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IJMBS Vol. 2, Issue 2, April - June 2012 ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print) Service Innovation in Banks for Sustainability Y. Ramakrishna Vignana Jyothi Institute of Management, Hyderabad, AP, IndiaAbstract IV. Innovation in Banks in Terms of ServicesDuring the past one decade, one of the sectors which underwent Innovation has always been a sought after area for organizationsvisible sea-change through innovative strategies is undoubtedly the in any country. Innovation is identified as the main driver forbanking sector. The sector has been growing at a fast pace in India companies to prosper, grow and sustain a high profitability (e.g.and is challenged with several aspects like new regulations from Drucker, 1988; Christensen, 1997). Research (e.g. Ford, 1996;time to time, changing customer needs and perceptions, changing Kanter, 1988; Van de Ven, 1986; Wolfe, 1994) suggests that thetechnology and changing operations. Technology has been playing term ‘innovation’ can be defined in terms of a new or innovativea crucial role in the tremendous improvement of banking services idea applied to initiating or improving a product, process, orand operations. Indian banking industry has moved way ahead both service. Innovation has been a buzz word in banking right fromin terms of offering value added services and delivering quality beginning. Many researchers have contributed their best towardsservice. It was thought that the world financial crisis would impact developing frameworks for innovation. Several authors havethe Indian banking sector in a serious manner. But, because of the developed various frameworks, drivers, and steps on how to bestrong foundations of Indian banking system with the support from innovative from an organization perspective.well structured financial systems, the anticipated impact of the The attempt towards innovation has been more so in India dueworld crisis was almost insignificant. Instead, it helped the banks to the country’s emergence and growth, more or less, in all theto get strengthened further and become closer to the customer with sectors. The banking industry has been on an unprecedentedinnovative approaches. Banks appear to be on the path of achieving growth trend during the past decade in the country1. The sectorsustainability and a long-term survival because of innovation. This today is fast paced and is constantly in the throes of change,study aims at identifying the initiatives of some public and private with new regulations, new processes and new policies in place.sector banks in India towards sustainability through a planned and Technology has played a critical role in the past in shaping the waysystematic Service Innovation. Study also focuses on some of the things are today, and will continue to do more than ever before.recent innovative trends in banks in India. Innovation models of From being just a support function, technology is now regardedBessant and Tidd (2007) and Six Dimensional Model of Service largely as a strategic function aiding banking organizations. MostInnovation developed by Pim den Hertog, Wietze van der Aa and of the success achieved by this industry can be attributed to the everMark W. de Jong were used for this purpose. changing innovative trends in technology. Service operations like Service Delivery Systems and Service Quality have dramaticallyII. Objectives of the Study become customer-centric during the past decade. The importance• To identify and analyze service innovation initiatives in select of service delivery and its impact on improving satisfaction and Private and Public Sector banks retention of customers, improving sales and market share, and• To make a comparative study of these initiatives with improving corporate image cannot be overstated. (Lewis et al., reference to the two innovative models of Bessant and Pim 1994). Banks in India and other countries have largely implemented den Hertog service delivery technology as a way of augmenting the services traditionally provided by bank personnel. Implementation resultsIII. Methodology both from the need to reduce the cost of delivering serviceThe study is a conceptual one with detailed review of literature. primarily through personnel, and the corresponding need to meetFor the purpose of the study, the official web sites of the four banks the challenge posed by technologically innovative competitorswere considered along with additional literature. The period of (Byers and Lederer, 2001). Some of the reasons for the awarenessthe study is for three months from January to March, 2011. Two by the banks regarding these challenges are impact of deregulation,models of innovation from the available literature are considered rapid global competition and networking, the rise in personalfor the study. They are, wealth and increasing customer expectations. Many external• 4Ps of Innovation model by Bessant and Tidd (2007) forces like political, economic, social and technological and• Six Dimensional Service Innovation Model by Pim den internal forces like customers, employees, organization structure, Hertog (2010) product development, service delivery have great impact on theThe above two models are applied on the current strategies of innovation in banking (Chanaka Jayawardhena and Paul Foley,service innovation adopted by two public sector banks and two 2000). Innovations are discontinuous because innovation isprivate sector banks of India. These are, difficult and “only accessible to people with certain qualities”• State Bank of India (Schumpeter, 1934, p. 228). Schumpeter recognized and felt that• Andhra Bank entrepreneurs seek profit thought innovation, transforms the static• YES Bank equilibrium into a dynamic process of economic development• ICICI Bank which in turn revolutionizes the patterns of production by exploitingAn analysis has been carried out by applying the above models an innovation or new pattern of production. Scott M. Davis andfor identifying and comparing various strategies adopted by the Kristin Moe (1997) have framed eight steps that effectively takeabove banks in line with the selected models. a company from customer-driven needs and wants assessment to final commercialization. These eight are, Planning and Direction setting, Market problems and need exploration, Problem solving and idea generation, Concept development and business analysis,80 International Journal of Management & Business Studies w w w. i j m b s. c o m
ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print) IJMBS Vol. 2, Issue 2, April - June 2012Prototype development, Plant scale up, Commercialization, Post- interaction, new value system/business partners, new revenuelaunch check up. Joseph P. Eshun Jr., 2009 has discussed the role model, new organizational or technological service deliveryof innovation in entrepreneurship in his article titled ‘Business system. The first dimension is Service Concept or Service Offering.Incubation as Strategy’ and concluded that the three inter-related The second dimension is the New Customer Interaction and thepillars of entrepreneurship, creativity and innovation are important role customers play in the creation of value. The third dimensionfor business incubation. is the New Value System or set of new business partners who co-produce a service innovation. The fourth dimension is relatedV. Service Innovation Models to new revenue model. The fifth dimension is the new deliverySeveral innovation models have been proposed by various authors system; personnel, organization, culture. The sixth dimension isunder various titles. Innovation has been categorized into business technological, which is a new service delivery system.model innovation, operations innovations, product innovation etc.Business model innovation refers to activities that considerably VIII. Application of Innovation Modelschange the structure and/or financial model of a business. Every The two models of innovation were applied on innovative strategiescompany has a business model, whether they articulate it or not. of four banks in India. The new innovative ideas of these banks inAt its heart, a business model performs two important functions: terms of services offered are mentioned below. For the purpose ofvalue creation and value capture. study, recent and innovative services are only considered.Operations innovation defines improvements in the effectivenessand efficiency of fundamental business processes and practices, A. State Bank of Indiawhile product/services/markets innovation refers to the creation of State bank of India, the largest public sector bank in India, offersnew or fundamentally differentiated products, services or activities the following innovative services.in markets.For the purpose of this study, two models of innovation are 1. SMS Unhappyconsidered. The first one is Bessant and Tidd’s model of 4P’s of This innovative idea was initiated by Mr. Siva Kumar, Dy.Innovation and second one is, Pim den Hertog’s Six-Dimensional Managing Director of SBI. Any customer who wants to lodge aService Innovation Model (2010). complaint sends the message “Unhappy” to a specified number (8008202020). The Happy Room then calls the customer andVI. 4Ps of Innovation records the details of the complaint. The complaint is thenBessant and Tidd (2007) identified 4Ps of innovation: (1). Product forwarded. SBI has received thousands of such messages sinceInnovation, (2). Process Innovation, (3). Position Innovation and its commencement and this service is a great success. Other banks(4). Paradigm Innovation. have also started imitating this service.Product Innovation is new designs of products or features seen intangible products such as house appliances, etc. Process innovation 2. Crorepati Only Branchconsists of fundamental changes in fabrication procedures or SBI has launched first of its kind branch for High Networthmodifications in manufacturing methods, sequence, or equipment Individuals (HNI) where it takes minimum Rs 1 crore to openused to create products, as exemplified by Ford’s pioneering an account, and that too on invitation only. This branch offersinvention of the assembly line and mass production techniques. specialized banking facilities like relationship managers, 24/7Position innovation refers to contextual shifts with regard to the lockers, extended banking hours, doorstep pick-up and dropway products/services are introduced. Illustrating this, Bessant facilities, in addition to pampering customers five-star amenitiesand Tidd (2007) cite the ‘‘makeover’’ of Lucozade in UK (an at the branch. “We have opened as many as 50 accounts so far.established glucose-based drink that was traditionally used to We are confident of opening another 150 by the end of the currenthelp children and invalids in convalescence) where it has been fiscal,” as per Mr. Shiva Kumar, Chief General Manager, SBI4.repositioned as a health beverage aimed at the growing health According to SBI, an attractive feature of the branch is 24 hourand fitness market. open lockers. The bank also is providing special dressing roomsFinally, paradigm innovation refers to changes in mental models for customers to cater to the needs of late night function goerswhich frame the actions or behaviors of a social entity and segment.motivates their interest in performing new routines or engagingin practices that may have previously been devalued. For example, 3. One Rupee Bankconsumer skepticism about on line shopping during the early years In its urban financial inclusion initiative, SBI has started a newhas declined partly due to advances in computer graphics and innovation through ‘One rupee bank’. A customer can open anflexible merchandise return policies. As a result, the legitimacy account with just one rupee through the bank’s kiosks5. This ishas increased as more and more consumers have embraced and a part of SBI’s service through kiosks, an initiative to provideendorsed the practice. Thus, a paradigm innovation may lead to banking services to under-banked sections of society.shifts in perceptions, values, and belief systems that generate Other innovative strategies of SBI also include, Online Education,new actions and behaviors as well as motivate new practices or Online Home, Online SME, Online Demat, Online Car Loans,routines. USA Patriot Act Certification, SBI Loan for Pensioners, e-Invest (IPO investments. SBI Yuva Card (18-30 years), CAG (CorporateVII. Six Dimensional Service Innovation Model Accounts Group), Cyber Plus and Swarojgar Credit Card etc.A conceptual framework for service innovation was developedby Pim den Hertog (2010) through a Six-Dimensional Service B. Andhra BankInnovation Model. They define Service Innovation as a new service The innovative services offered by Andhra Bank are, SMSexperience or service solution that consists of one or several of Upset, Internet Banking, Mobile Banking, MPay, SMS Banking,the following dimensions: new service concept, new customer AB Online Shoppe, AB Bill Pay, AB Lock Box Facility (NRIw w w. i j m b s. c o m International Journal of Management & Business Studies 81
IJMBS Vol. 2, Issue 2, April - June 2012 ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print)cheques), AB Speedway, Credit Flow to Minorities, AB Kiddy problems.Bank, IndiaFirst Life Insurance etc. 9. Money MonitorC. YES Bank-Innovation at YES Bank7 Savings account customers get an online personal finance andThe following are some of the innovative initiatives of YES bank, wealth management software.which is one of the leading banks in the country. 10. YES Assist1. Outsourcing An innovative service operation to provide Concierge Services,Technology is outsourced, ATMs are outsourced, even branch Medical Assistance, Home Assistance, Automobile Assistancebuildings may be outsourced. and Travel Assistance YES Bank’s Direct Banking strategy focuses on leveraging of2. Knowledge Banking technology to bring about a paradigm shift in the way BankingApart of providing common banking solutions, the bank executives services are provided to the customers in India. YES Bank hasalso act as consultants delivering business solutions. adopted a complementary “Bricks & Clicks” model and developed a UNIQUE DIRECT BANKING proposition to reach out to its3. Microfinance Direct customers with superior Product Delivery and internationallyAmong the earliest to start offering micro-loans directly to poor benchmarked Service proposition.customers. D. ICICI Bank4. Futuristic Branch Undoubtedly, the pioneer of Private Sector banking in the country,A chip embedded in the debit cards of top customers alerts staff ICICI Bank has lot of innovative feathers in its cap. Some of itswhen one walks in. An executive meets him and greets him by recently launched innovative services are,name. This technology is on trial in the South Extension branch • Online Account Openingin Delhi. • Money Manager • Gold Online5. Double Security • Mutual Funds OnlineBesides their regular password, a second code is also generated • Forex Onlinejust in time, and delivered to the customer’s mobile. • Life Insurance Online • Shop on iMobile6. Honey Farming • Mobile Money Transfer (IMPS)The bank has extended small loans of about Rs 25,000 each to • Investments at ATMover 2,000 bee farmers. The farmers provide their stocks of honey • Payments and Transfers at ATMas collateral. • Compliments and Complaints • TV Banking7. YESProfessional Entrepreneurship Programme (YPEP): The bank IX. Analysis of Service Innovation in Bankstapped the B-school alumni network to hire top-notch graduates The service innovation of the above four banks have been analyzedunhappy with the jobs they had chosen. That’s now become a and various services offered by these banks were tried to fit into thecampus strategy. Currently, there are 270 4P’s Innovation Model and Six Dimensional Service Innovation model.8. Responsible Banking The results of the analysis are presented in the following twoA key differentiator for the bank, the programme’s aim is to tables.develop innovative business solutions for social and environmentalTable 1: 4P’s of Innovation Model State of Bank of Andhra Bank ICICI Bank YES Bank India Online Account Product Innovation One Rupee Bank AB Kiddy Bank Honey Farming Opening Responsible Process Innovation SMS Unhappy SMS Upset Investments in ATM Banking Professional Expansion Position Innovation Technology Updation IMPS Entrepreneurship abroad Program Bricks and Clicks Paradigm Innovation Mobile Banking Internet Banking Customer Friendly Model82 International Journal of Management & Business Studies w w w. i j m b s. c o m
ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print) IJMBS Vol. 2, Issue 2, April - June 2012Table 2: Six Dimensional Service Innovation Model State of Bank of Andhra Bank ICICI Bank YES Bank India Service Concept or Mobile Money SMS Unhappy SMS Upset Knowledge banking Service Offering Transfer New Customer Financial Inclusion Crorepati Branch Credit flow to minorities YES First for Women Interaction Initiatives Link with Kirana New Value System AB Lock Box Facility Online Banking Money Monitor Shops One Rupee New Revenue Model IndiaFirst Life Insurance Money Manager Microfinance Direct Banking Online Account New Delivery System One Rupee Bank Mobile Banking Double Security Opening Banking Technology Edge New Technology Internet Banking TV Banking Anywhere and OutsourcingX. Conclusion  Drucker, P.F.,“The coming of the new organization”, HarvardIt is observed that banks in India are moving towards sustainability Business Review, Vol. 66, No. 1, pp. 45-53, 1988.through innovation and innovative service operations and offerings.  Ford, C.M.,“A theory of individual creative action in multipleThe sample considered here for analysis has proved this point social domains”, Academy of Management Review, Vol. 21,very clearly. The trend is evident in both public sector as well 1996, pp. 1112-42.as private sector banks. It is found that both types of banks have  Henry Chesbrough,“Business Model Innovation – it’s notembraced service innovation as a part of their future banking just about technology anymore”, Strategy and Leadership,strategy and are moving continuously towards customer-centric Vol. 35, No. 6, 2007, pp. 12-17.and service-centric banks. It is also found that the innovation is not  Joseph P. Eshun Jr.,“Business Incubation as a Strategy”,limited only to product or process innovations but also to business Business Strategy Series, Vol. 10, No. 3, 2009, pp. 156-model innovation, operations innovation, markets innovation, 166.and more importantly, paradigmatic innovations. These banks  Pim den Hertog, Wietze van der Aa, Mark W. de Jong, 2010,must create and sustain an environment that promotes creativity, “Capabilities for managing service innovation: towards aleverages diversity, and facilitates multidimensional collaboration conceptual framework”, Journal of Service Management,of resources and technologies in pursuit of desirable social and Vol. 21, No. 4, 2010, pp. 490-514economic outcomes in future.  Pooja Malhotra, Balwinder Singh,“An analysis of InternetThe rate at which innovations are adopted by firms constitutes an banking offerings and its determinants in India”, Internetimportant part of the process of technological change.9 Research, Vol. 20, No. 1, 2010, pp. 87-106Out of the four banks, ICICI is found to be more aggressive  Scott M. Davis, Kristin Moe,“Bringing Innovation to Life”,in innovation and it is positioned ahead in terms of services Journal of Consumer Marketing, Vol. 14, No. 5, 1997, pp.offered. 340 – 341.  [Online] Available: http://www.statebankofindia.comXI. Scope for further study  [Online] Available: http://www.andhrabank.inThere is lot of scope for further research in this area of service  [Online] Available: http://www.icicibank.comoperations in banks. The models discussed in this article can  [Online] Available: http://www.yesbank.infurther be applied by conducting an empirical survey to analyzethe perception of customers on these banks.References Bessant, J., Tidd, J.,"Innovation and Entrepreneurship", John Wiley & Sons, 2007. Byers, R., Lederer, P.,“Retail bank service strategy; a model of traditional, electronic, and mixed distribution choices”, Journal of Management Information Systems, Vol. 18, No. 2, pp. 133-156, 2001. Chanaka Jayawardhena, Paul Foley,“Changes in the banking sector – the Case of Internet banking in the UK”, Internet Research: Electronic Networking Applications and Policy, Vol. 10, No. 1, 2000, pp. 19-30 CII 5th Banking Tech Summit 2010, CII’s 5th International Conference, 24th Feb 2010, Mumbaiw w w. i j m b s. c o m International Journal of Management & Business Studies 83