Mastering Strategic Renewal-Lessons from the Financial Services Sector: A New Cross-Border Study Suggests That Some of Europe's Most Established Financial Institutions Are Failing to Adapt to Regulatory and Technological Change. Top Management Can Choose from Four Clearly Defined Options
Volberda, Henk, van den Bosch, Frans, European Business Forum
How do large multi-unit firms in the financial services sector reconcile the conflicting forces of profits for today and flexibility to adapt for tomorrow?
Profits for today require order, control, and stability: adaptation for tomorrow requires flexibility and creativity in the quest to add value. In the European financial services industries these conflicting tendencies are increasingly obvious. Existing large financial players seem well placed to exploit the present but ill-suited to adapt to the future. Why is this so, and what can be done about it?
In 1998 the Erasmus Strategic Renewal Centre started an international research programme, funded by an Impuls research grant of the Board of the Erasmus University, Rotterdam and focused on the largest European firms as well as new entrants to the financial services sector. Six European business schools participated (beside Erasmus these were Bocconi of Milan, City University from London, HEC in Paris, Jonkoping International Business School and the Norwegian School of Management), ensuring that the programme had a pan-European character. The project sought to answer if and how financial institutions change in the face of governmental and regulatory influences, as well as how they respond to changes in technology and consumer preferences.
European financial services--a changing landscape
The European financial services landscape is changing dramatically. Until the mid-1980s, the European financial services sector was characterised by significant governmental involvement and by numerous institutional and regulatory limitations on the domestic, cross-border, and cross-sector activities of financial service firms. The process of deregulation and harmonisation in the financial services sector has been a gradual one and has varied considerably across European countries.
Figure 1 (right), shows that the United Kingdom is the European leader when it comes to achieving regulatory change, closely followed by the Netherlands. The UK has used deregulation to promote competition in its financial services industry. Sweden, meanwhile, comes out best where speedy implementation of new technology is concerned (e.g. ATM networks, remote banking facilities, branchless banks), followed again by the Netherlands and the UK. France and Italy come last in the diffusion or spread of both regulatory and technological change. Sweden's relatively low position in diffusing regulatory changes can be explained by its late joining of the European Union.
Patterns of diffusion therefore vary from country to country. To detect changes in the rate of diffusion of regulatory and technological changes, we added up the time lags of the five countries for each indicator.
Figure 2a shows the increasing speed of diffusion of the regulatory measures. Whereas the time lag between the introduction and application of deregulated interest rates and liberalised capital flows amounted to up to eleven years for some countries at the beginning of the 1980s, the diffusion period for new prudential regulations was two years at the most in the middle of the nineties. The speed of diffusion not only increased by a factor of five but appeared to follow a more similar pattern across the countries investigated. The trend is less clear for the speed of diffusion of recent technological developments.
Figure 2b nevertheless suggests that the more recent the developments in technology, such as internet banking, the faster the adoption rate compared to older technologies, such as ATM networks. At the beginning of the 1970s the average time lag between first movers and followers regarding ATM networks was about twelve years. In the midst of the 1990s, the average time lag with respect to introducing internet banking was about two years. Based on the presented data, this suggests the speed of diffusion of technological developments increased about six times. …