Effects of Organizational Capabilities on Organizational Performance: Empirical Evidences from Indian Banking Industry

Abstract

On the basis of the hierarchy of capabilities, various organizational capabilities such as information technology (IT) capability, human IT capability, knowledge management (KM) capability (lower-order capabilities) and strategic IT-business alignment capability, organizational agility (higher-order capabilities) usually influence the organizational performance. However, in the extant literature there is uncertainty and debate about the conceptualization of these relationships. This study intends to investigate the effects organizational capabilities on attaining organizational agility, which in turn leads to enhanced organizational performance. Thus, primarily this research addresses four objectives i.e., first, to investigate the IT capability-agility-performance linkages, second, to examine the human IT capability-agility-performance relationships, third, to assess the IT capability-KM capability-agility-performance associations, and fourth, to explore the strategic IT-business alignment capability-agility-performance connections. All these organizational capabilities have been operationalized based on the concepts of resources-based-view (RBV), knowledge-based-view (KBV), and dynamic-capability-view (DCV) principles. RBV deals with valuable, rare, inimitable and non-substitutable (VRIN) resources, and in this respect IT and human IT capabilities have been studied. Further, KBV theory asserts that knowledge is the most critical strategic resource, and based on this the KM capability has been examined. The DCV rationale takes into account for dynamic and fast-changing environmental uncertainties on the basis of which strategic IT-business alignment capability and organizational agility have been assessed. An integrated model has been developed depicting the associations among the lower-order capabilities, higher-order capabilities, and organizational performance.
For effective operationalization of the study variables both primary and secondary data have been collected for this study. This research utilizes a matched-pair survey design to collect responses from the business and IT executives of various public and private sector banking firms functioning in Odisha, a state situated in eastern India. The scope of this study is limited to these respondents working in the middle to senior level of management. The business executives constitute the general managers, deputy general managers, assistant general managers, etc. and the IT executives comprised of chief information officers (CIOs), IT directors, IT project managers, etc. This study has utilized both the online and offline methods to distribute a total of 950 numbers of structured questionnaires among these participants. The business executives were contacted in person and the questionnaires were distributed using hand delivery method. The contact information and e-mail addresses of the IT executives were collected from them and the questionnaires were sent using online survey forms. Out of 950 numbers of questionnaires 643 numbers of valid questionnaires were returned containing 323 and 320 responses from business and IT executives respectively. After eliminating the unmatched data, the final sample size was calculated to be 300 representing 31% response rate. These collected responses were analyzed using the SPSS (version 20), AMOS (version 20), and SPSS-PROCESS Macro. The proposed research models were validated by means of various statistical methods such as multivariate techniques and structural equation modeling (SEM).
This research greatly contributes to the existing literature with the key findings such as, first, IT capability is an essential organizational capability that enables banking firms to be agile and facilitates greater performance in the long run. Second, although, in recent times banks are significantly investing in IT infrastructure, the effectiveness of IT investment needs to be appropriately channeled for fostering and developing necessary IT capability to augment agility and performance. Third, akin to IT capability, human IT capability is an important organizational capability that enhances the IT personnel’s skills/expertise so as to augment agility and generate greater performance. Fourth, organizational IT investment should more focus on building necessary technology management skills of the IT personnel to develop effective market intelligence for quicker identification of changes in customers’ preferences and competitors’ strategies. Fifth, KM capability complements IT capability and in the face of uncertain environments, banking firms need to utilize IT and KM-based resources to attain agility and IT-enabled as well as KM-enabled performance. Sixth, strategic IT-business alignment is a dynamic capability that enables the banks to develop coherence between the resources, competencies, and capabilities with an aim to improve agility and performance. Seventh, when environmental uncertainties are higher, the strength of the relationship between strategic alignment capability and agility is diminished due to various resource constraints that the IT and business units face in developing economies.