Enhancing banking performance through dynamic digital transformation capabilities and governance, risk management, and compliance: Insights from the Indonesian context

Abstract

Digital transformation (DT) is a crucial strategic initiative for organizations to rectify output, adapt, and keep up with the digital economy. Dynamic capability (DC) is a widely-used model for managing opportunities and risks from digital transformation. However, there is a lack of research examining the measurement and relationship between the primary activities of dynamic capability and DT, especially within the banking sector. Acknowledging the importance of DC, we propose this research which emphasizes the significance of sensing, seizing, and transforming aptitudes in promoting DT and improving banking performance. Within this study, we specifically investigate the role of governance, risk management, and compliance (GRC) factors. By utilizing structured equation modeling (SEM) and analyzing data from 322 respondents representing 45 banks in Indonesia, our empirical findings demonstrate that all three DC activities have a significant influence on DT, in which sensing activity has the biggest impact, followed by transforming and seizing. Furthermore, we reveal that DT acts as an intermediary between DC activities and banking performance, and GRC factors further enhance the impact of DT on organizational performance. Our research offers valuable insights to assist banks in prioritizing essential capabilities, including GRC, to enhance overall performance through dynamic digital transformation capabilities.