The effect of digitalization on company performance: A research on banking industry

Digitalization should make a sense for companies in regard to their main objectives of keeping alive and benefiting to stakeholders. The method to determine whether digitalization serves these goals or not is monitoring the change in the performance of company. With change in consumption habits, differentiation in customer expectations and increase in competition, companies have to understand digitalization, specify how they can get benefit from it, determine their strategies, design business models, processes and human resources structure and make corresponding investments. Banking is one of the most affected industries by digitalization. While development of digital applications, accessing to data and making order to banks anytime and anywhere, emergence of novel mediums of exchange, making of money transfers instantly with very low costs, reduction in the need of bank branches and branch staff, making of some transactions automatically, artificial intelligence, smart asistances, online support, virtual assistances and such applications are changing the structure of banking, development of some services by financial technology companies to the market and starting of some financial services by large companies holding huge customer data impose more burden and threat on banks which already are in a competitive environment. Banks, which could not abstain from digitalization by force of competitiveness, would have difficulty in continuing their existence, if they did not get a return in the meaning of performance. In this respect, it is a critical question for banks that whether digitalization has an affect on performance or not. In this thesis, the affect of digitalization on company performance was examined. In this context, a research on banking industry was conducted and details and results of this research were shared. Digitalization and company performance terms were widely defined and handled. Digitalization, technology, Industry 4.0, digital transformation concepts and their interrelatednesses were discussed and internet of things, artificial intelligence, machine learning, deep learning, cloud computing, robotic process automation, additive manufacturing, blockchain, cripto currencies, cyber security, big data, virtual reality, augmented reality, mobile technologies, social media and online trade and such digital technologies were widely examined. Digitalization levels reached in the world and in Turkey, were tried to be presented based upon the results of reports and researches published. Company performance was discussed in a wide context from the definition of performance to its meaning for companies and to how it is measured. Digitalization attempts in banking industry, which is at the focus of this research, developments in the world and in Turkey, measurement methods of performance in banking industry and performance of banks in Turkey were examined in detail. Researches offering a theoretical frame on the relations between digitalization (and digital transformation and Industry 4.0) and organization concepts were examined, major theories were determined and explained in terms of how they were approached in order to set up a theoretical substructure. Also, details and results of the researches carried out in the literature on the effect of digitalization, Industry 4.0, digital technologies and digital transformation on company performance (under the titles of performance, financial performance, economic performance, organizational performance, business performance, operational performance, supply chain performance, competitiveness and such) were shared. Researches specified in banking industry were discussed under a separate heading. In the research part of the thesis, perceived digitalization data obtained from 989 employees from 9 different banks quoted to the Istanbul Stock Exchange were analized with the comparison of 5-year financial performance data of these banks. For measuring perceived digitalization, the scale developed by Massachusetts Institute of Technology and Capgemini, which has 4 sub-dimensions and 32 questions, was used. Four sub-dimensions are digital focus, digital practices, digital talents and data access and collaboration. The validity and reliability of the scale were tested with confirmatory factor analysis and there were no problem encountered. Capital adequecy ratio, return on assets (ROA), return on equity (ROE), net profit per branch and net profit per employee data were used as representatives of performance. For determining the relationship, correlation analyses, for level of relationship and explaining power, regression analyses were used. A positive affect determined as a result in this research in accordance with the literature. All cross relationships between perceived digitalization and its sub-dimensions (digital focus, digital practices, digital talents and data access and collaboration) and financial performance indicators (capital adequecy ratio, ROA, ROE, net profit per branch and net profit per employee) were examined and discussed in detail. With regard to the research results, some suggestions were offered both for the company (and especially bank) managers and researchers. This research is one of the first studies, examining the relationship of digitalization and company performance in academic level at this detail and it is believed to make contribution to literature. Keywords: Digitalization, Industry 4.0, Digital Technologies, Company Performance, Banking