A Project Study Report on Retail Industry in Global Environment
Financial Institutions Center
Innovation in Retail Banking by Frances X. Frei Patrick T. Harker Larry W. Hunter 97-48-B
THE WHARTON FINANCIAL INSTITUTIONS CENTER
The Wharton Financial Institutions Center provides a multi-disciplinary research approach to the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center 's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest.
Anthony M. Santomero Director
The Working Paper Series is made possible by a generous grant from the Alfred P. Sloan Foundation
Innovation in Retail Banking Revised: January 1998
1
Abst ract: How does a retail bank innovate? Traditional innovation literature would suggest that organizations innovate by getting new and/or improved products to market. However, in a service, the product is the process. Thus, innovation in banking lies more in process and organizational changes than in new product development in a traditional sense. This paper reviews a multi-year research effort on innovation and efficiency in retail banking, and discusses both the means by which innovation occurs along with the factors that make one institution better than another in innovation. Implications of these results to the study of the broader service sector will
Innovation in Retail Banking by Frances X. Frei Patrick T. Harker Larry W. Hunter 97-48-B
THE WHARTON FINANCIAL INSTITUTIONS CENTER
The Wharton Financial Institutions Center provides a multi-disciplinary research approach to the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center 's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest.
Anthony M. Santomero Director
The Working Paper Series is made possible by a generous grant from the Alfred P. Sloan Foundation
Innovation in Retail Banking Revised: January 1998
1
Abst ract: How does a retail bank innovate? Traditional innovation literature would suggest that organizations innovate by getting new and/or improved products to market. However, in a service, the product is the process. Thus, innovation in banking lies more in process and organizational changes than in new product development in a traditional sense. This paper reviews a multi-year research effort on innovation and efficiency in retail banking, and discusses both the means by which innovation occurs along with the factors that make one institution better than another in innovation. Implications of these results to the study of the broader service sector will
References: 3 Data from Tables 1 and 2 in Berger, Kashyap and Scalise (1995) 4 Data from Federal Reserve; reproduced in Council on Financial Competition (1996), p Some studies, such as Shaffer (1993) and Akhavein, Berger, and Humphrey (1997), show that banks can obtain lower costs and increased profits, while others (Rhoades 1993; Peristiani 1997) show little to no post-merger gains. From D.C. Cates (1991). 9 X-efficiency (Leibenstein, 1966, 1980) describes all technical and allocative efficiencies of individual firms that are not scale/scope dependent 19 For a discussion on the strategic role of firms that supply outsourcing services, see, for example, Jonash (1996), Chesbrough and Teece (1996), and Rubenstein (1994)