THE EFFECT OF INFORMATION TECHNOLOGY ON CORPORATE PERFORMANCE OF AN ORGANIZATION

Introduction

1.1 Background of the Study

Information Technology (IT) “is a general term that describes any technology that helps to produce, manipulate process, store, communicate, and/or disseminate information” William Sawyar (2005). Other researcher named Shelly et. Al (2004) say that IT includes hardware, software, databases, networks and other related components which are used to build information systems. As a need IT progressed along with socio-economic development in developing countries. In a very short time IT, with rapid growth has become the back bone in modern industrial society and the major contributor to the progress of both developing and developed countries (Vasudevan, 2003; Long and Long 1999).

Through declining cost, both in hardware and software, IT has spread very rapidly into all the industries of Pakistan. In 1957 “Packages limited” has started the process of computerization in Pakistan and it is considered the first company in Pakistan, which started using computers. Though, in International Research Journal of Finance and Economics – Issue 39 (2010)

In the beginning Pakistani Government was reluctant to adopt IT but now in every private and government organization computer is at fore front. In Pakistan internet service was started in 1995 along with upgrading telephonic infrastructure. Now IT related issues/matters are being monitored by IT Ministry in Pakistan (Kazmi, 2003; Rizvi, 2005). Many other departments like Electronic Government Directorate, Pakistan Computer Bureau, Pakistan Software export board, Pakistan Telecommunication Authority, Computer Society of Pakistan are also working side by side IT Ministry to boost IT in the country(Ghauri, 2003, 2006a, 2006b).

Financial sector is the major user and large investor in use of IT. It was among the first to incorporate electronic data processing in its operations, through cheque handling, bookkeeping credit analysis and ATMs (Bender, 1986; Martini, l999; Vasudevan, 2003). The computers usage in banking sector first started in the early l950s. Bank of America was the first user of computer in banking sector. The use of Automated Teller Machine ATM. (Developed by Don Wetzel in 1973) was greatest achievement of online and real time automation by the commercial banks. ATM was first installed at Chemical bank in New York (Shelly and Cashman 2004). In Pakistan banking sector is also progressing rapidly with growth of local and multinational banks (Mabmood 2006). Many local banks are working in private sectors and started their operations since 1992 (SBP Report, 2005). It was year 1965 when computer was introduced first time in banks in Pakistan. The main commercial banks in private sectors i.e Habib Bank, United Bank, Muslim Commercial Bank started acquiring computer to regulate their banking work since that year (Hussain, 2003, Akhtar 2006a, 2006b). The most recent automated banking systems like Misys, Sibel and Fidility etc have been installed in many of the Pakistani Banks (Kazmi 2004, 2005; Shaukat et. al, 2009).

Like banking, IT is the corner stone in every manufacturing industry, as well. IT provides many manufacturing firm advantage to different organization to be the world-class manufacturer. In 1957 “Packages Ltd” was the first manufacturing company in Pakistan which introduced computers. After that many other companies started using IT and now it is very common in all manufacturing companies. Within the industrial sector, the use of Enterprise Resources Planning (ERP) software (an integrated IT software system comprised of several modules that share a central database, designed to automate business process across the enterprise (Thomas and Michael, 2001)) has increased. E.R.P software packages such as SAP, Oracle etc. are being commonly used in many manufacturing industries (Rizvi, 2005; Shahid, 2005)

According to Wheelen and Hunger (2000) the organization performance is an accumulated end result of organizational process and activity. These are measured by organization’s working and activity. The organizational management ginger the organizational performance, control and customer value, as it impact reputation of organization. Commonly organizational work measures include organization effectiveness, productivity/efficiency and industry ranking (Wetherbe et.al. 1999). Efficiency is defined as “minimum utilization of resources and getting maximum output” and effectiveness is “how well job gets done” (Robbin and Coulter, 2003).

Many researchers like Parthasamthy and Sethi (1993), Dell and Elliot (1999) etc. have investigated the impact of IT on quantitative performance variable i.e incomes/profits of the ‘companies and founds positive impact. Whereas, Frankin (1997), Zee and Han (2002) etc. have, seen the increase/decrease in different qualitative performance indicators i.e. customer satisfaction, company image, job interest of employees, stake holders confidence, interoffice link etc. and also have found positive impact. This paper assesses organizational performance with regards to increase/decrease in quantitative performance indicators i.e. mainly income for Pakistani organizations operating in banking and manufacturing sectors after using more IT.

1.2 Statement of the Problem

Information technology projects fail at a higher rate than projects in other industries. The high rate of failed or incomplete information technology projects negatively impacts organizational performance, costing organizations more than $55 billion in losses. Coupled with frequent fraudulent practice involved in the system.

1.3 Purpose of the Study

The objective of the study is

1. To appraise the impact of information technology in organizational performance.
2. To examine if there is any change in the level of output after the adoption of information technology practice.
3. To establish if the practice of information technology will enhance organizational efficiency and productivity.
4. To investigate on the factors that inhibits the effective planning of organizations service delivery and to find out whether the use of IT has helped to improve on the organizational productivity.

1.4 Significance of the Study

The study is relevant to the growth and survival of business organizations, the research findings will help business managers and firms to understand the relationship between information technology and organization performance. Thereby shedding light on how quality infrastructure can enhance decision making and all other aspect that have a bearing in an organization capacity and ability to implement its strategies and achieve performance.

The research finding will expand the frontiers of knowledge and broaden the horizons of future academics, researchers business analyst, managers, consultants and others who may be conducting research on similar or related topic.

1.5 Scope and limitation of the Study

Information technology and organizational performance being an important topic and couple with the energizing interest and innovations in this area, this research study will try as much as possible to establish a correlation between these two phenomena. But for such limitations as finance, geographical coverage, time constraints and problems associated with data collection and level of development.

1.6 Research methodology

The method used will be percentage and questionnaires and will be distributed and appropriately completed which consequently rendered them useful for data analysis. Tables are simple percentage and frequency distributions will be used to analysis the data gathering while Chi- square test will be used in hypothesis testing.

1.7 Research Questions

This study will attempt to provide answer to some significant and pertinent questions.

1. Does the application of information technology has any effect on organization efficiency and performance output level
2. Does information technology base application affect output level?
3. How can organizational efficiency be improved with the employment of information technology tools
4. Does proper information technology planning aid the organizations service deliver?

1.8 Research Hypothesis

1. H0: Information technology applications do not increase performance level.
   H1: Information technology applications increase performance level.
2. H0: Information technology does not increase the fortune and profitability of banks or corporate performance of the organization.
   Hi: Information technology increase the fortune and profitability of banks on corporate performance of the organization.

1.9 Data Analysis Techniques

The techniques and method of data analysis and interpretation would be based on analysis of variance and tabulation will be used, this is to ensure that proper analysis at various variables are examined as exemplified in the hypothesis. It also ensure that every problem units of analysis of the research work has equal chance of being dually represented by the analysis. Pilot study will be conducted to pre –test the study schedule. A non- parameter test used was Chi-square test.

(x2)

Formula (x2) = X2 = (E-0)

E

1.10 Definition of Terms

As A means of familiarizing the prospective of this research work, has the following meaning of these terms:

Information System:

This is a group of interrelated and interdependent tools for processing, storing and distributing information.

Information:

A set of processed data, which is readily available for use and decision making.

Technology:

The scientific study and use of applied science

Performance:

The measure of the relative presentation of input needed to produce a given output.

Infrastructure:

The basic technological structure and facilities necessary for an information technology system to function effectively.

Application:

A special, purpose made program designed to perform a particular task.

Program:

A coded infrastructure showing the logical steps the computer follows to carry out a function.

Organization:

This is an organized body usually a business entity.

1.11 Summary

To test the hypothesis, Chi –square test method will was used to analysis the variability of the management, staff and the customer’s satisfaction regarding information technology on cooperate performance of an organization like Guaranty Trust Bank plc.

Hence it will have a positive effect on corporate performance of an organization such as Guaranty Trust Bank Plc.