The purpose of this literature review is to investigate the existing theoretical outlook on the leadership function in fostering a creative and innovative banking industry. This literature review will seek the existing knowledge on the banking industrys leaders responsibility in fostering creativity and innovativeness, the employees responsibility towards the same and employee engagement as avenues for innovation and creativity. This literature review will also consider types of innovation and their applicability to the context of the banking industry under study. This literature review also aims to investigate the factors that hinder or act as a barrier to innovation within the banking and financial services sector. This literature review will seek to tackle these objectives individually and as a whole.
In the recent past, the financial services sector has been marked by increased global competition, the transition from paper-based to electronic products and a myriad of regulatory changes (Vrontis & Thrassou, 2013). The ever spinning wheel of technology has allowed banks to extend the reach of their activities and to improve operational efficiency, automating critical services like credit checking and the application and approval of loans. Meanwhile, the rapid growth of electronic payments has brought to the fore the loopholes of complex legacy batch-processing systems and led to the introduction of new technologies that store and transfer data in the real time.
The digital revolution has also brought new challenges among which are the protection of customers from fraud and ensuring the security of the banks data (King, 2012). Customers are increasingly doing business with banks in a virtual world at the together with the traditional call centers and branches. Through traditional methods such as branch visits and contact call centers calls. As a result of the rapid changes and the increasingly competitive nature of the banking world, banks that fail to innovate and compete efficiently across all channels may risk losing their market share to their more creative and innovative competitors (Mccraw, 2007)
2.2 Types of innovation applicable to the banking industry
In the field of banking, innovations are mainly the new processes and models through which banks intend to enter into relatively new levels of functioning and improve their position in the banking market by increasing market shares, building up a client base or rising quality of credit operations and other banking services There are varied types of innovations some which are not applicable to the banking sphere (Agbor, 2008) need to put a comma in between author, date in all your references For example the future banks will be available in the phones. The customers phone would be learning the investments opportunities on an ongoing basis and then it would present them to the owner or the customer (Organisation for Economic Co-Operation and Development 2013). However, there are types of innovation that are perfectly suited to the banking industry and which any bank with a strategy for the future must embrace to stay competitive and relevant in the industry (Gardner 2009)
According to Joseph Schumpeter, innovations are changes with the purpose of introduction and usage of new kinds of consumer goods, new production and vehicles, markets and organization forms in manufacturing (Organisation for Economic Co-Operation and Development 1992 p. 94), regarded innovation as a new scientific and organizational combination of production factors, created by entrepreneurial spirit; implementation of scientific discoveries, inventions into the new technology or new types of products (McGraw, 2007). Innovation as an economic category has been systemized by different studies to bring out different concepts of it. According to researchers like Tidd, Bessant, Santo and others, innovation is a process (Tidd, 2013). Researchers like Schumpeter, Valen and others have systemized and defined innovation as a modification (Flower, Fawcett & Harle 2012). Nixon asserts that innovation is a complex of measures (Jemielniak & Kociatkiewicz 2007) while innovation is systemized as a result (Rihs &Hippel 2008). However, the methodological approaches to the term consideration are not withstanding, scientific and economic discussions today mainly occur in the context of innovation as a process and as a modification. Therefore in many scientific works today, innovation refers both to creation and implementation of something new and its concrete result.
In their article Current State and Prospects of Banking Innovations Development, Krivich and Afanasieva classify banking innovations by their origin, by the innovations goals, by functional content, by product and process content, by the qualitative characteristics of innovation, by the pace of introduction, by the level of expenses, by the object of implementation, by novelty and by demands characters (Krivichi & Afanaseiva, n.d). We shall now examine each of these classes of innovations and how they manifest in the banking industry.
By origin, innovations can be either strategic or reactive. A reactive innovation is aimed at ensuring survival in the banking industry (Krivichi & Afanaseiva, n.d). This includes innovations that respond to the activities of the competition in the market (Anderloni, Llewellyn & Schmidt, 2009). Therefore, reactive innovations are mainly aimed at maintaining a competitive position in the market. Strategic innovations, however, are proactive in character. The primary goal is to sharpen the creative edge of the bank in the market. They are used primarily to gain a decisive competitive advantage in the future.
In terms of goals, innovations can be either operative or perspective. Operative goals are those that mainly seek to target the banks delivery of services and products that is those that affect the banks operations (Krivichi & Afanaseiva, n.d). Perspective goals, on the other hand, are goals that are geared towards improving the bank's image and position on the customers minds and also to change the banks view of its clients (Schatt, 2014).
2.2.3 Functional Content
By functional content, innovations can be classified as industrial, intellectual, administrative, structural and financial. Industrial innovations are those that affect the process of service and product delivery and representation. Intellectual innovations are those that involve expanding the professional and academic knowledge body in a particular discipline. Administrative innovations, sometimes called managerial innovations are those that affect and alter the administrative landscape (Krivichi & Afanaseiva, n.d) .These essentially involve a revolution in the relationship between senior management and the staff. Structural innovations are those that alter the structure of the institution. This could be administrative or otherwise in nature. Financial innovations involve a change in an organizations fiscal policies and habits.
Financial innovations are mostly a result of pressing and dire necessity. As statutory financial requirements and measures became more tedious, banks and financial institutions discovered that most of the customary ways of doing business were no longer yielding profits, that the services and products offered to the public were no longer not appealing nor were they selling (Mushkin 2007). Many financial institutions discovered that their old fiscal policies and financial instruments were insufficient to solicit for funds and that without these funds they would soon be obsolete in the industry. To thrive in these new economic times, financial institutions have had to research into new ways of doing business that might prove appealing to the customer, satisfy the customers needs and thus be more profitable to the organization.
2.2.4 Content Innovations
Content innovations can be classified as content product innovation or content process innovation. Product innovations in banking are mainly dependent on the ability to propose a new range of products and services and the development, improvement and modernization of the new ones. These are the primary innovations that drive a banks competitive outlook. Process innovations, however, are secondary to the product innovations (King, 2012). They are not directly related to the functions of the bank. These mainly include technological innovations, paradigm shifts in innovative structure, process of presentation of services, etc. Product innovations are mostly internal. Internal innovations are those innovations that are directed to the improvement of a banks functional effectiveness. These originate from within the bank. On the other hand, external innovations are investments into innovations of other entities/organizations.
Quantitatively, innovations can be radical, modified or combined. Radical innovations are new introductions. These include the introduction of elementally new banking products and services, application of qualitatively new technologies, their application and usage, and the use of totally new management methods (Goldberg, 2011). Modified changes involve the changing of existing bank products to sustain their life cycle. Combined changes are those that involve the integration of various elements. This is the consolidation of various technologies of representation in a complete package as one product.
2.2.5 Pace of Introduction
By the pace of introduction, innovation can be fast-paced, slowed down, uniform or spasmodic (Goldberg 2011). Fast paced innovations are introduced rapidly, mainly with the purpose of beating the competition to first, or to respond to an urgent need. Slowed down innovations are introduced at a much slower pace. This could be because the bank wants to adapt customers to the innovation gradually, or the cost of the innovation is high so it cant be financed in one accounting period or a host of other reasons. Uniformly introduced innovations are those innovations that are introduced at a steady pace, constant, not slow and neither fast. This is the option that increases prudence, minimizes the risks and is considered optimum. Spasmodic innovations are introduced at intermittent and uneven pace. This mainly involves the use of random phases and pilot trials.
2.2.6 Technological Innovations
There are stand alone, technological innovations, which deserve mentioning on their own due to their capacity to change the nature of the banking industry for good. Along with Internet-banking, mobile-banking has been primarily responsible for increasing rates of development. The introduction of mobile banking services in the modern global economy is one of the chief goals of participants in the market sector of wireless technologies; the companies providing payment transactions, financial institutions, and telecommunication firms (Flower, Fawcett & Harle, 2012). Though it is still necessary to solve many problems in this direction, mobile banking incomes grow, and according to the international analysts (Volberda, 2012), the growth tendency would remain in foreseeable prospect. For the banks of the world, it is an excellent chance to learn a new market of wireless banking services, to attract more clients and get a new real source of replenishment of their incomes. For the leadership of these banks, each innovation in this aspect is a critical decider in the cut-throat competition in the banking industry. Innovation such as the use of mobile banking should motivate leaders to encourage creativity in their organizations so as to promote more technological innovations which will increase efficiency in the banking sector.
2.3 The Leadership Function in Supporting Innovation
Due to its p...
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