Academic journal article Canadian Journal of Administrative Sciences

Hard and Soft Ways to Create Value from Information Flows: Lessons from the Canadian Financial Services Industry

Academic journal article Canadian Journal of Administrative Sciences

Hard and Soft Ways to Create Value from Information Flows: Lessons from the Canadian Financial Services Industry

Article excerpt

Abstract

Over an extended period during the 1990s, using long interviews with the top management of five banks and secondary data, we studied the transformation of Canadian banks. We observed how the Canadian banks have changed to take full advantage of the increased technological potential for developing and exchanging information. The failure of the "pure players" has shown that the information advantages of the Internet are not sufficient to lead to sustainable competitive advantage. Existing financial institutions can make better use of that same information flow by combining it with organizational changes that make the new information more strategically valuable. By aligning information technology and the hard elements of their organizational architecture with soft elements like reputation, cooperation, and information sharing, traditional banks have developed powerful advantages in the 1990s.

Resume

Dans les annees 90, nous avons utilise des donnees secondaires et les Tongues entrevues que nous avons eues avec les hauts responsables de cinq banques pour etudier les mutations du paysage bancaire canadien. Nous nous sommes interesse a la faqon dont les banques canadiennes se sont restructures pour pouvoir tirer le maximum d'avantages des potentialites croissantes des technologies de l'information. L'echec relatif des banques virtuelles a demontre que les avantages informationnels basis sur le reseau Internet ne suffisent pas pour donner lieu a des avantages concurrentiels durables. Les banques traditionnelles peuvent parvenir a faire un meilleur usage des memes flux informationnels en les combinant a des changements organisationnels qui rendent la nouvelle information plus strategiquement valable. En accommodant les technologies de l'information et les composantes permanentes (hard elements) de leur architecture organisationnelle avec les composantes fluctuantes (soft elements) telles que la reputation, la cooperation, et la diffusion des informations, les banques traditionnelles se sont tree de puissants avantages strategiques au tours des annees 90.

Value chains, processes, and activities are kept together by the "glue" of information. Since this glue has started melting (Evans & Wuster, 1999), the traditional physical model of a bank has been coming apart. Some observers contend that specialization will inevitably become the dominant business model in banking and financial services (Klinkerman, 2000). The new entrants would be small, specialized electronic banks. However, despite the hype, Web services won't disrupt the financial services industry any time soon (Landry, 2002). In fact, the traditional banks have extended their dominance to Internet banking in Canada (Insurance Canada, 2002). How did the generalist banks successfully struggle to find effective ways to utilize the newly available technologies to reenergize their organizations using these new technologies?

In the mid- 1990s, Canadian banks found themselves with an organization that did not have good flows of information with its most important clients. They needed to find ways to take advantage of the new information technologies in their organizations. The bank-soon transformed into a "one-stop" financial services group--becomes available where customer business is. As the number of branches has steadily diminished, the level of integration between traditional and automated branches has become more sophisticated. In short, the banks recreated their contact points with their customers to take full organizational advantage of the information flows that the new technologies allowed.

Why is this new combination superior to a banking relationship that is based solely on new information technologies themselves in an Internet bank? Wouldn't it be more efficient to start a new Internet bank from scratch? Canadian banks initially thought so. Matthew W. Barrett, former Chairman and Chief Executive Officer of the Bank of Montreal, justified the mbanx Internet banking start-up in 1996 with the following arguments:

Designed to meet our customers' individual needs-- on their own terms and on their own turf-mbanx represents the true democratization of banking products and services available to millions of customers . …

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