manual is available online and also searchable, it is only marginally being used. Main sources of support are personal contacts between the employees of the same branch and phone or mail contacts to the IT support department. A direct contact to the service provider, who runs the data center and develops the information systems, does not exist. Although the information systems showed the same availability and stability in all branches, and the education background of the employees, the formal processes, and the trainings are identical in all branches, we disclosed huge difference in the usage of ACT. The employees of the back office have a banking education background and get special courses regarding the bank technical and regulatory implications of granting credits. They also get an introductory training regarding the bank s specific environment and the IS employed. They regularly do not have a sales or IT background. The organization department differs considerably between the two groups. The bank organization s employees mostly have a banking education and have worked several years in back office and/or sales of the bank. They also get an introductory training regarding the bank s specific environment and the IS employed, but do not have to work with the operational IS on a continuous basis. In contrast, the IT service group consists of two employees with banking education, one with IT background, the remaining have an unusual background such as a masseur. There is work experience in the back office only for the two employees having a banking background. Further, the IT background stems from learning by doing or individual seminars rather than from a regular education. Working experience in IT development, planning, or other operations departments does not exist. 5.2 IT business alignment and IS usage After having introduced the basic setting, the following sections focus on the results regarding IS usage and IT business alignment (an aggregated overview of the results for the different branches is depicted in table 2): 5

6 The back office assesses ACT to be an efficient tool and have no problems in using it on a continuous basis. They are the experts of this system, knowing the keyboard codes to be entered for specific functions by heart. The IT service group views itself as a service delivery unit. The following statements characterize the relationship to branches and back office: The bank must tell us what to do. If the requirements are not clear, we cannot help. We do a lot, but it seems to us this is not appreciated by the users, but sometimes it works very well. The assessment of the interaction between branches, back office and the bank organization is rated as being quite well. In particular, the back office mentioned that due to some people of the bank organization with an explicit education and working experience in the back office and the sales, it is not needed to describe requirements at length. The feeling is that there is a deep understanding of requirements, objectives and constraints of the business. Therefore, the interworking is viewed as easy going. The branches regularly have contacts with the training group. This group visits the branches on a regular basis and provides support in case of system changes and on request. This is viewed as a very good instrument for the sales people in the branches to use ACT efficiently. Beside that, process reengineering tasks are handled in a first step by the branch directors in contact with the re-engineering people of the bank organization. This is reported as working quite well. Although, not always all ideas (viewed as essential by the branch) are accepted, the feeling is that requirements are understood and if accepted, consequently, implemented. Problems mostly occur when the implementation causes system changes. Handling of this sort of changes is a task of the bank organization dealing with the data center. The branches notice sometimes a lengthy change process that they attribute to the bank organization. Table 2. Results Branch A Branch B Branch C Branch D Back office Average usage: Usage of ACT Assessment of ACT Inefficient usage: Recording of data and presentation of credit conditions via Excel sheet; subsequent data entry in ACT complicated, slow, not comfortable Efficient usage: All data is recorded in ACT in presence of the customer; specific object data are entered subsequently; no severe inhibitors of usage reported not comfortable but appropriate Rather efficient usage: All data is recorded in ACT in presence of the customer; specific object data are entered subsequently; thoughts to supplement ACT with Excel, wishes back office to enter data into ACT not comfortable but appropriate All data is recorded in ACT in presence of the customer; specific object data are entered subsequently; emotionally do not want to use ACT, but sees no alternative not comfortable but must be used Efficient usage: All major tasks are provided solely by ACT. Data, entered by branches, is further processed in ACT. not comfortable but appropriate and efficient Interaction with IT service group Perceived competence of IT support group Does IT service group understand business needs? Interaction almost always takes place when a problem occurs Mixed: two groups are identified, one with low IT competence, and the other with high IT competence Mixed: Corresponding to the aforementioned question, the rating is split. Over all understanding of business needs was rated low. Interaction almost always takes place when a problem occurs Competence is very heterogeneous, but overall the competence is average Understanding of business needs is average Similar to former case studies, the single most important aspect turned out to be mutual understanding between the business units and the IT unit [15] that Interaction occurs in cases of problems, but mostly in cases of handling questions Competence is rated as high Understanding of business needs is high Interaction almost always takes place when a problem occurs Mixed: two groups are identified, one with low IT competence, and the other with high IT competence very heterogeneous Interaction almost always takes place when a problem occurs; usually problems are resolved within the back office Catastrophic; they really do not know what they do no, not at all arises from frequent interaction, from the business orientation and cross-domain knowledge. The case of branch C clearly demonstrates that if frequent 6

7 interaction is present, along with the perception of a highly competent and business-oriented IT group, the efficiency in usage is fostered. In contrast, in branches A or D with different levels of perceived competence, either a workaround to circumvent the use of ACT by using Excel (A) or an emotional barrier to use ACT (D) emerges. In the case of branch C the contacts to the IT support group are reduced to phone and mail contact mostly in cases of failures, although sometimes of informal nature and also for additional questions. The main reason for this evaluation is the geographic distance as opposed to the contacts between back office and IT department, and a lack of business understanding. In contrast, the bank organization has direct contacts and explicit know-how and working experience within their contact person s working environment. Regarding IT business alignment, branch C is found to be leading our sample, but branch B even more efficiently uses ACT. The following section gives a rationale for this phenomenon. 5.3 The role of business internal alignment Based on the extended theoretical lens on alignment we particularly investigated the impact of business internal alignment between several organizational (non IT) units on efficient and effective IS usage. We identified three different situations which empirically support a positive relationship between business internal alignment and effective IS usage. 1. The director of branch B in former times was employed in the back office, leading to a well understanding of the whole process and most efficient usage of ACT compared to all other branches. 2. In times of processing peaks in the back office, sales people from the branches move to the headquarters for some days or weeks to eliminate backlogs and to ensure appropriate processing time towards the customer. The interviewed back office team leaders consistently stated that sales people who worked in the back office for a few weeks, in contrast to those sales people not having worked in the back office, showed a significant increase in providing adequate credit proposal from their customers to the back office, afterwards. This in turn leads to more efficient credit proposal processing in the back office and more efficient overall usage of ACT. Summarized, the effect is an increase of cross-domain knowledge and mutual understanding which in turn leads to better inter-working with the back office. 3. If a (substantial) update of the used core application is implemented which requires employee training on the new functionalities, staff from the back office will accompany the training team for effectively implementing new routines which are aligned throughout the overall credit process (from sales to back office tasks). These examples show that IS usage is not only driven by direct alignment between IT and business units but furthermore by business internal alignment between organizational units with efficient usage (back-office) and those with non-efficient usage. The back office department which, due to the particular set of tasks, represents the power users of ACT, takes over the role of an intermediary or adoption driver for effective and efficient IS usage in the sales departments. This can be exemplified by comparing branches A and C. Branch C has a good internal alignment with the back office, outlined by the frequent interaction of employees of both entities. In contrast, branch A does not have an as good internal alignment with the back office as branch C. Strikingly, branch C, arguably profiting from the close alignment with the power users of ACT in the headquarter (back office), benefits in more efficient usage of ACT compared to branch A. This is an indication for more efficient IS usage due to alignment between business units, which has not been reported before. 6. Limitations Limitations of this case study mainly refer to the following items. Furthermore, performance parameters of the business process were not considered. Although Branch A needs more time to fulfill the process, it is quite difficult to determine if the lower customer facing time (due to the use of the convenient Excel sheet) leads to higher customer satisfaction and therefore to relatively higher sales success. This is in part due to the different competitive environments. Also, research on past alignment patterns is still needed as these might have an effect on current alignment and usage patterns as it seems to be the case with the experiences of the team leader of branch B. Additionally, it should be taken into account that the case study was employed in the specific setting of the German banking landscape, and even more in one particular segment of the banking industry (i.e. credit cooperatives). 7

8 7. Conclusion This case provides insights into a concrete IS usage situation at the operational level of a business process which is very rare in literature. First, this paper contributes to literature in suggesting a connection between the usage of a particular information system and alignment between business and IT at an operational level (functional integration). Alignment at an operational level fosters the usage of the information system ACT as could be inferred by comparing the characteristics the branch C compared to branches A and D. The most important aspect regarding operational alignment was the understanding of business needs by the IT staff which is also in line with literature dealing with the strategic aspects of alignment. Our findings, therefore, can support the importance of a mutual understanding between business and IT as known from literature and additionally provide a concrete business context. Thus, understanding of business needs seems to be an important factor at both the strategic and the operational level of alignment. This understanding corresponds with the frequency of interaction between business and IT. Second, the case study results showed that IT business alignment has an indirect effect on effective IS usage, catalyzed by business internal alignment between business units which have high usage and those that show lower usage of the investigated core IT system. Shared knowledge and mutual understanding between sales staff and back office people without the IT layer explicitly being relevant in the relationship have been a driver for effective IS usage in different situations. The managerial implications are to foster interrelationships between the departments, to invest in an appropriate basis education in the original field of the department in focus but also in the field of this department s customers, and also to encourage the working of employees in different departments. This may provide for a smoother process of alignment and an appropriate usage of IT. Using a case study we are not able to statistically generalize our findings but at least indicate that there is a connection between operational IT-business and business internal alignment and IS usage in our case which should be subject to replication in further studies for closer investigation. The case study data will serve as a basis for further research. Currently, we are conducting further case studies at banks from other segments and also a survey to provide further insights and to verify some linkages detected. Theory tells us that effective IS usage leads to higher process performance. Extending the case study by objective performance measures regarding the business process will allow us to research alignment, usage, and performance at a business process level of analysis. 8. 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