Chapter 1 Background of Study

1.1 INTRODUCTION

This chapter discusses an overview of this study which is commercial bank innovation. It is widely acknowledged that Innovation plays a significant role in

improving productivity. Similarly important, is the rate at which innovations are distributed through an economy. Faster distribution means immediate impact and

hence a higher social return on the initial investment.

1.2. COMMERCIAL BANK INNOVATION PERFORMANCE (Important, Issues problem, Data latest)

Dharvintharan, K. (2018). Commercial bank performance in digital era: evidence from Malaysia (Doctoral dissertation, Universiti Utara Malaysia).

Ismail, A., & Bakar, M. S. (2017). Relationships Between Information Technology Infrastructure And Innovation On Performance Of Banks In

Malaysia. Journal of Information System and Technology Management.

IMPORTANT

Commercial banks play a key role in the banking industry in Malaysia; they are the main fund supplier, according to Sufian, Kamarudin, and Nassir (2016).

Commercial banks have traditionally accepted deposits from depositors, providing loans or financing, custody services, and bank guarantees, all of which are

included in retail banking services. With the passage of time, commercial bank services have expanded to include bank acceptance, participation in the foreign

exchange market, treasury services, and remittance services (Sufian et al., 2016). It allows for continual money circulation in the economy by investing and

lending money in this way.

The commercial bank's profitability is also essential for enabling progressive growth since it has a significant impact on economic growth. Due to the volatility of

global commerce, the drop in commodity prices, and Malaysia's massive debt, the 11th Malaysia Plan (11MP) confronts several obstacles in its implementation

in Malaysia. The 11MP aims to foster a sustainable growth, which might enhance productivity, expand investments and exports, and stabilise the fiscal position,

notwithstanding the current macroeconomic circumstances. Accordingly, banking is projected to play a key role in financing the economic activities that will be

done throughout the Plan period, which will in turn contribute to stimulate economic growth. If the Malaysian banking system performs efficiently and

effectively, the 11MP toward 2020 might be attained.

ISSUES PROBLEM
Ismail, A., & Bakar, M. S. (2017). Relationships Between Information Technology Infrastructure And Innovation On Performance Of Banks In

Malaysia. Journal of Information System and Technology Management.

Due to the obvious increasing number of issues in the global business world, all businesses must develop strategies to stay up with the quick changes and

challenges. In terms of information systems and technology, banking has been a hotbed of innovation (Shu & Strassmann, 2005). New technologies, for example,

have provided new communication routes, which banks have swiftly embraced. In addition, sophisticated data analysis approaches are now being utilised to

assess risk in credit approval (Huang, Chen, Hsu, Chen, & Wu, 2004) and fraud detection (Huang, Chen, Hsu, Chen, & Wu, 2004). (Ngai, Hu, Wong, Chen, &

Sun, 2011).

Evidently, the contemporary corporate climate has been described as hypercompetitive, particularly for goods and services that rely on innovation. As a result,

banks have faced rising competition due to constantly changing client demand. This circumstance compelled banks to cultivate an entrepreneurial culture that

fosters innovation and anticipates future commercial prospects. In other words, in order to survive and expand, banks must consider all of their customers' wants,

input, and expectations while producing goods and services (Al-Swidi & Mahmood, 2011). Furthermore, they are obliged, more than ever, to guarantee that their

services and products are of good quality and have an acceptable innovation profile.

1.2.1 KNOWLEDGE MANAGEMENT SUCCESS (Important, Issues problem, Data latest)

1.2.1.1 Structure

Kunthi, R., Sensuse, D. I., & Tobing, R. P. (2017). Critical Success Factors of the Implementation of Knowledge Management at PT XYZ. Advances in Economics, Business

and Management Research, 55, 29-35.

IMPORTANT

It is crucial to consider organisational structure while implementing knowledge management in commercial bank innovation since the structure of the

organisation may either hinder or facilitate the process of implementation. Apart from that, organisational structure may influence how workers operate as well as

how information is developed and disseminated within the banking industry. The interaction between workers, the exchange of information, and the way

decisions are made will all be influenced by the organisational structure.

A centralised organisational structure separates the management from his or her subordinates. Employees find it difficult to engage with one another, develop

their capacities, progress, create, and share their ideas as a result of this organization's organisational structure. It has been stated by Zheng that the impediment to

a continuous information flow would hinder the application of knowledge management practises.

Knowledge management may be made easier by the use of a mix of centralised and decentralised organisations. This combination creates a new organisational

structure that includes a chief knowledge officer, steering committee knowledge management control centre, knowledge management department, or research and

development, and a corporate library. The application of knowledge management is aided by the organization's organisational structure, which is beneficial.

1.2.1.2 Culture

IMPORTANT

Innocent, O. (2015). The performance of commercial banks: The role of organizational culture as a mediator and external environment as a moderator (Doctoral

dissertation, Universiti Utara Malaysia).

The development and maintenance of a strong organisational culture is essential for commercial banks in order to be entrepreneurially minded, market-oriented,

and strategically positioned. As a result, the purpose of this research was to examine the mediating and moderating impacts of organisational culture and the

external environment on the link between corporate entrepreneurship, market orientation, strategic orientation, and the performance of Nigeria's commercial

banks. A self-reported questionnaire was used to gather data from 297 bank managers, and SPSS version 19 was used to conduct the analysis of the data. Results

showed that corporate entrepreneurship, market orientation, and strategy orientation were all positively and substantially associated with organisational success.

Further investigation revealed that the organisational culture of cooperation was a mediating factor in the link between corporate entrepreneurship, market

orientation, strategic orientation, and overall organisational success. Another finding was that the external environment (competitive intensity) had no influence

on the link between corporate entrepreneurship, market orientation, strategic orientation and organisational success. This resulted in the conclusion that, despite

the fact that organisational performance was found to be positively and significantly related to corporate entrepreneurship, market orientation, and strategic

orientation, the effects of these factors on organisational performance will be greater if organisations develop and maintain a strong organisational culture of

teamwork over time, especially in the face of competitive challenges.

ISSUES PROBLEM
Umar, H., & Dikko, M. U. (2018). The effect of internal control on performance of commercial banks in Nigeria. International Journal of Management

Research, 8(6), 13-32.

Pursuant to Ayagre, Appiah Gyamerah, and Nartey (2014), internal control ineffectiveness is one of the difficulties facing the banking sector, and this has

enabled rogue traders to create massive financial losses to these institutions. Significant non-performing loans, lack of transparency, and insufficient capital were

among the many contributing factors to the financial sector's crisis. Weak internal controls and ineffective or compromised external audit also played a significant

role in the crisis that engulfed the sector, particularly from the early 1990s until mid-2004, and were particularly prevalent during that time period (Adeyemi &

Adenugba, 2011). Despite the changes in the banking industry, a breakdown in the systems of internal control in the banks has developed, resulting in regulatory

failures and poor corporate governance (Agbonkpolor, 2010).

Take, for example, the results of the stress tests conducted by the Central Bank of Nigeria (CBN) on commercial banks in 2009, which revealed that eight out of

the country's 24 commercial banks were unhealthy, necessitating the CBN's intervention through the injection of 620 billion nairas in liquidity into the banking

system (Sanusi, 2010). The efficacy of an organization's internal control system is defined as the amount to which the organisational system contributes to the

attainment of the organization's corporate goals and objectives. Profit-driven companies such as commercial banks have objectives and goals that are tied to both

financial and nonfinancial performance.

1.2.1.3 Technology

IMPORTANT

Dharvintharan, K. (2018). Commercial bank performance in digital era: evidence from Malaysia (Doctoral dissertation, Universiti Utara Malaysia).

New technologies, such as the Local Area Network (LAN), are essential in order to stay up with market demand in the banking business, particularly commercial

banks, which rely heavily on LANs. In banking, LAN serves as a launching pad for the use of technology. Banking information may be consolidated and

managed via this system's link to other bank branches. The bank began developing new financial instruments with new technological innovation and connection

in the early years of the year 2000. They came up with a service that allows you to access your bank account from any location. It's also known as online banking,

and there have been a few additional features added to it throughout the years. Eventually, internet money transfers will be available with an "immediate" option.

Besides, bank customers believe that banking technology makes their jobs easier and saves them time when compared to conventional banking methods.

Furthermore, customers are typically drawn in by its appealing features and applicability, which increases the likelihood of attracting new customers. The use of
banking technology in the banking industry ensures that financial products are less expensive and available 24 hours a day, 365 days a year. As a result, the

reliance on branch banking is decreasing. These considerations show the growing pressure on banks to use technology-based instruments for their clients. The

increased demand for these types of services adds significantly to the banking industry.

ISSUES PROBLEM

Njenga, L. M. (2019). Technological Innovation And Performance Of Commercial Banks In Kenya (Doctoral dissertation, University of Nairobi).

Customers have grown more linked as a result of the advancement of technology, which has resulted in an ever-increasing interaction between banks and their

customers, causing banks to embed themselves in their customers' lives in order to satisfy their expectations. However, studies have shown that banks continue to

struggle with technology (Berzin, singer & Chan, 2015). Financial technology organisations are said to have used technology to provide clients with simple-to-

use, appropriate, and cost-effective goods and services.

Studies undertaken in India, for example, reveal that technology-based services in the banking industry failed owing to socioeconomic, legal, technical legal, and

infrastructural factors (Mohanty, 2011). According to Smith, Fresseli, and Thomas (2014), the sluggish rate of popularity in technology usage by banks is due to a

lack of carly broad acceptance of technology, as seen by older generation internet use and a lack of security and confidence in technological tools in the banking

business. Besides, Rahi and Abd Ghani (2018) investigated the perceived security of technology and gaming features within electronic banking in Malaysia, and

the data utilised were acquired from a sample of 398 commercial bank clients using a convenience-sampling approach.

As banks spend extensively in new channel design, many other elements deserve consideration. For instance, a lack of awareness of underlying client attitudes,

their current transaction behaviour, and insufficient scientific research makes it difficult to devise techniques to influence customer behaviour (Das, Verburg,

Verbrack, Bonebakker, 2018). Despite advancements in technological innovation, commercial banks are still need to maintain records in order to facilitate

transaction within their system. While work is being made to reduce complications, back offer capabilities remain limited and inefficient, with electronic

exchange requiring an extended period of time to settle and accommodate.

1.2.1.4 Leadership

IMPORTANT

Kasuni, J. S., Mandere, E. N., & Njeru, P. W. (2022). Investigating influence of strategic leadership on financial performance of commercial banks in Kenya. International

Academic Journal of Human Resource and Business Administration, 3(10), 313-328.

Strategic leadership is based on a leader's ability to persuade followers to work willingly toward the organization's common objectives (Rowe & Nejad, 2009).

Strategic leadership is defined by three pillars: identifying the organization's vision and objective, developing personnel capability, and effective resource

management.

Commercial banks continue to play a key role in mobilising and distributing resources from surplus units to deficit units. The accomplishment of this job

necessitates that commercial bank, which operate in a competitive environment, have a specific focus and a set of methods geared to meet that aim. Corporate

governance is incomplete without a strategic leadership plan, which aids commercial banks in achieving their long-term objectives.

Numerous firms' inability to meet their profitability goals may be linked to a lack of strategic leadership abilities or a lack of application of strategic leadership

skills (Carmeli, et al, 2011). The competitive environments in which commercial banks operate necessitate that the corporate level cadre of management be

equipped with strategic leadership knowledge and flexibility to recognise viable opportunities for committing the banks' limited resources, as well as to recognise

when strategic decisions are not in the best interests of shareholders and other stakeholders and redirect resources to more profitable ventures (Pierce &

Robinson, 2011).

Strategic Leadership is critical now that shareholders and other stakeholders are aware of their rights and interests. To meet the ever-increasing expectations of

shareholders and other stakeholders, corporate management must adopt strategic leadership to connect resources to goals (Carter & Greer, 2013). Shareholders,

management, the corporate board, and other stakeholders comprise the corporate governance framework around which commercial banks operate on a daily basis

(Acharya, 2013). Effective strategy development and execution necessitates that top-level decision makers be gifted with both administrative and strategic

leadership qualities, allowing them to act as stewards without compulsion in accomplishing the banks' objectives.

ISSUES PROBLEM

Kurdi, B., & Alshurideh, M. (2020). Employee retention and organizational performance: Evidence from banking industry. Management Science Letters, 10(16), 3981-3990.

There are challenges that occur when it comes to maintaining intact leadership in a company, particularly in commercial banks. People are a valuable resource for

any business, and a company's success or failure is often tied to its ability to recruit, retain, and appropriately compensate bright and skilled employees. Retaining

competent people may be a significant source of benefit for any firm. Nonetheless, when a firm works to retain its people, many hurdles must be faced (Barney

1991; Pettman 1975; Wernerfelt 1984). In general, innovative individuals are encouraged to remain, while failing, low-productivity staff are urged to depart. If it

can be counted, the firm should retain personnel who contribute favourably to the company's worth and profitability while also having a greater beneficial

influence on the organisation.

1.2.2 KNOWLEDGE MANAGEMENT PRACTISE(Important, Issues problem, Data latest)

how knowledge management effect commercial bank innovation.

1.2.2.1 Knowledge Recognition

Al-Dmour, H. H., Asfour, F., Al-Dmour, R., & Al-Dmour, A. (2020). The effect of marketing knowledge management on bank performance through fintech innovations: A survey

study of Jordanian commercial banks. Interdisciplinary Journal of Information, Knowledge, and Management, 15, 203.

IMPORTANT

In the current time, when organisations and individuals live in a "knowledge-based society," where knowledge is the most important source of quality and power,

knowledge is frequently quoted as being powerful. This becomes an unassailable truth as organisations and individuals live in a "knowledge-based society"

(Lungu, 2019). Scholars in the fields of management and marketing now recognise that the capacity to generate and use information is a key source of a

company's improved performance (Fidel et al., 2016; Muddaha et al., 2018). Knowledge fosters awareness and competence, which serve as the foundations for

achieving economic objectives.

Greater usage of technology in commercial banks alludes to a sector that is utilising knowledge management, which is suitable for the purposes of this research.

Banks have recognised the critical role that knowledge management plays in establishing a competitive advantage in today's market. While disruptive innovation

has the potential to empower the commercial banks to face unprecedented challenges, such as the decline in the value provided to clients and shareholders as a

result of innovative delivery services/technologies that replace outdated ones, it has the potential to harm the industry as a whole. In contrast to existing

services/technologies, these innovations should be substituted by ones that provide more benefits, such as those that are more valuable to the customer and easier

to access and afford; this will make them available to much larger segments of customers who may have previously been ignored by current competitors (Bolen

et al., 2009; Wessel & Christensen, 2012).

1.2.2.2 Knowledge Acquition

1.2.2.3 Knowledge Transformation

Al-Dmour, H. H., Asfour, F., Al-Dmour, R., & Al-Dmour, A. (2020). The effect of marketing knowledge management on bank performance through fintech innovations: A survey

study of Jordanian commercial banks. Interdisciplinary Journal of Information, Knowledge, and Management, 15, 203.
Most organisations increase their creative measures to boost performance and profits. It requires new techniques to manage knowledge inside the organisation

and use it in various processes. In other words, innovation is the introduction of new methods, techniques, or processes into the production chain to benefit

consumers in terms of goods and services (Oliva & Kotabe, 2019). Financial innovation clearly involves new financial institutions, technology, instruments and

tools, procedures, products, and services. Online banking, phone banking, and other ICT applications are examples (Edwards-Schachter, 2018). A broad range of

new financial software programmes, products, and services are included in the phrase digital finance innovation, according to Gomber et al. (2017). Korir et al.

said something similar (2015). They said that Fintech innovation is about bringing new tools that financial institutions may use to better serve their consumers.

By incorporating artificial intelligence, big data, blockchain, crowd financing, digital payments, etc. into the commercial banks, Desai et al. (2019) claim that

Fintech is revolutionising the banking industry.

A broad variety of financial sectors are covered by Fintech. A few examples of these are money transfers and remittances, savings and investment plans for

individuals, commerce and invoice financing. Fintech services may be made accessible to major corporations, small businesses, and people alike. Also included

in Fintech innovation are varied financial processes such as capital market activity and banking system connection, credit scoring, asset securitization, risk

management and trade processing; according to Klapper and colleagues (2016). In addition, it covers other financial procedures, including as reporting, customer

service, collections, and recovery, as well as compliance with the so-called Anti-Money Laundering regulations.

1.2.3 KNOWLEDGE APPLICATION (Important, Issues problem, Data latest)

1.2.3.1 New Technology

1.2.3.2 Information Processing

Significant of study (Summary important from background of study)

Problem Statement (Summary issues. Problems from background of study)