Effect Of Investment In Business Process re-engineering On Financial Performance Of Banks Listed At The Nairobi Securities Exchange

Abstract

Despite the heavy investment in Business Process Reengineering; high cost to income ratio, lengthy and manual processes especially for accessing loans, cash deposits, bureaucracy and chaotic downsizing; banks closure have been witnessed in the listed banks at the Nairobi securities Exchange. There is therefore a need to establish whether investment in Business process reengineering has a positive or negative effect on organisation financial performance. There exist little research in this area in Kenya and this study sought to fill on the existing knowledge gap. The main objective of the study was to establish if there exists any relationship between investments in the technical, infrastructure and value layer of Business process reengineering and financial performance. Financial performance which measurescost to income ratio formed the dependent valuable. The effect of each investment layer of business process reengineering formed the independent variablesmeasured using expenses on the technical, infrastructure, and value layers of business process reengineering. Descriptive research design was adopted for the study. Census approach was employed for the choice of population hence all the eleven listed banks at the Nairobi Securities Exchange were involved in the study. Panel data was used for this study and was drawn from the audited financial reports of the listed banks over a period of 7 years, from the year 2010 to 2016.Random effects panel regression showed that all variables, except value, were significant at the 5% level. The regression coefficients imply that a unit increase in technology investment would increase the CIR by 13.5% holdingall other variables constant; while a unit increase in infrastructure investment would decrease CIR by 79% holding other variables constant. Moreover, the constant 0.516 shows that the level of CIR in the absence of the effect of the independent variables is 51.6%. The p value of the ANOVA test was 0.96%, implying that the overall model was also significant at the 5% level. It was therefore concluded that investment in technology and infrastructure, has a significant effect on the cost to income ratio. However, there is no significant effect of investment in value on the cost to income. Findings from this study can be used for management and policy decisions in the banking sector as well as at the government level. The study having achieved its objectives recommends area of further research on the privately owned banks so as to establish if the trend is similar across the entire banking sector.