AIM/ESRC Business Engagement Project - Financial Services
Project Team
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Dr Richard Adams
Indicative Management Priorities
From research to date, the following nine themes have emerged as management priorities in the UK financial services sector. If you wish to comment, please contact Richard Adams, or click on the link following the descriptive paragraphs below.
1. Innovation strategy
2. Barriers and limitations to innovation
3. Opportunities for differentiation and customer involvement
4. Failure of inter- organisational sharing
5. Benchmarking (UK model vs US model)
6. Industry reputation
7. Industry regulation
8. Organisational cultures
9. Employee education, training and learning
1. Innovation Strategy
Two drivers of innovation were identified at the workshop, firstly the competitive nature of the industry, it was reported that there are over 600 banks based in London. Second, an historic tendency for banks to adopt imitative strategies has resulted in a lack of differentiation between banking brands and the services they offer.
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In the absence of distinctiveness between brands, how can banks become more innovative?
2. Barriers and Limitations to Innovation
Several possible causes of limited innovation in the banking sector were noted, including: a short-term orientation; the drive for profitability encouraging reactive behaviour, and; an absence of proactivity. The consequence of which is that innovation tends to be restricted to incremental adjustments to existing products.
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What are the barriers to a long-term, systemic orientation toward innovation in the sector, and how might they be overcome?
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There is clear opportunity and scope for management innovation in the sector, how can this be facilitated?
3. Opportunities for Differentiation and Customer Involvement
It was also recognized in the report that significant opportunities exist for brand and service differentiation on the basis of innovation, ranging from niche service provision to operational innovations delivering greater efficiencies and effectiveness in service delivery. Some of the debate revolved around the chance to include customers in the innovation process. Reportedly, banks think in terms of customers and in terms of domestic markets, yet concurrently espouse and enact strategies of internationalization, representing something of a tension between the two.
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How can customers be integrated in to the innovation process, and banks become responsive to their identified needs?
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In the absence of distinctiveness between brands, how can customer loyalty be fostered?
4. Failure of Inter-Organisational Sharing
The workshop also ascribed some of the limitations in innovative practice to a general sectoral failure to share knowledge or learn from each other. This appears to be something of a puzzle as the banking industry, certainly in London, would appear to display some of the characteristics of a cluster, in the sense of a geographic concentration of expertise and economic activity.
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The UK banking sector exhibits some characteristics of a cluster, but fails to capitalize on the opportunities this offers (e.g. inter-firm learning). What are the barriers and how can they be overcome?
5. Benchmarking (UK Model Vs US Model)
The benchmarking models adopted in the UK banking industry compare the UK banking industry predominantly against the US model and indicate superior performance of US banks along several dimensions. Even where a single bank has branches in both the USA and UK, then the US offices tend to outperform their British colleagues, leading to the question what are the conditions that lead to an organisation with homogeneity of values, objectives, policies and practices to perform better in one country than another? In the workshop, it was suggested that an answer to this question might lie in local readiness or propensity to innovate.
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Is it appropriate to benchmark against US models of banking? What alternatives exist, and what are their advantages and disadvantages?
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Do cultural factors account for poor relative performance of UK banking sector compared to international competitors?
6. Industry Reputation
The general reported opinion of the workshop was that the reputation of the banking industry, at least in the UK, was poor and there exists significant opportunity for improvement. Various reasons underpinning the poor reputation were identified, including: dissatisfaction with service from retail banks; disapproval of large bonuses paid to bank executives; failure to adopt management and social innovations (such as corporate social responsibility), and; an apparent failure of the industry in general to engage with and contribute to the wider society. These perceptions are largely attributed to poor public awareness of the structure, organisation and operation of the banking industry. Coupled with increasing customer expectations of service delivery workshop members concluded that the reputational issue could be addressed through a more effective customer communications programme and front office staff training.
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What factors underpin the poor domestic reputation of the sector?
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How can reputational issues best be addressed?
7. Industry Regulation
At the workshop, two particular observations were made during the discussion of industry regulation: the constraining impact of regulation and, its underpinning benefit in terms of assuring a level of credibility for the industry.
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Legislation and regulation pertaining to financial services are burdensome, how can organisations overcome their constraining effects?
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Is it possible to turn regulatory constraints into opportunities?
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How can the financial services sector better co-ordinate the process of communication with regulatory authorities?
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How can the financial services sector influence the regulatory framework to achieve clarity and consistency in regulation?
8. Organisational Cultures
In recent years, the banking industry has been dynamic characterized, in the UK, by a number of mergers and acquisitions and an increasingly internationalized operating context. These changes in ownership and international growth have given rise to a new series of challenges. Whilst the British public is apparently unconcerned whether or not a bank is foreign-owned, these recent changes do have implications for intra-bank integration and external differentiation.
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How can organisational rigidities and inflexibility be overcome to take advantage of environmental dynamism and market change?
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How can the industry develop a ‘readiness for change'?
9. Employee Education, Training and Learning
While it is believed that in the UK the banks are quite effective in some of their operations e.g. the back office, some of the ongoing problems with the effectiveness of their customer services are attributed to the lack of staff training and education. Several studies already show that staff training does not fully provides opportunities for developing soft skills and this is an area recognised as needing much attention.
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What soft skills development issues should be addressed to overcome perceived deficiencies in customer service?
Financial Services Full Report
For any further queries please contact Dr Richard Adams on r.adams@cranfield.ac.uk
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