Creating and Sustaining Competitive Advantage through Innovation
Unkles, John, Journal of Banking and Financial Services
Why financial institutions must innovate or die
In the past two decades, financial institutions in Australasia have overhauled their business models and infrastructure and revamped their service offerings in response to: intense international competition; rapidly changing technologies and business and regulatory environments; increasingly sophisticated customers; and growing information management, risk management and reporting requirements.
Operating as part of a service industry within global markets, where change and competitive pressures are constant, financial institutions have become very aware of the importance of generating new ideas to achieve sustainable growth. To a large extent, this explains the leadership role that financial institutions have taken in adopting emerging technologies.
Broadly reflecting trends in overseas markets, innovation in Australia's financial services sector has been driven by rapid technological change and increased competition following deregulation. This, in turn has produced dramatic changes to the face of banking, in particular.
One of the leading commentators on global trends in banking, Lloyd Darlington (1) has noted that:
'Banking is transforming itself at a pace and on a scale that has no historical precedent ... Banking has to make the leap from a transaction-based business into a sales-and-marketing culture where a bank will be defined by its ability to add value to the customer relationship ... Those banks that refuse to adapt will very likely die.'
To date, Australia's financial services sector has been highly successful in leveraging its people, ideas and technology to harness growth opportunities by developing a culture of innovation and entrepreneurship.
Employing over 350,000 people, financial services firms recognise that the one of the keys to competitive advantage and sustained business success is attracting and retaining talented people. As a result, executive development, particularly leadership development, is becoming an important element of corporate strategies within this sector. There is also growing cooperation between education institutions and financial institutions to develop leaders capable of driving innovation and generating new value for businesses in this highly competitive field.
Innovation is now more important than ever
Both the business community and governments around the world are devoting increasing resources to innovation. This is occurring at a time when, on the one hand, companies are redirecting their strategic focus from cost-cutting to revenue growth, while, on the other hand, the ageing of the population is placing constraints on the overall level of growth within the economy.
A recent Victorian Government submission to the Productivity Commission indicated that due to population ageing 'Over the next 40 years ... without significant increases in productivity or labour force growth, economic growth could be reduced to around one-half that of the past 40 years'. …