Professional Documents
Culture Documents
Impact of Technological Innovation in Commercial Banks in Kenya An
Impact of Technological Innovation in Commercial Banks in Kenya An
PRESENTED
BY
FAITH
SUPERVISOR:
SEPTEMBER, 2011
DECLARATION
This research project is my original work and has not been submitted for any award in any other
university.
Faith
Lecturer
ii
TABLE OF CONTENTS
DECLARATION.............................................................................................................ii
LIST OF ABBREVIATIONS.............................................................................................v
CHAPTER ONE.............................................................................................................1
INTRODUCTION...........................................................................................................1
CHAPTER TWO.......................................................................................................... 15
LITERATURE REVIEW.................................................................................................15
2.1 Introduction.....................................................................................................15
iii
2.4 Significance of Technological Innovations.......................................................17
CHAPTER THREE.......................................................................................................20
RESEARCH METHODOLOGY......................................................................................20
3.1 Introduction.....................................................................................................20
3.3 Population....................................................................................................... 21
Others.................................................................................................................... 24
REFERENCES............................................................................................................. 26
APPENDICES............................................................................................................. 30
iv
LIST OF ABBREVIATIONS
v
CHAPTER ONE
INTRODUCTION
Banking can be traced back to the year 1694 with the establishment of the bank of England. The
bank was started by a few individuals who were actually money lenders with an aim of lending
money at interest. Most of us have experienced some form of bank transactions in our lives. In
Kenya, almost every one over the age of 18 has at least one account with the bank. The services
most of us are familiar with include savings, loans, investments and credit card. The banking
industry in Kenya is steadily expanding. It started in 1896 with the National Bank of India
opening its first branch. Standard Chartered Bank opened its first branches in Mombasa and
Nairobi in January 1911.The Kenya Commercial Bank was established in 1958 with Grindlays
Bank of Britain merging with the National Bank of India. The Cooperative Bank of Kenya was
established in 1965 for the express purpose of providing financial services to Co-operative
societies. Three years later, National Bank of Kenya (NBK) was incorporated (Ojung’a 2005).
There is about one Automated Teller Machine (ATM) for every 100, 000 people in Kenya
according to a paper presented at a South African university by Central Bank of Kenya (CBK)
official. Currently, there are 43 commercial banks for 33million Kenyans (www.sun.ac.za).
Massive, rapid, technological innovations (Norton, 1995) are replacing the traditional branch
teller. With greater competition brought by deregulation, globalization and widespread mergers
and acquisitions taking place in the banking sector, more branches are being closed down and
replaced by self-serviced banking (SSB) facilities like the ATMs as part of a larger
rationalization exercise. Even with the massive branch network, the use of phone banking and
Internet banking is strongly promoted by the banks in addition to ATMs. In today’s commercial
banking environment information technology, effective service delivery and customer
satisfaction are an indispensable competitive strategy. Furthermore, the stiff competition and the
compression of the interest rates, has forced banks to set up and put into effect all necessary
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decision support technological systems. This enables them to dynamically plan new locations,
evaluate their performance, forecast customers’ attitude to new offered products and services,
estimate clients’ switching behavior, and finally provide marketing support to their
geographically separate branches.
The banking sector has been the backbone of every country. It implements and brings about
economic reforms. Any change in this sector through technology has a sweeping impact on any
country. The developments in information collection, storage, processing and transmission
technologies have influenced all aspects of the banking activity. The history of technology is the
history of the invention of tools and techniques. The 19th century saw astonishing developments
in communication technology originating in Europe. In 20th century information technology
developed rapidly due to the scientific gains directly tied to military research and development,
as they did in part due to World War II. Despite the fact we have just entered into the 21st
century technology is being developed even more rapidly, marked progress in almost all fields of
science and technology has led to massive improvement to the technology we currently possess.
The integration of world economies has opened an array of business opportunities as well as
challenges for firms. Increased standardization activity reflects, among other factors, demand by
consumers for safer and higher quality products, technological innovations, the expansion of
global commerce and the increased concern by many governments to societal and welfare issues.
Firms in service sectors such as banking are under constant pressure to perform better, cheaper
and faster. The developments in information and communication technology (ICT) are radically
2
changing the way business is done. Electronic commerce is now thought to hold the promise of a
new commercial revolution by offering an inexpensive and direct way to exchange information
and to sell or buy products and services. This revolution in the market place has set in motion a
revolution in the banking sector for the provision of a payment system that is compatible with the
demands of the electronic marketplace (Abor, 2005).
Does technology innovation improve customer satisfaction in the retail banking industry?
Wayland & Cole (1999), consider customer knowledge and customer-connecting technology as
the foundations of customer connected strategy. The customer-connecting technology refers to
technologies for the creation of an on-line system (e.g. Internet), a self-service system (e.g.
ATMs) and a customer care system (e.g. call centre). According to them, these technologies are
increasingly capable of supporting strategic change by expanding the potential customer base,
defining new roles in the value chain, and promoting collaboration and inter-dependency among
suppliers and customers. This study aims to find out if such customer-connecting technology
helps to create more satisfaction among bank customers, thus expanding the potential customer
base and promoting collaboration and interdependency as pointed by Wayland & Cole.
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customers (Schneider & Bowen, 1999). The Met-Expectations Model assumes that by meeting
expectations, customers can be satisfied. Exceeding customer expectation causes customer
delight. Expectation levels are dynamic and are always gearing upward. Personal expectations
are related to personal standards and can be difficult to measure. On the other hand, the Needs-
Based Model suggests that the customer would be satisfied if the three basic customer needs -
security, justice and self-esteem are met. This model believes that needs centre on the customer's
internal state but meeting expectation focuses only on the attribute of a delivery and not the
customer.
According to Fisher (1998), technology when applied in today's banking environment falls into
three specific categories: customer independent (a technology that involves a customer
conducting and completing a transaction with a bank entirely independent of any human contact
with the institution e.g. ATMs, phone banking and Internet banking); customer assisted (a bank
employee will use customer-assisted technology as a resource to complete a transaction e.g. call
centre's customer service officers will use a Customer Relationship Management (CRM) System
to understand a customer's profile and provide instant responses to customers' queries on the
banking transactions and up-to-date billings (Gutek & Welsh, 1999)); and customer transparent
Customer technology which represents the real core of bank operations and customers never see
it but expect it.
If the innovated technology meets the customer expectation, then the customer remains silent. If
expectations are not met, however, the customer will be very quick to contact the bank to provide
feedback or lodge a complaint. A prime example is the non-receipt of checking account
4
statements. Both the process and technology are transparent to bank customers yet they have
such an expectation. For example, if the issue of such statements was delayed by a technical
hitch, customers may feel outraged that their normal standard service expectation has not been
met. This study focuses on technology innovations like ATMs, phone banking and Internet
banking. These belong to the first and second categories studied by Donnelly (1992).
1.5 Common Forms of Technological Innovations and their effects on service delivery
Davies, Moutinho and Curry (1996) notes that, automated Teller Machines (ATMs) are the most
frequently used electronic distribution channel that allows bank clients to perform their main
banking transactions, such as access their bank accounts in order to make cash deposits and
withdrawals, as well as purchasing mobile cell phone prepaid credit 24hours a day. Most ATMs
are connected to interbank networks, enabling people to withdraw and deposit money from
machines not belonging to the bank where they have their account or in the country where their
accounts are held thus enabling cash withdrawals in local currency (Maxwell, 1990). Many
banks charge ATM usage fees. In some cases, these fees are charged solely to users who are not
customers of the bank where the ATM is installed; in other cases, they apply to all users
(Lustsik, 2003).
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ATMs were introduced first to function as cash dispensing machines. However, due to
advancements in technology, ATMs are able to provide a wide range of services, such as making
deposits, funds transfer between two or accounts and bill payments. Banks tend to utilize this
electronic banking device, as all others for competitive advantage. ATMs also save customers
time in service delivery as alternative to queuing in bank halls, customers can invest such time
saved into other productive activities. ATMs are a cost-efficient way of yielding higher
productivity as they achieve higher productivity per period of time than human tellers (an
average of about 6,400 transactions per month for ATMs compared to 4,300 for human tellers
(Rose, 1999). Furthermore, as the ATMs continue when human tellers stop, there is continual
productivity for the banks even after banking hours.
Telephone banking is a service provided by a financial institution which allows its customers to
perform by telephone are known as phone banks (Cronin, 1997). Mostly telephone banking uses
an automated phone answering system with phone keypad response or voice recognition
capability (Jane Blake, 2000). To guarantee security, the customer must first authenticate
through a numeric or verbal password or through security questions asked by a live
representative located in a call centre or a branch, although this feature is not guaranteed to be
offered 24/7. John Wiley (1997) points out that, telephone banking representatives are usually
trained to do what was traditionally available only at the branch such as loan applications,
investment purchases and redemptions, chequebook orders, debit card replacements and change
of address. With the obvious exception of cash withdrawals and deposits, it offers virtually all
the features of an automated teller machine. Telephone banking provides services such as
account balance and list of latest transactions, transfer of funds between a customer's accounts,
electronic and instructions to issue bank cheques (Davies, Moutinho and Curry, 1996).
6
According to Leow (1999), telebanking has numerous benefits for both customers and banks. As
far as the customers are concerned, it provides increased convenience, expanded access and
significant time saving. On the other hand, from the banks’ perspective, the costs of delivering
telephone-based services are substantially lower than those of branch based services. It has
almost all the impact on productivity of ATMs, except that it lacks the productivity generated
from cash dispensing by the ATMs. For, as a delivery conduit that provides retail banking
services even after banking hours (24 hours a day) it accrues continual productivity for the bank.
It offers retail banking services to customers at their offices/homes as an alternative to going to
the bank branch/ATM. This saves customers time, and gives more convenience for higher
productivity.
“PC-Banking is a service which allows the bank’s customers to access information about their
accounts via a proprietary network, usually with the help of proprietary software installed on
their personal computer”. Once access is gained, the customer can perform a lot of retail banking
functions. The increasing awareness of the importance of computer literacy has resulted in
increasing the use of personal computers. This certainly supports the growth of PC banking
which virtually establishes a branch in the customers’ home or office, and offers 24-hour service,
seven days a week. It also has the benefits of Telephone Banking and ATMs (Abor, 2005).
The idea of Internet banking according to Essinger (1999) is: “to give customers access to their
bank accounts via a web site and to enable them to enact certain transactions on their account,
given compliance with stringent security checks”. To the Federal Reserve Board of Chicago’s
Office of the Comptroller of the Currency (OCC) Internet Banking Handbook (2001), Internet
Banking is described as “the provision of traditional (banking) services over the internet”.
Internet banking by its nature offers more convenience and flexibility to customers coupled with
a virtually absolute control over their banking. Service delivery is informational (informing
customers on bank’s products, etc) and transactional (conducting retail banking services).
As an alternative delivery conduit for retail banking, it has all the impact on productivity imputed
to Telebanking and PC-Banking. Aside that it is the most cost-efficient technological means of
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yielding higher productivity. Furthermore, it eliminates the barriers of distance / time and
provides continual productivity for the bank to unimaginable distant customers.
It offers quicker rate of inter-branch transactions as the consequence of distance and time are
eliminated. Hence, there is more productivity per time period. Also, with the several networked
branches serving the customer populace as one system, there is simulated division of labour
among bank branches with its associated positive impact on productivity among the branches.
Furthermore, as it curtails customer travel distance to bank branches it offers more time for
customers’ productive activities.
An Electronic Funds Transfer at the Point of Sale is an on-line system that allows customers to
transfer funds instantaneously from their bank accounts to merchant accounts when making
purchases (at purchase points). A POS uses a debit card to activate an Electronic Fund Transfer
Process (Chorafas, 1988).
Increased banking productivity results from the use of EFTPoS to service customers shopping
payment requirements instead of clerical duties in handling cheques and cash withdrawals for
shopping. Furthermore, the system continues after banking hours, hence continual productivity
for the bank even after banking hours. It also saves customers time and energy in getting to bank
branches or ATMs for cash withdrawals which can be harnessed into other productive activities.
As the importance of innovation in developing countries increases, so does the need for research
on the subject. Evidence from the literature reviewed above shows that existing discourse on
diffusion of IT innovation in banking sector has failed to focus much attention on rapid changes
in IT development and its corresponding effect on service provision in developing countries like
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Uganda. The available evidence from African countries has been in Nigeria. This study therefore
closes this gap by presenting the effects of it innovations on service delivery drawing from a
least developing country, Uganda.
However, with coming of new partners in banking industry, competition intensified and the
personal computer (PC) got proletarian, Kenya banks begun to use them in back-office
operations and later tellers used them to service clients. The advancements in computer
technology have led to application and adoption new IT investments that have changed the
banking landscape in the country.
Arguably, the most revolutionary electronic innovation in this country has been the ATM. In
Uganda, banks with ATM offerings have them networked and this has increased their utility to
customers. The ATM has been the most successful delivery medium for consumer banking in
this county. Others technological innovations in banking sector include internet banking,
telephone banking, Electronic funds transfer, among others.
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banking sector over the years. The rapid development and commercialization of Information and
Communication Technologies (ICTs) banking industry has prompted banks to increasingly adopt
these technologies. This is based on the expectation that the new ICT based technologies and
processes would lead to an improvement in their operating efficiencies and customer service
levels.
When customers evaluate the quality of the service they receive from a banking institution they
use different criteria which are likely to differ in their importance, usually some being more
important than others. While several criteria are important only a few are most important. These
determinant attributes are the ones that will define service quality and hence customer
satisfaction from the consumer’s perspective (Parasuraman, A.et al., 1988). The banking
industry has already been depicted (Parasuman et al., 2001) as exhibiting little market orientation
and fulfilling services with little regard to customer needs as well as including branches
dissimilar in efficiency. Long lines, limited time for customer servicing, transaction errors,
excessive bureaucracy, and security and network failures have been said to be the most frequent
problems using banking services (Smith, 1999). This highly lower customer’s perception on the
quality of service offered and hence reduces customer satisfaction and the bank’s profitability
and credibility.
One question relates to whether automated, telephone and Internet banking represent positive
change and are satisfactorily serving the customers. Whilst technology can save time and money
and eliminate errors, thereby addressing certain issues associated with changing cultural and
social trends, it can also minimize direct customer interaction and any associated service value to
be gained (Bitner,2001). According to Joseph et al. (2003), reliable and accurate banking
services; customer services; personalized services; and accurate records are some of the factors
which are considered by the customers in their choice of a given type of service delivery
channel. Since the year 2000, technology has increasingly been innovated in the delivery of
services in the Kenya banking industry. The adoption of technology into service industries, more
so in banking is becoming a strong trend as service providers are now being urged by industry
bodies to invest in technology. The small business segment (retail and corporate services) has not
been an easy one for the main banks to target and a number of studies have highlighted
imperfection in service provision and problems regarding service quality and customer
satisfaction (Ennew et al., 1993; Smith, 1989; 1990). Particular problematic areas include
10
knowledge and understanding, providing explanations for decisions, queuing, charges, collateral
requirements, network failure and insecurity. Due to this, customer satisfaction levels are at all
time low, dragging the bank’s image, credibility and staff morale down (Joseph et al., 2003).
As the importance of innovation in developing countries increases, so does the need for research
on the subject. Evidence from the literature reviewed above shows that existing discourse on
diffusion of IT innovation in banking sector has failed to focus much attention on the impact of
these technological innovations on customer satisfaction in commercial banks in Kenya. Among
other studies include relative importance of technology in service delivery in banking (Adrienne
et al., 2003) which concluded that technology provides a different type of value and the benefits
to be gained are largely efficiency based. Mugambi (2006) also attest that researches have been
done on areas of service excellence and customer satisfaction in the banking industry. However,
there is no study in Kenya that has looked at the impact of technological innovation in
commercial banks in Kenya with reference to customer satisfaction. This study therefore, seeks
to investigate the relationship between technological innovations and customer satisfaction in
commercial banks in Kenya.
The broad objective for this study is to evaluate the relationship between financial innovation
and growth in the insurance companies in Kenya. The study will be guide by the following
specific objectives;
ii) To establish the relationship between financial innovations and growth in the insurance
companies in Kenya.
iii) To establish the factors influencing the rate of financial innovations by insurance
companies in Kenya.
The main objective of this study was to ascertain the IT innovations BOA has implemented since
it merged with Bank of Africa group and how these has impacted service delivery.
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(ii) To examine the level of service delivery in B.O.A in relation to IT innovations
(iii) To examine the employees’ perception of the effects of IT innovations on service
delivery in B.O.A
What is the relationship between technology and service quality? Which are the factors that lead
to customer preference of different service delivery channels? The specific objectives were:
To establish the relationship between technology and service quality in banking industry; and
To determine the factors that lead to customer preference of different electronic banking
channels.
To investigate from Kenya customers the various technologies adopted by their banks.
To study internet banking usage in Kenya
To explore the perceived utility of SMS banking
To analyze the banking services adopted by Kenyan customers through mobile phones
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According to Yasuharu (2003), implementation of information technology and communication
networking has brought revolution in the functioning of the banks and the financial institutions.
It is argued that dramatic structural changes are in store for financial services industry as a result
of the Internet revolution; others see a continuation of trends already under way. In a study
conducted by Irechukwu (2000) in Nigeria, he lists some banking services that have been
revolutionized through the use of ICT as including account opening, customer account mandate,
and transaction processing and recording. Information and Communication Technology has
provided self-service facilities (automated customer service machines) from where prospective
customers can complete their account opening documents direct online. It assists customers to
validate their account numbers and receive instruction on when and how to receive their cheque
books, credit and debit cards (Agboola, 2004). The ICT products in use in the banking industry
in many developing and developed include Automated Teller Machine, Smart Cards, Telephone
Banking, MICR, Electronic Funds Transfer, Electronic Data Interchange, Electronic Home and
Office Banking (Agboola, 2002).
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and the environment. When an innovation emerges, diffusion unfolds which entails
communicating or spreading of the news of the innovation to the group for which it is intended
(Okunoye et al, 2007). Adoption however is the commitment to and continued use of the
innovation. The diffusion of innovations theory provide explanations for when and how a new
idea, practice or newly introduced information and communication medium is adopted or
rejected over time in a given society (Okunoye et al, 2007).
Innovation is the generation, acceptance and implementation of new ideas, processes, products or
services. This study is concerned with product innovation, i.e., new products and the
organizational processes that precede their launch. What is then to be considered ‘new’? When is
it ‘new enough’ to be considered an innovation? The literature provides several frameworks to
classify product newness, e.g., from incremental to radical innovations. This study, however, is
concerned with product innovation as a phenomenon, rather than with product innovations with a
certain degree of newness. This includes significant improvements in technical specifications,
components, and materials, incorporated software, user friendliness, or other functional
characteristics. Product development is used as a term for the span of innovation activities
leading to, or that are intended to lead to, product innovation.
However, most research about innovation focused on manufacturing industries though increasing
attention has been paid to innovation in service industries recently (Gallouj, 2002; Howells and
Tether, 2004; Miles, 2004). The survival of an enterprise in the age of knowledge-based
economy depends on how to improve their organizational innovation capability. Technological
innovation is the key variable and means of differentiation between logistics service providers.
Commercial banks can increase their performance by employing new technologies. They should
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employ new information technologies to raise their service capability in the e-commerce age
(Agboola, 2001).
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter provides theoretical and empirical information from publications on topics related
to the research problem. It examines what various scholars and authors have studied written
about technological innovations in reference to customer service and customer satisfaction.
Joseph and Stone, (2003) point out that, effective service delivery is important and has a great
influence on customer satisfaction, improving sales and market share. Commercial banking is at
a stage where customer perceptions and preferences have a very important impact on a bank’s
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success. Customer satisfaction is a measure of how products and services supplied by a company
meet or surpass customer expectation.
In the effort to deliver effective services, the banking sector undertakes numerous approaches
and among them is the innovation and use of information technology. Information technology is
a medium that has revolutionized banking and everyday operations at the click of a button thus
enabling sophisticated product development, better market infrastructure, implementation of
reliable techniques for control of risks and reaching geographically distant and diversified
markets (Marion, 2008).
In businesses where the underlying products have become commodity-like, quality of service
depends heavily on the quality of its personnel. This is well documented in a study by Leeds
(1992), who documented that approximately 40 percent of customers switched banks because of
what they considered to be poor service. Leeds further argued that nearly three-quarters of the
banking customers mentioned teller courtesy as a prime consideration in choosing a bank. The
study also showed that increased use of service quality/sales and professional behaviours (such
as formal greetings) improved customer satisfaction and reduced customer attrition.
Indeed, customer satisfaction has for many years been perceived as key in determining why
customers leave or stay with an organisation. Organisations need to know how to keep their
16
customers, even if they appear to be satisfied. Reichheld (1996) suggests that unsatisfied
customers may choose not to defect, because they do not expect to receive better service
elsewhere. Additionally, satisfied customers may look for other providers because they believe
they might receive better service elsewhere. However, keeping customers is also dependent on a
number of other factors. These include a wider range of product choices, greater convenience,
better prices, and enhanced income (Storbacka et al., 1994). Fornell (1992), in his study of
Swedish consumers, notes that although customer satisfaction and quality appear to be important
for all firms, satisfaction is more important for loyalty in industries such as banks, insurance,
mail order, and automobiles.
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2.5 Empirical Studies
The purpose of the paper named “Impact of Information Technology management practices on
customer service”, by Jahangir Karimi, Toni M. Somers and Yash P. Gupta (2002) was to gauge
whether IT management practices differ among firms where IT has a major role in transforming
marketing, operations, or both, which gave the firms advantage by affecting customer service.
Several research hypotheses were tested using data obtained from a survey of 213 IT-leaders in
the financial services industry. The results clearly indicated that the IT leader firms had a higher
level of IT management sophistication and a higher role for their IT leaders compared to IT-
enabled customer focus, IT-enabled operations focus, and IT-laggard firms. The study concluded
that IT management practices differed among IT leader firms, IT-enabled customer focus, IT-
enabled operations focus and IT-laggard firms. This paper was silent on other aspects of IT like
functional integration, technological integration, etc., besides customer service.
A.P. Sebastian Titus and Albin D. Robert Lawrence (2004) in their paper titled “Customer Focus
in Banking Services” had stressed on importance of customer relationship management. The aim
of the banks should be to retain the existing customers and acquire the new customers. In order
to add value to the services offered, the banking industry has to efficiently and effectively utilize
the technology with an eye on the cost of product and the services offered. To win the customers,
the modern banking should integrate technology and deploy marketing strategies that would
enable banks to maximize profits through customer satisfaction. In market with fierce
competition providing the customers with value addition is the only way to achieve complete
sustained customer satisfaction.
Joshua Madan Samuel (2003) in his paper titled “CRM – With special emphasis on financial
services and banking”, emphasized about growing need of managing customers better in
banking. CRM applications applied in banking were customer knowledge, sales effectiveness,
customer retention, customer segmentation, product presentation, customer fulfillments,
customer acquisition, channel management, marketing intelligence, campaign management. The
processes need to be redesigned in order to be able to utilize CRM for the customers and
organizational benefits. The three S’s of banking i.e., Size, Speed, Service; are better managed
by CRM. In the world of banking CRM technology was the answer to the question of increased
growth with less cost.
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In paper titled “Capturing the customer’s voice-A case study in banking” by S.K. Bhattacharyya
& Zillur Rahman (2002), customer needs and wants in a bank were properly emphasized.
Customer needs were categorized as Basic needs, Performance needs and Excitement needs. The
various banking services like Tangibility, Reliability, Competence, Courtesy, Understanding
customers, Communication, Access, Responsiveness, Credibility, and Security; were related with
these needs. This paper helped to identify how customers perceived services of a bank.
Agboola (2001) studied the impact of computer automation on the banking services in Lagos and
discovered that Electronic Banking has tremendously improved the services of some banks to
their customers in Lagos. The study was however restricted to the commercial nerve center of
Nigeria and concentrated on only six banks. He made a comparative analysis between the old
and new generation banks and discovered variation in the rate of adoption of the automated
devices. Aragba-Akpore (1998) wrote on the application of information technology in Nigerian
banks and pointed out that IT is becoming the backbone of banks’ services regeneration in
Nigeria. He cited the Diamond Integrated Banking Services (DIBS) of Diamond Bank Limited
and Electronic Smart Card Account (ESCA) of All States Bank Limited as efforts geared
towards creating sophistication in the banking sector. Ovia (2000) discovered that banking in
Nigeria has increasingly depended on the deployment of Information Technology and that the IT
budget for banking is by far larger than that of any other industry in Nigeria. He contended that
On-line system has facilitated Internet banking in Nigeria as evidenced in some of them
launching websites. He found also that banks now offer customers the flexibility of operating an
account in any branch irrespective of which branch the account is domiciled. Cashless
transactions were made possible in our society of today.
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CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter describes the research methodology of the study. It describes the research design,
sampling design, target population, data collection procedures, analysis management and the
ethical considerations in the study.
This study will use a descriptive design. This design refers to a set of methods and procedures
that describe variables. It involves gathering data that describe events and then organizes,
tabulates, depicts, and describes the data. Descriptive studies portray the variables by answering
who, what, and how questions (Babbie, 2002).
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3.3 Population
A population is a group of individual persons, objects or items from which samples are taken for
measurements, it is the group the investigator wishes to make inferences from (Babbie, 2005).
The target population will be senior managers in marketing, underwriting, ICT, and finance from
9 insurance companies (Appendix III) of the 44 licensed insurance companies as at end of
December 2009 (AKI report, 2009). In addition, this study will be carried in Nairobi since all the
selected insurance companies have their headquarters in Nairobi and this will facilitate collection
of adequate information of the research subject area by the researcher.
The questionnaire will consist of sections geared to obtain the respondent’s opinion in strategic
control. Respondents to be interviewed will hold at least the level of an underwriting manager at
the respective insurance companies and who is actively involved in financial innovation
21
processes. The respondents will be expected to give an insight into the financial innovation in the
respective insurance companies.
The data will be analyzed by use of descriptive statistics such as mean scores, frequencies, and
percentages. Statistical Package for Social Sciences (SPSSv17) will be used to aid in qualitative
analysis in this study. The researcher will examine the completed questionnaires. The
information for each item on the questionnaire will be processed and reported through a
descriptive narrative. This will be accomplished by use of frequencies. The results will be
presented in charts, graphs and tables. Quantitative and Qualitative analysis techniques will
therefore be applied. The data was then presented in form of tables and charts.
22
23
Others
Organizations are aware that service quality provides strategic competitiveness in dynamic
business environment. Literature provides significant relationship between service quality and
firms’ performance based on improved productivity, increased market share, enhanced
customers’ attraction and satisfaction, loyalty, improved staff morale, and sustained profitability
(Lassar et al., 2000). Research has found that service quality in banks is critical for satisfaction
and retention of customers (Jabnoun & AlTamimi, 2003). Keeping in view the significance of
service quality as a means of competitive advantage and organizational sustainability, the banks
are pursuing multidimensional approaches to improvement in service quality to attract and retain
customers (Newman, 2001).
According to Castleberry and Resurreccion (1989), the physical location of banks’ delivery
channels influence perception of customers about quality. Consistent delivery of services,
physical dimensions and staff interaction with customers, trustworthy processes and procedures
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positively affect delivery of services quality (Sureshchandar et al., 2002). Pleasant customer
interaction with staff significantly affects customers’ perception of quality (Yavas et al., 1997).
In response to this requirement, banks have initiated flawless delivery processes to reduce
delivery timings to improve service quality.
Jabnoun, N., & Al-Tamimi, H.A.H. (2003). Measuring perceived service quality at UAE
commercial banks. International Journal of Quality and Reliability Management, 20(4), 458- 72.
Sureshchandar, G., Rajendran, C., & Anantharaman, R. (2002).The relationship between service
quality and customer satisfaction – a factor-specific approach. Journal of Services Marketing,
16(4), 363-79.
Yavas, U., Bilgin, Z., & Shemwell, D. (1997).Service quality in the banking sector in an
emerging economy: a consumer survey. International Journal of Bank Marketing, 15(6), 217- 23.
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Norton, J J (1995). Cross-border Electronic Banking: Challenges and Opportunities, UK: London
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Yeung, M., Ging, L., Ennew, C. (2002), "Customer satisfaction and profitability: a reappraisal of
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APPENDICES
Dear Sir/Madam,
The attached questionnaires have been designed to help the researcher gather data from the
respondent with respect to this purpose. You have been identified as one of the respondents.
Kindly facilitate the data collection necessary by answering the questions precisely and
Yours truly,
Student Supervisor
30
Mr. Robert Karanja. W. Mr. Mirie Mwangi
Email: rwachirak@gmail.com
31
APPENDIX II: QUESTIONNAIRE
Section I: Demographic Information
......................................................................................................................
Male ( ) Female ( )
4. For how long have you worked in that position? (Tick as appropriate)
b) Between 2 to 5 years ( )
c) Between 6 to 10 years ( )
d) Over 10 years ( )
a) Secondary Level ( )
b) College Level ( )
d) Master’s degree ( )
e) Other (Specify)................................................................
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ii) Between 5 and 10 years ago
a) Quarterly ( )
b) Semi- Annually ( )
c) Annually ( )
d) Bi-annually ( )
9. Averagely, how many new products were launched by your company in the following years?
No. Of Products
10. Please circle the appropriate number in the appropriate column to indicate the degree to
which you either agree or disagree with the following as objectives of innovating new
products in your insurance company.
Neither Agree
disagree agree to
Strongly to some nor some Strongly
Objectives of innovations disagree extent disagree extent agree
a) To suit customer’s needs 1 2 3 4 5
b) To increase market share 1 2 3 4 5
c) To increase profitability 1 2 3 4 5
d) To remain competitive 1 2 3 4 5
e) To comply with the regulation 1 2 3 4 5
f) Due to technological advancement 1 2 3 4 5
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11. Are the products mainly? (Tick appropriate)
a) Tailor-made ( )
12. To what extents have the products in the market been successful? (Tick appropriate)
i) Not at all ( )
13. a) Have new products contributed to the growth in your company? (Tick appropriate)
Yes ( ) No ( )
i) Not at all ( )
Yes ( ) No ( )
b) If no, are there plans to automate tasks that are carried out manually?(Tick appropriately)
Yes ( ) No ( )
Yes ( ) No ( )
b) If yes, are you branches inter-connected in terms of your IT systems? (Tick appropriate)
34
Yes ( ) No ( )
Yes ( ) No ( )
16. How often do you review your operations system(s)? (Tick appropriate)
a) Quarterly ( )
b) Semi- Annually ( )
c) Annually ( )
d) Bi-annually ( )
17. a) Have your IT systems contributed to the growth in your company? (Tick appropriate)
Yes ( ) No ( )
i) Not at all ( )
Yes ( ) No ( )
i) Bank ( )
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iv) Other (specify)…………………………………….
c) If yes in 16(a) above, what was the reason for affiliation? (Tick appropriate)
19. a) Do you offer joint products with the affiliated institutions? (Tick appropriate)
Yes ( ) No ( )
b) Has the partnership in 17(a) contributed to growth in your company? (Tick appropriate)
Yes ( ) No ( )
i) Not at all ( )
36
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