LUẬN ÁN TIẾN SĨ IMPACT OF COMPETITIVENESS ON BUSINESS PERFORMANCE AN EMPERICAL STUDY FOR JOINT-STOCK COMMERCIAL BANK IN HOCHIMINH CIY

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS OF HO CHI MINH CITY - NGUYEN VAN THUY IMPACT OF COMPETITIVENESS ON BUSINESS PERFORMANCE: AN EMPERICAL STUDY FOR JOINTSTOCK COMMERCIAL BANK IN HOCHIMINH CIY Major: Business and Administration Code: 62.34 05.01 SUMMARY OF ECONOMIC DOCTORAL THESIS Ho Chi Minh City - 2015 The work was completed at: University of Economics of Ho Chi Minh City The scientific instructors: Dr Dang Ngoc Dai Dr Nguyen Thanh Hoi Reviewer: The thesis will be protected in front of Thesis scoring council at the University of Economics of Ho Chi Minh City at hour day month 2015 The thesis can be studied with: - National Library of Vietnam - Synthesis Scientific Library in Ho Chi Minh City - Library of University of Economics of Ho Chi Minh City PUBLISHED SCIENTIFIC WORKS Nguyen Van Thuy, 2014 The effects of management capability on business performance: An Emperical study for commercial bank in Ho Chi Minh city Banking Technology Review, No 102, p 44-51 Nguyen Van Thuy (co-author), 2014 Impact of competitiveness on business performance: Evidence from Joint-Stock commercial bank in Ho Chi Minh city Journal of Economics & Development , No 203(II), p 99 – 110 Nguyen Van Thuy (co-author), 8/2012 Factors affecting service quality to customer satisfaction and customer loyalty for commercial banks: Evidence from Ho Chi Minh city Journal of Economics & Development No special, p 61-71 Nguyen Van Thuy, 2011 Factors affecting to job satisfaction and life satisfaction of sale/marketing in Ho Chi Minh city Journal of Economics & Development, No.169, p 61-70 Nguyen Van Thuy, 2008 The cause of brain drain of commercial banks in VietNam Banking Technology Review, No 24, p 30-32 CHAPTER ONE: INTRODUCTION 1.1 Background to the research 1.1.1 The urgency of research In Vietnam, the process of restructuring the banking system in the period 1990 - 2010 and the scheme restructuring the banking system in 2011-2015, was created for the banking sector major changes both in number quantity, size and quality, this is the basic premise of the original meet the commitments signed in the process of integration of the banking sector and create favorable conditions for the banking system entered a period of opportunity international economic integration However, besides the success of the integration process, the commercial bank of Vietnam has exposed some shortcomings such as governance, human resources remain weak, rising NPL ratio, low liquidity leading to low competitiveness This situation raises the issue of urgency to restructure the system of commercial banks from which high performance competitiveness According to Sanchez & Heence (1996, 2004), the competitiveness of businesses based on their ability to combine the resources of businesses to create competitive advantage “The competitiveness of a company's ability to maintain, implement and coordinate the resources and capabilities in a way help the company achieve its goals” (Sanchez & Heene, 1996, 2004) The essence of competitiveness was redirected to focus on capabilities instead of resources (Sanchez & Heence, 1996, Sanchez, 2001; Freiling et al, 2008) Thus, competitiveness becomes a key criterion for assessing the existence and development of a bank in the international competitive environment is increasing On the other hand, to put the issue studied in a particular context, joint-stock commercial bank in Vietnam and the branch of commercial banks in Ho Chi Minh City were selected for study because missing experimental studies on competitiveness in the banking sector and TP Ho Chi Minh City is concentrated most of all joint stock commercial banks (JSB) Vietnam 1.2 Previous studies related to the thesis 1.2.1 The previous studies in all the world related to the thesis (1) The study of CameliI & Tishler (2004) about the relationship of intangible factors to the business results of the administrative organization in Israel, was based on schools of resources and strategic management to assess the impact of the elements of intangible resources of the organization to the performance of the organization (2) Research of Aziz et al (2006) on competitive resources of investors of private housing development in Malaysia has been ranked the resources to create competitive capabilities of investors developers estate of Malaysia (3) The study of Thompson, Strickland & Gamble (2007) has proposed elements of the overall competitiveness of an enterprise (4) Research Aboagye-Debrah (2007) the competitive situation, growth and efficiency of the banking sector in Ghana has analyzed the competitive factors of the market share of loans and capital mobilization and collective capital and level market concentration banks through five forces models of Porter (5) Research Ilihomovich (2009) analyzed the factors affecting the business results of the foreign banks in Malaysia during 2004-2008 were used CAMEL factors affecting business performance (ROE, ROA) (6) The study of Onar & Polat (2010) about the factors affecting the relationship between business strategy options and competence building process of 104 firms quoted on the Istanbul Stock Exchange are evaluated A questionnaire was completed by either the general manager or the human resources manager of each firm based on point Likert questionnaire In summary, the studies on competitiveness and business performance of the enterprise in the world to focus on the business and has proposed a number of elements of the competitiveness of enterprises Particularly in the banking sector, the study focused on assessing competitiveness based solely on the financial perspectives through CAMEL indicators fail to evaluate factors such as human resources, administration, research and development, risk management 1.2.2 The domestic studies related to the thesis In Viet Nam, the research on competitiveness have been concerns expressed issues such as Trinh Quoc Trung (2004), Le Dinh Hac (2006), Nguyen Viet Hung (2008), Nguyen Dinh Tho and Nguyen Thi Mai Trang (2008), Dang Huu Man (2010), Nguyen Thu Hien (2012), Phan Thi Hang Nga (2013, Hoang Thi Thanh Hang (2013) study on the competitiveness of enterprises or the competitiveness of the banks mentioned factors constituting competitiveness and assess the status of competitiveness From there, make subjective judgments about the competitiveness of banks that not assess, build scale and quantifies the impact of individual components of competitiveness to the business results of banks On the other hand, there is currently no empirical research to examine the extent of influence of the elements of capacity systematic competitiveness, particularly competency-based approach of banks Therefore, the study of the elements of competitiveness of commercial banks and the impact of competitiveness on business performance of commercial banks is a critical requirement for commercial banks to help identify, nurture, develop and use their talents to compete effectively, adapt to changing business environments 1.3 Research objectives This study aims to fill the identified gap emerging from a review of prior research in the areas of competitiveness The research examining the relationship between competitiveness and businessperformance of commercial banks and so achieve the following major objectives: First, the study proposed and tested measurement model of competitiveness applied in the banking sector, in the context of an emerging less developed economy - Vietnam The second, explore and measure the elements of competitiveness for the joint-stock commercial bank Third, determine the relationship between different components of competitiveness and their impact on business results of the joint-stock commercial banks; Finally, testing different samples of the study and validate the entire theoretical models from which additional documents empirical evidence in the context of commercial banks in Hochiminh city - Vietnam and provide some implications practical for business managers to succeed in the bank long-term competitive strategy 1.4 Research subject and delimitations of the scope Subjects of study of the thesis is the constituent elements competitiveness and its impact on business performance of commercial banks Subjects of investigation is the director of the branch commercial banks The scope of this study is focused analysis of commercial banks are operating in HCM City – Viet Nam 1.5 Methodology This research design for this study consists of three steps, (1) design questionaire, (2) Pilot survey and (3) main survey This process is describled in Figure 1.1 1.6 Scientific contributions of the thesis The research results presented in the author's thesis show some new major contributions as follows: - Summary of a systematic theory of competitiveness of enterprises for applications in the field of commercial banks but no previous study done - Identify the components and build competitive scale of commercial banks This is the first study carried out in Vietnam, a developing country and the banking sector is in the process of innovation, restructuring in the context of international integration and competition - In addition to inheritance and adjust some of the scale, the thesis also build and develop a new scale Risk management capability that previous studies have not done - This is the first study to apply quantitative methods in a systematic (Cranach’s Alpha reliability and Exploratory Factor Analysis - EFA, Confirmatory Factor Analysis - CFA and Structural equation modeling - SEM) to evaluate the competitiveness of the banking commercial sector in Vietnam but no research approach method in assessing behavior competitiveness and business performance - This research has discovered new, unlike previous studies, it is in the banking business in Vietnam, Risk management capabilities element with the strongest effect business performance followed by the marketing capability, financial capacity, management capabilities, organization service capability and innovation productsservices capability - The implication drawn difference compared with the previous study were: The bank management in economies transformation in Vietnam in Vietnam need special attention and risk management capability, financial capability, marketing capability and management capabilities during operating decisions to be discovered, maintain and develop their competitiveness in order to improve the business performance of commercial banks 1.7 Structure of thesis Chapter 1: Introduction; Chapter two: Literature review; Chapter three: Methodology; Chapter four: Findings and discussions; Chapter five: Conclutions and Implications CHAPTER TWO: LITERATURE REVIEW 2.1 Concepts of competitive and competetitiveness 2.1.1 Concepts of competitive According to Vietnam's Wikipedia (2014): “Competition (in business) is active competition between commodity producers, traders, trading in the market economy, through the relationship supply - demand, to win the production conditions, consume the most profitable market” According to Porter (1985, 1998), the competition is gaining market share The essence of the competition is to seek high returns than average returns Results competitive process is the average profit in the direction of improved depth consequently led to the price can fall 2.1.2 Competitive advantage According to Porter (1985, 1998), competition is at the core of the success or failure firms Competition determines the appropriateness of a firm's activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation Competitive strategy is the search for a favorable competitive position in an industry, the fundamental arena in which competitive occurs Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition Firms have many strengths and weaknesses compared to other competitors, but taken together with the two types competitive advantage that firms can possess: cost leadership or differentiation The two basic types of competitve advantage combined with the scopeof activities for which a firm seeks to achieve them lead to three generic strategies for achieving above-average performance in an industry: Cost leadership, differentiation and focus (Porter, 1985, 1998) Competitive advantage is whatever value a business provides that motivates its customers (or end users) to purchase its products or services rather than those of its competitors and that poses impediments to imitation by actual or potential direct competitors (Christensen, 2010, p.21) 2.1.3 Compettiveness There are many definitions of competitiveness and in this thesis would like to quote some key concepts mentioned in terms of the competitiveness of enterprises in order to clarify this matter Firstly, the competitiveness of businesses is the ability to maintain and expand market share and achieve high profits of the firm (Porter 1985, 1998); Second, competitiveness is synonymous with productivity Third, competitiveness means to maintain and enhance the competitive advantage (Porter, 1985.1998) Fourthly, the competitiveness of a firm based on their ability to combine the resources its to create competitive advantage (Sanchez & Heene, 1996, 2004) In the banking and financial sector has many of the concepts of competitiveness of commercial banks, the thesis would like to quote some of the following concepts: Nguyen Thanh Phong (2010) defined: “The competitiveness of banks is likely that by itself created on the basis of maintaining and developing its own advantages, to consolidate and expand market share; increase profitability and resilience and overcome the adverse changes of the business environment” According to Nguyen Thi Quy (2008), “The competitiveness of a bank is its ability to create, maintain and develop the advantages to maintain and expand market share; achieve higher profitability than the average of the industry and constantly increasing, while ensuring safe operation and healthy, able to resist and overcome the adverse changes in the business environment” In this study, the competitiveness of banks are defined as follows: “The competitiveness of banks is ability to use, combine the resources, capabilities to maintain and create their advantages compared to competitors and achieve its objectives in terms of business environment changes” 2.2 Overview theory of competitivenes 2.2.1 Competitiveness approach from internal resources of the entepries 2.2.1.1 Competitiveness in the school of industrial organization economics Industrial Organization economics model is Procter (1980) generalized through the relationship between the industry structure, operations, or firm strategy and business performance of the sector The key of this model is that business performance depends largely on the industry structure that businesses are competing with each other Industry structure decided acts - business strategy - of a firm and this leads to business performance of the industry (Barney, 1986; Porter, 1980) Theoretical economics organizations have presented an analytical framework to help firm analyze a whole business sector, forecasting future movement of the industry, understand the competition and position themselves business and thereby transform this analysis into a competitive strategy for the specific firm (Porter, 1985, 1998) This model also helps us to analyze the business performance of the industry and identify the potential of each business sector Economics organizations admitted decisive advantages huge difference to the business strategy of the business The distinct advantage of this firm is the basis for the resource - based theory of the firm (Wernefelt, 1984, 1995; Barney, 1991, 2001) 2.2.1.2 Resource-based View of the firm The Resource-based view - RBV was launched by a number of key publications, including Lippman & Rumelt (1982); Wernerfelt (1984); Dierickx & Cool (1989); Barney (1991, 1996);; Peteraf (1993); Maijoor & Witteloostuijn (1996), Miller & Shamsie (1996), Markides & Williamson (1996) The RBV mainly tries to use the resources available to a firm at a certain point in time to explain firm performance The approach is based on two target resource is classified different forms of resource ownership and resource linked together to form and create competitive advantages from comparative advantages (Makadok, 2001; Wilcox & Zeithmal, 2001) RBV assumes businesses in the same industry using different business strategy to compete Arccoding to Barney (1991, p.105), a firm resource create competitive advantage must have four arttributes: (1) it must be valuable, (2) it must be rare, (3) it must be imperfectly imitable and (4) Non-substituable, called to VRIN RBV emphasizes the characteristics of resources (Barney, 1991) is valuable, rare, difficult to imitate and no substitute will create a competitive advantage for businesses However, today's competitive environment, firm compete not only by differences in resources that focus on the ability to coordinate and use resources effectively to achieve their strategic objectives (Sanchez & Heene, 1996) This is a limitation of resource-based theory when only emphasizes the intrinsic element without no consideration to these factors the business environment, the competitive pressures of the business 2.2.1.3 Competence-Based View of the firm Competence-based Management of firm focused on usability, combined assets, resources and capabilities to achieve growth and overall efficiency of the organization It was developed by the research mainstream of Barney (1991), Wernerfelt (1984), Peteraf (1993), Sanchez & Heene (1996, 2004, 2008, 2010) Competence-based view defines a set of fundamental concepts of the original entity that it represents and used as a basis for analyzing businesses, markets and their interaction (both side competitive and cooperative) Figure 2.2 shows the relationship between the original entity is the ability constituents of the companies that Sanchez & Heene (1996, 2004) proposed to use in the development of strategic theory in view of competence –based Fig 2.2: Primitive Entities Invoked in Competence Perspective Source: Sanchez.R (2008) Sanchez & Heence (1996, 2004), Hubbard et al (2008), Freiling et al (2008) works is confirmed that the competencies are created by adding the capabilities, coordinate resources to create competitive advantage and allow the company achieve its strategic objectives According to Sanchez & Heence (1996, 2004), the organizations are organized as open system resources and the flow of resources to be deployed and coordinated in the process of value creation and value distribution Effective organization must be designed and managed as open systems targeted search CBV has been built into an approach “dynamic, systemic, cognitive and holistic” to strategy manage (Sanchez & Heene, 1996; Sanchez, 1997; Sanchez & Heene, 2004, Freiling et al, 2008) Four point are called “Four-Cornerstones” of the competence perspective It examines how each platform identified a significant impact on the nature of the performance management process in the organization as open system Sanchez (2008) summed up these fundamental conceptual differences in the foundations of the RBV and competence perspective can be summarized in this compact form: RBV assumptions: Firm Success = Sustained generation of rents 10 customer care and process quality Thus, the concepts of business performance of Waal & Coevertl (2007) mentioned both financial factors (Kaplan & Norton, 1992) and the process to meet customer demand, product development, and creating the capacity of the firm It reflects the system of criteria for evaluating the busniess performance and adapt to a dynamic environment 2.3.2 System of evaluation criteria for business performance Yadav et al (2013) summarized the trend of using the ladder measure business performance in two decades, from 1991 to 2011 show the change the pattern from financial to integration perspective (1991 -2000), from strategic viewpoint, the use of technical systems and modeling (2001-2011) The change and the development of the results measurement systems, integrated and dynamic business performance are presented in Figure 2.9 Fig 2.9: Research trends of Performance Management and Measurement Source: Yadav & Sagar (2013) Business results expressed as a multidimensional structure with measuring groups: The firstly, the financial indicators to measure competitiveness and forecast the degree of success of business strategy, as well as ensuring protect the interests of shareholders (Kaplan and Norton, 1992; Neely et al (1995); Waal & Coevert, 2007; Consuegra et al, 2008) The second, operating targets are non-financial indicators in the business process activities to support achieving the profitability targets, including: market share, growth in the size and resources (Kaplan and Norton, 1992; Neely et al, 1995; Waal & Coevert, 2007; Consuegra et al, 2008, Laihonen et al, 2014) Third, customer criteria to assess customer satisfaction and is considered important criteria for evaluating the degree of success of most of the organization's strategy (Kaplan & Norton, 1992; Neely et al, 1995; Waal & Coevert, 2007; Laihonen et al, 2014) Finally, the criteria for innovation and learning through knowledge, skills and attitudes to work of employees is the priority investment because it determines the existence and development of organization (Kaplan & Norton, 1992; Neely et al, 1995; Vorhies & Harker, 2000; Waal & Coevert, 2007) 11 In the banking sector outside the above criteria, the need to add an aspect of measurement in terms of NPL ratio of commercial banks (Tran Huy Hoang, 2008) 2.4 Theoretical model of competiveness of the commercial bank 2.4.1 Conceptualisation of competitiveness components of the commercial bank 2.4.1.1 Manangement capability - MC Management capability refers to the potency of an organisation’s collective management competencies as they can be applied to achieve desired outcomes Management capability, therefore, does not simply reflect the total sum of a management team’s competencies or required abilities Rather, management capability describes how effectively the management team puts into practice its combined competencies to deliver business results Excellence in management capability is an integral marker of strong organisational performance According to AIM (2012, 2013) The ability of management consists of issues that leaders of corporate governance must be (1) Visionary and strategic leadership, (2) Performance leadership, (3 ) People leadership and (4) Organizational capability According to Kivipold & Vadi (2010), leader in the organizational level is determined by the ability to lead to detect and respond to changes in the external environment by maintaining the main goals of the organization Research of Cameli & Tishler (2004) also confirmed the ability of management and human resources have a positive impact on business performance of the administrative organization in Israel Study of Kivipold & Vadi (2013) about the leadership capacity of the financial services organizations in Estonia have shown that leadership capacity to positively impact business performancc of enterprises 2.4.1.2 Marketing Capability – MAC Marketing capability is integrated process designed to apply the knowledge, skills and resources of the firm to meet market demand, enabling firm to increase the value of products and their services and competitive needs (Day, 1994; Vorhies & Harker, 2000) Marketing capability of the firm is expressed through continuous monitoring and respond to the market changes Such as customers, competitors and adapt to the business environment (Day, 1994; Vorhies & Harker, 2000; Srivastava et al, 2001; Homburg et al, 2007; Thọ & Trang, 2008; Kotler & Armstrong, 2012) Thus, marketing capabilities is the ability to monitor and respond to changes in the market, including customers, competitors, activities coordination between functional departments (Kohli & Jaworski, 1990; Narver & Slater, 1990), adapted to the business environment and quality of relationships (Vorhies & Harker, 2000; Hou, 2008; Life & page, 2008) The experimental studies have not fully confirmed the positive relationship between marketing capabilities and business performance 2.4.1.3 Financial Capapbility – FC Financial viability is a measure of the strength of a bank at a particular time To evaluate the effectiveness of a financial commercial banking, the criteria used CAMEL – (1) Capital adequacy, (2) Asset quality, (3) Management competence, (4) Earning strength and (5) Liquidity risk There are many research about the relationship between financial capability of banks to business performance that have 12 the financial ability to influence the performance of commercial banks such as: Baral (2005), Trinh Quoc Trung (2005); Le Dinh Hac (2006), Nguyen Thi Quy, (2008), Kouser et al (2011), Nguyen Thu Hien (2012), Phan Thi Hang Nga (2013) However, these are identified as the main subjective, not quantifying its impact on business performance and how strongly? In other words, previous studies have not tested this relationship experimentally 2.4.1.4 Innovation Products-Services Capability - IPSC Innovation products and services demonstrates the process encourage continuous innovation of products and services in creating new value for the firm; the ability of enterprises recommended new production processes, new products or new ideas to increase the competitive advantage of the firm (Damanpour F, 1991) Deshpandé & Farley (2004) suggest that the introduction of new products or new services to the market will reflect the innovative capacity of the business Anderson & Narus (1998) refers to the interaction between innovation capacity and added value for customers as cost, time, etc The innovation capacity is the means to achieve these improvements and invented for the firm, it is the desire of firm to overcome these practices, habits are no longer appropriate in the business and pursue innovative business ideas, consistent with competition requirements (Menguc & Auh, 2006) The research results of Tomas et al (2004), Anabel et al (2013) have confirmed the innovation capacity an enterprise higher than other firms in the industry will be higher competitiveness and innovation capability product - service has a positive influence on the business performance of the firm 2.4.1.5 Organization Service Capability – OSC Organization service capability to meet customer requirements and is considered an important component of service quality in the study of Newman (2001), Wang et al (2003), Tahir & Bakar (2007 ), Ladhari et al (2011) “The ability to serve the wishes expressed by the willing of staff and provide timely service to customers in order to bring satisfaction to customers” (Tahi & Bakar, 2007) Organizationa service capability of the bank include: (1) Attitude and services staff: expressed desire and willingness of staff providing services to clients; (2) The capacity of staff in service: professional skills of staff to implement customers' requirements; (3) Trust: creating confidence for customers that trust companies (Tahir & Bakar, 2007) The research results of Parasuraman et al (1988), Karatepe et al (2005), Tahir & Bakar (2007), Ladhari et al (2011) about the service quality of commercial banks has shown that enterprises ability to organize good service will create competitive advantage and bring products to customers faster and more efficiently 2.4.1.6 Risk Management Capability – RMC Banking is one of the sectors facing a lot of risk “Never before matters improve risk management of the banking system has become so urgent” that is recognized by the banker Nguyen Thi Thanh Huong (2013) with the risks of the operation banks incurred in recent years Hubert Knapp (2012) - CEO of Financial Advisory Services at Ernst & Young in Vietnam, said: “These limitations in the administration of the credit risk of commercial banks in Vietnam related to the first issue of culture, which is the habit of the staff working in risk management or related 13 officers risk management is often regarded as routine work, nature more procedures For example, when a customer to apply for loans, there will be a list of prerequisite checking and only check it, see something there, something no Actually, governance risk is not so simple Second, many banks in Vietnam are still regarded risk management segment is only supporting activities Really this is the wrong perspective The recent financial crisis showed that banks underestimated the task of risk management will lead to a huge collapse” Lamarque (2005), the results underline the bank's profitability depends on the coordination of risk management activities in the value chain Especially within the administration of Assets - Liabilities and process customer transactions Thus, risk management capabilities have an impact on the business performance of the bank 2.4.2 Theoretical model and hypothese Table 2.2: Summary of the research hypothesis Research hypothese Relationship H1 Management capabilies + Bank Performance H2 Marketing capabilies + Bank Performance H3 Financial capability + Bank Performance H4 Innovation Product and Service capabiltiy + Bank Performance H5 Organization Services capability + Bank Performance H6 Risk Management capability + Bank Performance Source: Development for this study CHAPTER THREE: METHODOLOGY 3.1 Quanlitative research paradigm 3.2 Operationalisation of measures 3.2.2 Development scale measuring competitiveness 3.2.2.1 Measuring management capabilities Management capability refers to the potency of an organisation’s collective management competencies as they can be applied to achieve desired outcomes 14 Management capability therefore, does not simply reflect the total sum of a management team’s competencies or required abilities Rather, management capability describes how effectively the management team puts into practice its combined competencies to deliver business results The management capability consists of issues that leaders of corporate governance must be (1) Visionary and strategic leadership, (2) Performance leadership, (3 ) People leadership and (4) Organizational capability (O'Connor & Quinn, 2004; Morrill, 2007; Bolden, 2011; AMCI, 2012; Kivipõld & Vadi, 2010) This study uses scales of AIM (2012, 2013) and is adjusted to suit the banking sector with 20 items 3.2.2.2 Measuring marketing capabilities Marketing capability is integrated process designed to apply the knowledge, skills and resources of the firm to meet market demand, enabling firm to increase the value of products and their services and competitive needs (Day, 1994; Vorhies & Harker, 2000) This study used the scale of Vorhies & Harker (2000), Homburg et al (2007), Nguyen Dinh Tho & Nguyen Thi Mai Trang (2008) for marketing capability consists of components (1) customer responsiveness, (2) competitor responsiveness, (3) Adaptation to the business environment (Srivastava et al, 2001; Hou, 2008), (4) relationship quality (Nguyen et al, 2004; Srivastava et al, 2001) The scales are adjusted to suit the banking sector with 19 items 3.2.2.3 Measuring financial capability Financial viability is a measure of the strength of a bank at a particular time To evaluate the effectiveness of a financial commercial banking, the criteria used CAMEL – (1) Capital adequacy, (2) Asset quality, (3) Management competence, (4) Earning strength and (5) Liquidity risk and discussion specialist opinion, the scale of financial the ability are evaluated include: increase in equity, the ability manage asset quality, capital adequacy ratio In addition, the financial structure ensures reasonable profit target and meet the liquidity in financial management Thus, the scale of financial capability are summarized in items 3.2.2.4 Measuring Innovation Product and Service capability Innovation products and services demonstrates the process encourage continuous innovation of products and services in creating new value for the firm; the ability of enterprises recommended new production processes, new products or new ideas to increase the competitive advantage of the firm (Damanpour F, 1991) Deshpandé & Farley (2004) suggest that the introduction of new products or new services to the market will reflect the innovative capacity of the business This study used the scale of Damanpour (1991) and Deshpande & Farley (2004) is adjusted to suit the financial and banking sector with observed variables 3.2.2.5 Measruing Organasational Sercice capability Organization service capability to meet customer requirements and is considered an important component of service quality in the study of Newman (2001), Wang et al (2003), Tahir & Bakar (2007 ), Ladhari et al (2011) Organizationa service capability of the bank include: (1) Attitude and services staff: expressed desire and willingness of staff providing services to clients; (2) The capacity of staff in service: 15 professional skills of staff to implement customers' requirements; (3) Trust: creating confidence for customers that trust companies (Tahir & Bakar, 2007) This research used the scale of Tahir & Bakar (2007) and Ladhari et al (2011) is modified to suit the banking sector with items 3.2.2.6 Measuring Risk management capabilty Risks in the banking business are understood to be unexpected events which occur will lead to the loss of bank assets, the actual profit decline than expected or have to spend an additional costs to be able to fulfill a certain financial transactions Through discussion specialists opinion, the scale and risk management capability are measured include: (1) The interest of bank management to risk management activities, (2) ability to handle good risk incidents, (3) Knowledge and experience of managers in dealing with risks, (4) control of banking risks and (5) the process of training to improve governance risk to personnel Therefore, risk management capability developed include observed variables 3.2.3 Development scale measuring Business performance of the commercial bank Scale business performance of commercial banks was discussed with specialists agree that the results must be evaluated on different aspects instead of just focusing on financial targets Business results include financial elements such as; operational and internal processes; customer satisfaction; learning and development (Kaplan & Norton, 1992, 1996; Neely et al, 1995; Waal & Coevert, 2007; Laihonen et al, 2014) Specialists requested to consider to bad debts in business performance Thus, the scale concept business results of banks including items 3.3 Pilot survey 3.4 Main survey 3.5 Results of the pilot study The measures were refined via Cronbach’s alpha reliability and EFA, using the data collected from 121 vice director of the branch of the joint-stock cmmercial bank in the pilot study 3.5.1 Cronbach’s Alpha reliability The results indicated that all scales satisfied the requirement for reliability Specifically, the Cronbach’s alphas of the components of bank competitiveness were 0.801 to 0.912 The Cronbach’s alpha of performance leadership pool is the lowest (α=0.801) and innovation products-services capability is the highest (α=0.912) Considered item-total correlation shows that they have the closely relationship (CUSRE05 is lowest, r= 0.520 and ACBE04 is highest, r=0.848) 3.5.2 Eploratory factors analysis -EFA 3.5.2.1 The results of EFA management capabilities Conceptual theoretical model Management capabilities is a multidemension concept with latent concept: visionary and strategic leadership; performance leadership; people leadership and organizational capability However, the results of EFA with data collected from pilot survey showed three observed variables were 16 deleted due to their low factor loadings PEL03, PEL05 and PEOL01 (0360; 0373; 0495