The Fit of IT with Banking Strategies forImproving Management Performance

This research investigates the fit of IT level with management strategy for improving three performance measures; market share, cost efficiency, and profitability. Regression models are used to test hypotheses regarding impacts of: (1) strategic fit between IT levels and types of market focus, and (2) interaction between IT investment level and banking strategy, on the three performance measures. The findings are as follows. First, IT investments significantly reduce payroll expenses if IT levels and market focus are well-matched; i.e., high IT-based nationwide banks and low IT-based regional banks as compared to those that are mismatched. On the other hand, operating expenses or total expenses are not reduced. Market share and profitability are significantly increased for the well-matched banks compared to those that are mismatched. Second, increased IT investments by retail banks have a greater impact on increasing market share and profitability than those of wholesale banks. The evidence suggests two important strategic implications. First, if banks effectively match IT investment level to market focus (nationwide versus regional) and retail/wholesale banking strategy, they are likely to reduce payroll expenses and increase market share as well as profitability. Second, changes in the cost structure may occur with the substitution of fixed technology expenses for variable payroll expenses. This implies that banks can effectively use IT to change the firm’s cost structure. Which expense item (variable or fixed) is more important to improve a firm’s competitive advantage may vary among firm’s management environments since cost-volume-profit relationships can be changed due to the use of IT.