Analysis of Information and Communication Technology on Service Innovation and Competitive Advantage: A case of Commercial Banks in Kenya.

Abstract

Competition in the banking sector has been heightened by the fact that, the cost of banking technology, once prohibitive, is no longer a barrier to entry into the industry. Because of developments in technology and general erosion of entry barriers into banking, it is easier for non-bank financial institutions to move into banking than banks to diversify out of financial services. The study examined how information and communication technology is adopted and managed to enhance service innovation practices and competitive advantage among commercial banks. The objectives included to ascertain whether information and communication technology adoption by commercial banks in Kenya enhances service innovation practices; establish whether service innovation practices enhances competitive advantage among commercial banks in Kenya; examine whether information and communication technology adoption is a strategic key in the attainment of comparative advantage; ascertain whether Commercial banks ICT strategic plan has supported business strategic plan in improving customer service and product offerings. The broadened understanding about service innovation as a critical organizational capability through which information and communication technology adoption can influence the competitive advantage of a firm. The study was limited to commercial banks within Kenya only and did not cover other financial institutions like investment banks, mortgage firms, and Micro-finance firms.  A survey was conducted on commercial banks in Mombasa. In the context of commercial banks, the study examined the effect of Information and communication technology adoption on competitive advantage through service innovation practices. A research framework and the associated questions were proposed. An empirical survey was conducted and questionnaires mailed to ICT Managers and Marketing Managers in thirty commercial banks in Mombasa, Kenya. Partial least square technique and Statistical package for social science (SPSS) technique were used to analyze the data. The study found that, first; Information and communication technology adoption has a positive and significant effect on service innovation in process. Second; Information and communication technology adoption has a positive and significant effect on service innovation in product. Third; Service innovation in process has a positive and significant effect on external competitive advantage. Fourth; Innovation in product has a positive and significant effect on external competitive advantage. Fifth; Service innovation in process has a positive and significant effect on internal competitive advantage, and finally; Service innovation in product has a positive and significant effect on internal competitive advantage. The study also found that many commercial banks have made moderate effort to align information and communication technology strategy with business strategy to improve customer service and product offerings.

Keywords: Communication technology, Innovation, Competitive advantage.