The Mediating Effect of Management Accounting Systems on the Relationships between Contextual Variables and Organizational Performance

The Mediating Effect of Management Accounting Systems on the Relationships between Contextual Variables and Organizational Performance Siti Zaleha Abdul Rasid, Abdul Rahim Abdul Rahman, Wan Khairuzzaman Wan Ismail, Mohd Hassan Mohd Osman and Muslim Amin Accounting systems were found to differ from one situation to another and variables such as technology, organization structure and environment were used to explain the differences in the design and use of an accounting system. However, there has been a lack of empirical evidence on Management Accounting Systems (MAS) studies in the services sector, particularly the financial services sector. The objective of this study is to examine the mediating role of MAS in the relationship between perceived intensity of market competition, innovativeness and technological advancement on organizational performance in financial institutions. In this study, MAS is viewed in a broader aspect and it focuses on the four dimensions of MAS information characteristics namely scope, timeliness, integration and aggregation. The research method involved administering a questionnaire to 106 financial institutions listed on the Malaysian Central Bank s website and the respondents were the chief financial officer (CFO) of the institutions. Based on path analysis and Sobel s test, the results indicate that MAS mediates the relationship between competition and technological advancement on performance and it is actually resulting from the significant indirect effects on nonfinancial performance. On the other hand, innovativeness directly influences performance. The results suggest that as competition intensifies and technologies becoming more advanced, financial services institutions make greater use of their MAS information in formulating, implementing and monitoring their strategies, and the outcome is improved organizational performance. Field of Research: Management Accounting, Financial Services Siti Zaleha Abdul Rasid, International Business School, Universiti Teknologi Malaysia. Email: szaleha@ic.utm.my Abdul Rahim Abdul Rahman, International Islamic University Malaysia. Email: abdulrahim@iiu.edu.my Wan Khairuzzaman Wan Ismail, International Business School, Universiti Teknologi Malaysia. Email: m-wkhair@utm.my Mohd Hassan Mohd Osman, International Business School, Universiti Teknologi Malaysia. Email: m-hassan@utm.my Muslim Amin. International Business School, Universiti Teknologi Malaysia. Email: muslim.a@ic.utm.my 1

1.0 Introduction Financial liberalization and technological revolution intensify the competitive pressures among the financial institutions. In the liberalization effort, government provides more conducive business environment, in which while maintaining the safety and soundness of the sector, financial institutions are also given the flexibility to develop their own strategies to remain competitive. Globalisation forces financial institutions to be stronger in order to compete internationally better. In order to remain competitive, some financial institutions started to consolidate as mergers seem to be the best vehicle to realize operating cost efficiencies and profitability gains (Lissette, 1997). At the same time, advancement in technology allows financial institutions to develop new and efficient delivery and processing channels, as well as allows financial institutions to be more innovative in delivering new products and services. The complexity of the financial services business has also increased due to the emergence of the increasingly innovative products and distribution channels. This highly competitive environment prompts financial institutions managers to meet their customers expectations much more closely to ensure the survival and success of the business. Within this uncertain environment, the managers need more information for decision making. An appropriate information system can help managers satisfy their customers expectations and thus, achieve organizational goals (Damonte et al., 1997). Consequently, management accounting systems (MAS) is designed to provide sophisticated information for decisionmaking, improvement, and control in organizations (Atkinson et al., 2001). Well designed and appropriate MAS will assist managers to be more effective in decision-making which will then help organizations to improve their efficiency and remain competitive in the ever challenging environment. In order to meet the challenges of globalisation and liberalization, the addition of managerial accounting concepts and techniques to the existing financial reporting structures will enhance competitive edge among financial institutions (Rezaee, 2005). However, most of the previous researches on MAS are biased towards the manufacturing sector in developed countries. Due to the lack of research on management accounting in the service sector (Modell, 1996; Hussain, 2000; Sharma, 2002; Chenhall, 2003), particularly the financial services sector, the aim of this study is to examine the mediating role of MAS in the relationship between perceived intensity of market competition, innovativeness and technological advancement on organizational performance in financial institutions. In this study, MAS is viewed in a broader aspect and it focuses on the four dimensions of MAS information namely scope, timeliness, integration and aggregation. The paper starts with background literatures. Subsequent sections provide the development of hypotheses and a delineation of the research method. It is then followed by the discussion of the results and the last section concludes the paper. 2.0 Literature Review Management Accounting Systems (MAS) refers to the systematic use of management accounting to achieve organizational goals. The International Federation of Accountants 2

(IFAC, 1998) defines management accounting as the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information (both of financial and operating) used by management for planning, control and effective use of its resources. Thus, management accounting becomes an integral part of the management process in financial institutions, which provides information essential for (i) controlling the current activities of an organization; (ii) planning its future strategies, tactics and operations; (iii) optimizing the use of its resources; (iv) measuring and evaluating performance; (v) reducing subjectivity in the decision making process; and (vi) improving internal and external communication (IFAC, 1998). The MAS in an organisation is expected to be available to managers in an appropriate format and on demand to satisfy managers information needs (Govindarajan, 1984; Mia and Chenhall, 1994). MAS is actually part of management control systems (MCS) and it is considered as an organizational control sub-system device (Otley, 1980; Gul and Chia, 1994; Chong, 1996; Chenhall, 2003). Chia (1995, p. 812) defined MAS as an organizational control mechanism which facilitates control by reporting and creating visibility in the action and performance of its members. The information need of MAS for decision making, planning and control can be considered in terms of its general information characteristics that can be classified into scope, timeliness, integration and aggregation (Chenhall and Morris, 1986; Chia, 1995; Lal and Hassle, 1998; Bouwens and Abernethy, 2000; Moores and Yuen, 2001; Tillema, 2005; Agbejule, 2005). The scope of an information system consists of three subdimensions namely focus, quantification and time horizon (Gordon and Miller, 1976; Gordon and Narayanan, 1984; Chenhall and Morris, 1986). A broad scope MAS provides information which is externally focused (e.g. economic conditions etc), nonfinancial (e.g. customer preferences etc) and future oriented (e.g. probabilistic) (Chenhall and Morris, 1986; Gul and Chia, 1994; Choe, 1998; Bouwens and Abernethy, 2000). Timeliness of information refers to the provision of information on request and the frequency of reporting collected information. MAS with timely information would be able to report upon the most recent events and provide rapid feedback on decisions (Chenhall and Morris, 1986). Integrated MAS characteristics which may assist coordination would consists of information about the activities of other departments within the firm and information on the impact that decisions in one department may influence the performance of other departments. The information could relate to the inputs, outputs, the operating processes and the technology employed by other departments (Chenhall and Morris, 1986; Bouwens and Abernethy, 2000). Information aggregation deals with a variety of ways to collect or sum the data within periods of time or area of interest, such as responsibility centers or functional areas (Choe, 1998). Aggregate information represents summarized information that covers periods of time or diverse management area, while disaggregated information means too much detailed information that may include only one period or one functional area (Choe, 1998). MAS is considered sophisticated when the systems produce information that is broad in scope, timely, integrated and aggregated. The Balance Scorecard (BSC) is an example of MAS tools having all the four information characteristics (Tillema, 2005). While 3

activity based costing (ABC) systems provide information that is integrated and aggregated (Choe, 2004). The characteristics of the information produced should be considered in designing MAS in an organisation. As MAS facilitate decision-making within organizations, it should be tailored to an organisation s needs. Accounting systems were found to be different from one situation to another and variables such as technology, organisation structure and environment were used to explain the differences in the design and use of an accounting system (Otley, 1980; Emmanuel et al., 1990). The question of which contingency factors influence MAS sophistication has received considerable attention in the literature. The key contextual variables at the organizational level are environment, structure and technology (Emmanuel et al., 1990; Choe, 1998). The financial services sector in Malaysia is specially shaped by the forces of advances in technology, the trends in towards greater market orientation and financial innovation (BNM, 2005). In this study, perceived intensity of market competition represents the external environment. Structure was not specifically studied because most of the organizations studied were large in size and large in size has always been associated with decentralized structure (Lal and Hassel, 1998). Technological advancement represents the technology variable. This is an important variable as financial institutions are technology-intensive organizations (Shanmugam and Guru, 2003; Zhu et al., 2004). In addition, innovativeness has been added as an additional contextual variable. Innovativeness, in turn is related to Miles and Snow s prospectors, Govindarajan s builders and Mintzberg s entrepreneurs strategies (Chenhall and Morris, 1995). Prospectors are innovators, in which they are continually developing and shaping their product domain through innovation of products and services (Miles and Snow, 1978; Chong and Chong, 1997). However, contrary to prior research which focuses on certain typology of strategy, this study focuses on innovativeness as a key strategic attribute (Subramaniam and Mia, 2003). Consistent with contingency theory that postulates that particular features of an appropriate control system will be determined by the specific circumstances in which an organization operates (Otley, 1980; Dent, 1990; Otley, 1995), it is expected that competition, innovativeness and technological advancement will influence use of MAS information and MAS will influence organizational performance, as presented in Figure 1. FIGURE 1: Research Model COMPETITION INNOVATIVENESS MAS PERFORMANCE. TECHNOLOGICAL ADVANCEMENT 4

3.0 Variables and Hypotheses Development 3.1 Perceived Intensity of Market Competition and MAS The intensity or degree of competition in an industry depends on the interplay and strength of threats of new entrants, threats of substitute products and services, bargaining power of customers, bargaining power of suppliers and rivalry among existing competitors (Porter, 1985; Brignall and Ballantine, 1996; Mia and Clarke, 1999; Mia and Patiar, 2001). As financial institutions are constantly competing against the same group of customers, they are required to make continuous improvements to their existing products and services in order to remain competitive (Haron and Ahmad, 1998; Mia and Patiar, 2001). Financial institutions have to adopt appropriate operational and marketing strategies that can reduce costs and improve customer service in terms of speed and efficiency (Haron and Ahmad, 1998). Khandwalla (1972) asserted that the sophistication of accounting and control systems was influenced by the intensity of competition. When competition is intense, environment becomes more uncertain and thus, managers require more informative information for their day-to-day planning and control activities (Chong et al., 2005). Managers are compelled to make extensive use of information from the MAS in order to make more effective decision (Galbraith, 1973; Chenhall and Morris, 1986; Mia and Clarke, 1999). Hence, it is expected that perceived intensity of market competition will influence the use of MAS information. 3.2 Innovativeness and MAS Innovation can be broadly defined to encompass a range of types, including new products or services, new process technologies, new organizational structures or administrative systems, or new plans or programs related to organizational members (Damanpour, 1996). Innovativeness may have some implications on the MAS design in an organization. Innovation often involves trial and error with some uncertainty on the rate of success (Russell and Russell, 1992). To cope with uncertainty, decision makers normally collect more information (Galbraith, 1973; Gordon and Narayan, 1984). Thus, due to the uncertainty associated with innovation, organizations may require more sophisticated MAS information to facilitate decision making, planning and control. Broad scope information will provide a wider range of solutions to consider as it covers a diverse range of areas such as economic (e.g., total market sales, organization s share of that market, GNP) and non-economic (e.g., technological advances, sociological changes, demographic developments) aspects of the environment (Chia, 1995; Bouwens and Abernethy, 2000). The use of integrated information will reduce uncertainty regarding innovation as it encourages learning and the generation of ideas within departments in the organizations (Bouwens and Abernethy, 2000 and Atkinson et al., 2001). Aggregation of information enables managers to process larger quantities of information (Bouwens and Abernethy, 2000) which will help managers to optimize decision making (Gul, 1991). Timely MAS information will enable managers of 5

innovative organizations to continually adjust their activities in response to changes related to products, services or processes (Bouwens and Abernethy, 2000). Up-to-date information is important for product innovation in order to gain competitive advantages (Moores and Yuen, 2000). In fact sophisticated MAS information is useful for organizations to benchmark their innovation performance against competitors (Mia and Clarke, 1999). Hence, it is expected that organizations that are more innovative will use more sophisticated MAS information in terms of scope, aggregation, integration and timeliness. 3.3 Technological Advancement and MAS Generally, technology refers to how the organisation s work processes operate (the way tasks transform inputs into outputs) and includes hardware (such as machines and tools), materials, people, software and knowledge (Chenhall, 2003 pp. 139). Technology plays a significant role in the design and delivery of services, particularly in the financial services. As competition intensifies, profit margins are going to shrink and financial services firms will have no other options for maintaining margins than shifting to low-cost electronic transactions for continued earnings growth. The financial services is an information intensity industry, thus there is a relatively higher percentage of revenue spent on information and communication technologies (ICT) investment. In fact, the financial services industry was one of the first to adopt the Internet technologies and to innovate with e-business applications such as online brokerage, banking, and mortgage lending (Zhu, et al., 2004). The financial services industry requires technology to remain competitive and attractive, thus technology is always a key part of service operations (Shanmugam and Guru, 2003). Basically the use of IT in financial services can be categorized into front end transactional-oriented technology and back end office automation (Pennings and Harianto, 1992; Zhu et al., 2004). On the front end, IT is used to execute and record customer transactions, whether they are handled in persons or by the use of technology such as ATMs, telephones, point of sales systems, home banking services, electronic transfer funds, or on the Internet. Computer and telecommunication technologies are used for back-office automation (Pennings and Harianto, 1992). Funds are normally transferred among institutions via electronic transfer systems which handle huge amount of money and financial EDI systems are normally used to support information flows among institutions (Zhu, et al., 2004). Technological advancement has some implications on the types of MAS information required by firms. Large amount of planning information and future-oriented trend information is required to cope with frequent changes in technology (Nanni et al., 1992). Furthermore, large amount of control and coordination information is also required to cope with the increase integration and collaboration within and across business functions that goes along with the use of technology (Choe, 2004). Hence, it is proposed that technological advancement will influence the use of MAS. 6

3.4 MAS and Organizational Performance Properly designed MAS is likely to provide managers with information for setting appropriate performance targets, performance evaluation standards and feedback on performance leading to improved managerial performance (Mia, 1993; Stock and Watson, 1984; Moriarty, 1979) which in turn lead to improved organizational performance. The use of MAS information can enhance organization s performance by providing feedback on the effectiveness of their decision-making. Feedback information can assist managers in the organization to improve performance as it permits them to identify and correct errors and reduced task uncertainty by providing relevant information. This argument is supported by Ferris and Haskins (1988) who suggested that MAS in an organization provides managers with information for learning about problems, about outcomes (i.e., feedback) and about opportunities, leading to appropriate and accurate decisions in response, and such decisions are likely to result in an improvement of organizational performance. It is expected that MAS which is properly designed to suit the contextual requirements of an organization should promote effective managerial decision making, leading to an improvement in organizational performance. Provision of the necessary information by MAS assists managers in enhancing the quality of decisions they make, and consequently improving organization s performance (Chenhall, 2003; Mia and Chenhall, 1994; Mia, 1993; Chenhall and Morris, 1986; Gordon and Narayanan, 1984). 3.5 The Role of MAS on the Relationship between Contextual Variables and Organizational Performance The preceding sections considered the direct effects of perceived intensity of market competition, innovativeness and technological advancement on MAS and the direct effects of MAS on performance. Following Mia and Clarke (1999), if, the perceived intensity of market competition, innovativeness and technological advancement are related to MAS and MAS are related to performance, then the indirect effects of perceived intensity of market competition, innovativeness and technological advancement acting through MAS on performance may be proposed. H 1 : H 2 : H 3 : There is a positive indirect effect of perceived intensity of market competition, acting through MAS, and organizational performance. There is a positive indirect effect of innovativeness, acting through MAS, and organizational performance. There is a positive indirect effect of technological advancement, acting through MAS, and organizational performance. 4.0 RESEARCH METHOD The research method involved administering a questionnaire to financial institutions. This study took the whole population of banking and insurance companies listed on the 7

Malaysian Central Bank website. Questionnaires were sent to 106 financial institutions (including commercial banks, Islamic banks, merchant/investment banks, discount houses, development financial institutions and insurance companies). The choice of single industry in this study will minimize environmental heterogeneity (Dess and Davis, 1980; Moores and Yuen, 2003). The questionnaire was mailed to the Chief Financial Officer (or head of finance department) of each firm. The unit of analysis for this study is organization, thus top-level managers would be the most appropriate respondents. The pre-test also suggested that top-level managers would be familiar with all aspects of the questionnaire. 72 responses were received, representing a response rate of 68%. As shown in Table 1, the largest number of respondents was Head of Finance/General Manager Finance/Vice President Finance (37.5%), followed by Finance Manager (23.6%), CFO/Director of Finance (18.1%), Senior Manager Finance/Assistant Vice President Finance (15.3%) and others (5.6%). Majority of the firms (55 or 76.4%) had more than 100 employees. This indicates that the majority of the firms involved in this survey were large in size. Table 1: Profile of Respondents and Firms Background Variable Job Designation Number of Employees Categories Frequency Percentage CFO/Director of Finance Head of Finance/GM Finance/Vice President Finance Senior Manager Finance/ Assistant VP Finance Finance Manager Others Less than 100 100 499 500 999 More than 1000 No information 13 27 11 17 4 15 23 13 19 2 18.1 37.5 15.3 23.6 5.6 20.8 31.9 18.1 26.3 2.8 4.1 Variable Measurement Model Perceived intensity of market competition was measured with an eight-item instrument used by Mia and Clarke (1999) and Chong et al. (2005), which was developed based on Khandwalla (1977). Accordingly, respondents were asked to indicate the extent to which price, product range, service quality, new product introduction, advertising and promotion, technological change and change in government regulation have intensified competitive pressure as well as the importance of each item to the organisation s long term profitability on a five-point Likert scale, varying from (1) very low to (5) very high. Innovativeness was measured with a seven-item instrument adapted from Bisbe and Otley (2004), Das and Joshi (2006) and Damanpour (1991). Each respondent was required to rate his organization s level of innovativeness in comparison with the industry average on a five-point Likert scale, varying from (1) well below average to (5) 8

well above average. Technological advancement was measured using instruments used for financial services firms along three dimensions: (i) technologies in use, such as intranet, extranet, EDI, EFT etc.; (ii) front-end Web site functionalities; and (ii) back-end integration that measures the extent to which various information sources and databases in the back office are connected within and beyond a firm s boundary (Zhu et al. (2004). Accordingly, respondents were asked to indicate the extent to which their organizations use those technologies on a five-point Likert scale ranging from (1) not at all to (5) to a very great extent. Use of MAS information was measured based on Bouwens and Abernety (2000) and Chenhall and Morris (1986) but the respondents were asked to answer the extent of use of the MAS information, as it is actually the extent of use of MAS information that enhances decision effectiveness and ultimately impacts on performance (Chong 1996; Chong and Eggleton, 2003). Consistent with Chong and Eggleton (2003) and Agbejule (2005), each respondent was asked to indicate the extent of use of broad scope, timely, integrated and aggregated information which was available from their MAS for decision making, planning and control on a five-point Likert scale, varying from (1) not at all to (5) to a very great extent. Perceived organizational performance was measured based on instruments adopted by Mia and Clarke (1999) and Khandwalla (1972) with some modifications to suit the financial services sector. The respondents were asked to indicate the extent to which their organizations have been successful in attaining their planned targets by considering only those performance targets that are relevant to their organizations. The advantage of using these broad measures of performance is that it incorporates all aspects of business performance, including qualitative and quantitative and financial and non-financial measures (Mia and Clarke, 1999). The measures of the various variables were subjected to factor analysis. The PCA extraction method with varimax rotation was used to determine whether all the items in each variable were clustered together or not. PCA is a statistical approach that can be used to analyse interrelationships among a large number of variables and to explain these variables in terms of their common underlying dimensions (factors) (Hair et al., 2006). With PCA, the information contained in a number of original variables is condensed into a smaller set of variables (factors) with a minimum loss of information (Hair et al., 2006). One factor was extracted from perceived intensity of market competition variable. One factor was also extracted from the innovativeness variables. Two factors were extracted from the technologies in use variable and one factor was extracted from the front-end and back-end variable. However, these three factors of technological advancement were aggregated into one variable as all these factors are linked together (Zhu et al., 2004; Zhu and Kraemer, 2002). The three factors combined together reflect the advancement of technology in creating value for conducting financial services (Zhu et al., 2004). One factor was also extracted from each of the MAS dimensions. These four factors were aggregated to determine MAS. Two factors were extracted from the organizational performance variable. Reliability test was conducted on the factors (variables) extracted from the principal component analysis to assess the degree of consistency between multiple items of the 9

variable. The Cronbach s alpha value was used to test the reliability as shown in Table 3. The Cronbach s alphas of the variables were all above 0.80 which was considered good (Sekaran, 2000). Table 2: No of items and Cronbach s alpha Variables No. of Items Cronbach s alpha MAS Scope 6 0.927 MAS Timeliness 4 0.822 MAS Integration 4 0.890 MAS Aggregation 6 0.875 Perceived intensity of market 4 0.838 competition Innovativeness 7 0.919 Technological advancement 16 0.914 Organizational Non-financial 4 0.826 performance Organizational Financial performance 2 0.897 5.0 Result and Discussion Tests of the indirect effects of perceived intensity of market competition, innovativeness and technological advancement acting through MAS on performance were conducted through a path analysis and Sobel s (1982) test. This test is to examine whether the use of MAS information enables organizations to face the challenge of competition, innovation and technological advancement, which in turn results in improved organizational performance. A traditional path analysis approach using multiple regressions was used to compute the direct and indirect path coefficients. The path coefficients were equivalent to beta coefficients by first regressing non-financial performance (NFPER) and financial performance (FPER) on COMP, INNO, TECH and MAS which is represented by equation 1a and 1b respectively. The second step is to regress MAS on COMP, INNO and TECH as reflected in equation 2 below. Three multiple regressions were run, based on these equations: 1a. NFPER = Constant +B1COMP + B2INNO + B3TECH + B4MAS + 1b. FPER = Constant +B1COMP + B2INNO + B3TECH + B4MAS + 2. MAS = Constant + B1COMP + B2INNO + B3TECH + The results of the three regressions above are as follows: 10

Table 3 (a) Results of Regression Analysis for the effects of COMP, INNO, TECH and MAS on NFPER. Predictor Unstandardised Standardized Collinearity Statistics Variables Coefficients Coefficients Beta t-value Sig. Tolerance VIF (Constant) 1.666 4.487.000 COMP.038.045.417.678.789 1.267 INNO.341.468 4.275.000.772 1.295 TECH -.112 -.161-1.351.181.647 1.546 MAS.292.364 2.975.004.618 1.618 R 2 = 0.390; Adjusted R 2 = 0.353; F= 10.549; Sig. F = 0.000 (b) Results of Regression Analysis for the effects of COMP, INNO, TECH and MAS on FPER. Predictor Variables Unstandardise d Coefficients Standardized Coefficients Collinearity Statistics Beta t-value Sig. Tolerance VIF (Constant) 2.732 5.052.000 COMP -.139 -.133-1.055.295.789 1.267 INNO.269.296 2.320.023.772 1.295 TECH.003.003.025.981.647 1.546 MAS.236.235 1.649.104.618 1.618 R 2 = 0.173; Adjusted R 2 = 0.123; F= 3.460; Sig. F = 0.013 (c) Results of Regression Analysis for the effects of COMP, INNO and TECH on use of MAS. Predictor Variables Unstandardise d Coefficients Standardized Coefficients Collinearity Statistics Beta t-value Sig. Tolerance VIF (Constant).942 2.107.039 COMP.334.321 3.055.002.909 1.100 INNO.148.163 2.235.133.799 1.252 TECH.299.346 2.737.003.740 1.352 R 2 = 0.382; Adjusted R 2 = 0.354; F= 13.800; Sig. F = 0.000 11

Analysis was carried out to determine the significance of the indirect effects using Sobel s (1982) test. Baron and Kenny (1986) proposed to use Sobel s (1982) test to provide an approximate significance test for the indirect effect. The formula is as follows: Z ab = a * b / se ab or Z cd = c * d / se cd or Z ed = e * d/ se ed where se ab = (a 2 * se b 2 ) + (b 2 * se a 2 ) se cd = (c 2 * se d 2 ) + (d 2 * se c 2 ) se ed = (e 2 * se d 2 ) + (d 2 * se e 2 ) In this formula, a,b,c,d and e are the unstandardized path coefficient and se refers to the standard error. The path diagram can be shown in Figure 3. Figure 3: Path Diagram for Sobel Test (based on unstandardised coefficients) COMP a=0.334 se=0.105 TECH c=0.299 Se=0.096 MAS b=0.292 se=0.098 NFPER FPER INNO e = 0.148 se=0.097 d = 0.236 se=0.143 Based on the Sobel s (1982) tests, analysis of the indirect effects are as follows: 12

Table 4 Analysis of Indirect Effects based on Sobel s (1982) test Path/Indirect Effects COMP on NFPER via MAS TECH on NFPER via MAS INNO on NFPER via MAS COMP on FPER via MAS TECH on FPER via MAS INNO on FPER via MAS Indirect Effect Coefficients Std Deviations t-value p-value 0.334x0.292=0.0975 0.0448 2.1746 0.03** 0.299x0.292=0.0873 0.0405 2.1530 0.03** 0.148x0.292=0.0432 0.0318 1.3581 0.174 (ns) 0.334x0.236=0.0788 0.0538 1.4649 0.143 (ns) 0.299x0.236=0.0706 0.0484 1.4583 0.145 (ns) 0.148x0.236=0.0349 0.0312 1.1203 0.262 (ns) The results of the Sobel s (1982) test show that only the indirect effects of COMP and TECH on NFPER were significant. The indirect effect of INNO on NFPER was not significant. All the indirect effects on FPER were also not significant. The result shows that MAS mediates the relationship between COMP and TECH on organizational performance and it is actually resulting from the significant indirect effects on NFPER. There is not enough evidence to conclude that MAS mediates the relationship between COMP and TECH on FPER. There is also not enough evidence to conclude that MAS mediates the relationship between INNO and NFPER and FPER. Thus the results can be summarized as follows: H 1 H 2 H 3 Hypotheses There will be a positive indirect relationship between perceived intensity of market competition, acting through MAS and organizational performance. There will be a positive indirect relationship between innovativeness, acting through MAS and organizational performance. There will be a positive indirect relationship between technological advancement, acting through MAS and organizational performance. Results Partially Supported Not Supported Partially Supported 13

6.0 Conclusion The results suggest that when competition is intense, financial institutions have to equip themselves with MAS that can provide sophisticated information. The availability and use of MAS information will help them to formulate and implement strategies to cope with the competitive environment, and the outcome will be improved performance (Mia and Clarke, 1999). The findings also substantiate the importance of MAS for financial institutions operating in an e-business environment to improve performance. MAS has the potential to provide information, to cope with uncertainties that are triggered by the adoption of e-business, that results in enhanced organizational performance. There are two main uncertainties associated with the adoption of e-business that have some implications on MAS customers can easily switch to different service providers and technology changes quickly. Hence, to create value it is very important to provide good customer service. Broad scope MAS, that are non-financial in nature, such as the number of new Internet banking users and the time taken to process applications online, will help improve services. Benchmarking is also very important to make the services more attractive than those provided by competitors. As technology changes very fast, financial institutions have to also continuously innovate by leveraging on new technology to provide quick responsive products and services (Shah et al., 2007). System integration is essential to provide prompt services (Shah et al., 2007). Although MAS only plays a mediating role in the relationship between intensity of market competition and technological advancement on non-financial organizational performance, this study clearly contributes to the limited appreciation of the way in which the intensity of market competition and technological advancement and MAS, combine to enhance non-financial organizational performance. It is crucial to manage organizational non-financial performance as it is a leading indicator that will subsequently be translated into financial performance (Ittner et al, 2003; DeBusk et al., 2003; Ittner and Larcker, 1998). For example, Ittner and Larcker (1998) and Hussain et al., (2002) found that customer satisfaction measures are a leading indicator of accounting performance measures. Increased customer satisfaction leads to increases in sales and profit. As for the contingent variable of innovativeness, the results show that the relationship with organizational performance is mostly direct. The direct relationship between innovativeness and performance was reported in prior studies (see for example Das and Joshi, 2007; Hult et al., 2004; Deshpande and Farley, 2004). Although Sobel s (1982) test did not provide evidence of the indirect relationship, the results indicate that the role of MAS in mediating the relationship between innovativeness and organizational performance is somewhat important (for example, Mia and Clarke, 1999; Sharma, 2002). Innovation is normally carried out in the face of much uncertainty as asserted by Khandwalla (2006), thus requiring MAS to enhance decision making and for better performance. Hence, innovativeness seems to have direct and indirect effects on organizational performance and the indirect is through the use of MAS information. 14

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