Application Modernization and Business Agility in Banking

Introduction

Application modernization refers to the redefinition of a business's software system so that it aligns with modern business needs and fulfills newly arising customer demands (Johnson and Mulder, 2015). The refactoring of an application should be carried out in a way that reduces business costs, producing maximum benefit for both customers and the business itself. Accordingly, codebase quality and application feature sets are becoming central concerns in modernization efforts. Keeping up with changing customer preferences, achieving quickness in product and service delivery, and creating an innovative customer experience are all priorities that organizations must address. Organizations must therefore be thoughtful about deploying application modernization in order to enlarge business opportunities, facilitate customer satisfaction, augment sales, and expand profits.

This paper presents a research proposal focused on the following research question: examining the effect of application modernization on business agility in organizations, specifically within the banking sector. The three hypotheses developed for this purpose are:

The primary recipients of this research are the academic institution and pertinent staff, along with the thesis supervisor. Additional recipients include banking industry personnel who may reduce their costs by recognizing the increased pressures of globalization and global disruptions — such as pandemics — that impose extra costs and heighten the need to deliver excellent digital services to clients during times of uncertainty. Financial institutions are consistently driven to search for new ways to innovate and modernize their legacy applications so that a revolutionized IT infrastructure can strengthen their functionality and service delivery.

Recent research has placed increasing emphasis on business agility — a firm's capacity to adapt to new market changes, whether in the form of shifting consumer demand, new competition, or emerging information technology resources that may introduce uncertainty. Businesses must be able to handle the turbulence arising from such situations. Mathiassen and Pries-Heje (2006) stress the significance of infusing IT into businesses and building strong foundations for future preparedness. Firm-level and business-level analysis following IT infusion for service enhancement should align with broader business strategy in order to keep workflows smooth, minimize disruptions, and improve agility in delivering quicker service to consumers. After deployment, supply chain management should be streamlined, with clearly defined roles and responsibilities.

Application modernization involves agile development practices that businesses have increasingly adopted, bringing with them both challenges and benefits. For example, firms generally regard agile methods as conducive to improving business performance; however, agile and lean software development approaches have also introduced several obstacles during transformation (Dikert, Paasivaara, and Lassenius, 2016). A systematic literature review of 52 publications based on numerous industrial cases identified 35 self-reported challenges and 29 success factors, all hinging on salient features of software development that drive business agility.

Several recent articles underscore the importance of integrating information technology in service-sector businesses such as banking. One such study addresses business agility and the infusion of IT in service organizations, noting that managers regard IT as one of the most crucial support systems during times of uncertainty (Oosterhout, 2010). Although IT cannot eliminate uncertainty, it can help minimize risk, cope with unpredictability, and respond to changing consumer preferences. It enables new product innovation and eliminates delays that might cause customers to switch to competitors. A competitive advantage is secured when less time is required to bring products and services to market. IT systems can also be relied upon to forecast service demand, build flexibility into offerings, and distribute those offerings on schedule. As this body of research documents, new IT applications built on modernized infrastructures still require time for deployment and carry inherent risks and challenges.

Literature Review

Retail banks have recently undertaken digital transformation; however, this process is frequently misunderstood, as it entails risks alongside its benefits. Krasonikolakis, Tsarbopoulos, and Eng (2020) employed a grounded theory approach — conducting interviews with senior banking professionals — to explore the effects of digital transformation on retail banking. Their findings indicate that using digital transformation to improve business performance in banking is not as straightforward as expected. Change must be implemented comprehensively, encompassing organizational culture, policies, institutional structure, and the technological interrelationship with a regulatory framework.

The application of next-generation technological transformation through application modernization — including cloud computing in financial services — has also been studied by McKinsey & Company, whose research again highlights challenges and possible solutions for IT infrastructure modernization (McKinsey & Company, 2020). That report stressed banking agility while keeping costs and risks low, emphasizing that infrastructure cannot be digitally transformed without carefully rethinking issues related to marketing timelines, security, customer confidentiality, service quality, reliability, and employee satisfaction and retention.

Modernization of legacy systems and applications in the banking and financial sector primarily involves transforming mainframe software into modern equivalents. Modern technology provides problem-solving features to customers (Quinn and Hirsch, 2020). One notable method involves application programming interfaces (APIs), which have been favorable for both customers and banks by enabling fast service delivery. Fintech has provided prominent services such as mobile payments, automated investment applications, online payments, and cryptocurrency, contributing to some of the fastest IT-based financial diversifications in competitive markets (Nguyen, Dinh, and Nguyen, 2020). Nevertheless, banking sector experts have identified challenges in incorporating Fintech and similar adaptations in application modernization, particularly in Vietnam. The authors cite five challenge categories that Vietnamese companies have encountered: issues related to the company itself, legal frameworks, infrastructure, human resources, and customers.

Certain gaps in the literature motivate the currently proposed research. First, there is limited recent data on this topic — specifically regarding business agility and application modernization in the banking sector. Existing research tends to focus on IT infusion and its impacts on the service industry broadly, or discusses challenges and risks in isolation. The effects of application modernization on reducing business costs in banking, on the number of services offered to customers, on efficiency of customer service, and on the time available to bring those services to market have not yet been systematically examined in the context of service upgrades in the banking industry. Furthermore, studies incorporating the views of bank managers through quantitative and correlational research methods are scarce.

The study design is quantitative. A quantitative survey would be conducted among bank managers who have either observed improvements in their bank's services following application modernization, or who hold informed opinions on the expected outcomes of such modernization. This approach allows measurement of the effects of application modernization in terms of the dependent variables specified in the hypotheses.

Since this is a correlational study with independent and dependent variables, quantification is essential. The quantified survey results will help measure the extent to which bank managers believe application modernization is valuable for improving customer service and reducing costs. The independent variable is the adaptation of application modernization, while the dependent variables are time to market, cost reduction, and the number of services offered. Awareness of these variable relationships and their accurate measurement is central to the research design.

The researcher conducting this study requires familiarity with correlational research methods, quantitative survey design, data extraction, statistical analysis, and interpretation of quantified data. Relevant academic coursework in qualitative and quantitative methods of data collection provides a foundation for this work. Prior professional experience within a banking environment — including direct work with bank applications and software and familiarity with customer service delivery methods — further supports the researcher's capacity to contextualize and interpret the survey data.

The target population consists of banks that have adopted application modernization technology in some manner and have introduced changes aligned with new technology within their business culture. A sufficiently large target sample is needed to identify enough candidates for survey participation. Bank managers — including financial and IT managers — are selected as the primary respondent group because they are closest to policy formulation within financial institutions and are responsible for overseeing operational functions, projecting sales, and ensuring high-quality customer service through the integration of new technology. Although employees could have been included, the viewpoints of those who oversee operational functions and shape the working culture were deemed more directly relevant to the outcomes of application modernization.

Since 10% of the entire population is considered the recommended minimum sample size, it is anticipated that at least 30–40 business decision-makers in each category — such as bank managers and financial and IT managers — will be included in the sample (Bullen, no date). Invitations will be sent via email to bank branches across the city so that managers from more than 30 different bank organizations can be included. Research ethics will be rigorously observed. Informed consent and confidentiality assurances will be communicated through the initial email contact (Yip, Han, and Sng, 2016).

Data collection will be conducted via email, as this is the most convenient method for managers to complete questionnaires at a time of their choosing. A one-week response window will be provided to encourage thorough, considered responses and to reduce haphazard answers that might introduce response bias. Maintaining a high response rate is recognized as essential for study reliability and for minimizing nonresponse bias (Fincham, 2008).

As the study employs a quantitative survey, statistical analyses will be conducted following editing and coding of the data. A 7-point Likert scale will be used to capture managers' assessments of the effectiveness of application modernization within their bank facilities. Responses will be quantified and analyzed using measures of central tendency and variation in statistical software such as SPSS. Higher scores indicating significant relationships between the dependent and independent variables will reflect a stronger effect of application modernization on the model's dimensions.

Four types of validity will be ensured to reduce potential response bias or error in the survey data: face validity, content validity, internal validity, and external validity (Ball, 2019). Because online surveys are subject to several well-documented disadvantages, validity will be certified before data collection begins to ensure that results are reliable and interpretable.

The time and schedule breakdown of the proposed research is presented in the appendices. Table 1 in Appendix 1 specifies the weeks and months in which each research activity will take place. Report writing itself requires the most time, beginning from the outset with topic selection and encompassing the introduction, hypotheses, variables, literature review, and methodology. These elements will be drafted concurrently with the execution of research activities so that every detail and step is recorded as it occurs. After proofreading and finalization, including a detailed conclusion, the final report submission is expected at the end of June 2022.

Research Methodology

Project costs will be minimal, as the survey will be distributed by email, eliminating transport costs, petrol expenses for visiting bank offices, and photocopying costs. However, the known pitfalls of online surveys — particularly with respect to reliability and validity — will be addressed before dissemination. Research ethics will be strictly followed to ensure that participant information is accurate and that confidentiality is maintained throughout.

Project management stages — initiation, planning, execution, and monitoring and control — will be handled carefully so that each phase is conducted with full attention to the authenticity of results. Because the primary recipients of the report are academic experts and the secondary recipients are banking industry professionals, the report must be clear, concise, and accessible for interpretation and practical use. Research protocols, including the management of ethics, bias, and error, will be reviewed at each project management stage to ensure confidence in the final outcomes.

The need for this research has been identified through the literature review conducted in the preceding sections. There are substantive gaps in prior research that this project aims to address. The study offers a fresh approach as one of the latest investigations into the effects of application modernization on the service industry, specifically in banking and financial businesses. When conducting an online search for "application modernization," limited data emerged; the published articles that do exist discuss IT infusion more broadly rather than application modernization specifically or comprehensively. Although information technology's pros and cons are well documented, application modernization in the service industry has not been explored to the degree needed to answer the related research questions methodically and systematically.