Like numerous other financial institutions in the UK, British banks also transform it from ‘traditional’ structure and services toward what, it alleged as a more competitive form. To meet up this challenge, the banks saw a requirement to change the culture of the organization from its customary, primarily, but administrative culture’ to what was regarded as a modern ‘service and selling culture’ (Downes, L., and Mui, C. 1999). This strategic plan was executed in various ways mainly through a general and broad restructuring involving the centralization and standardization of processes; but also through more investigational and radical modes of business. Both of these approaches involved substantial IT support for organizational developments. The most considerable organizational development involved the centralization of ‘back office’ processing and the creation of specialist centers, such as lending centers, service centers, and securities centers, all servicing ‘high street’ customer service branches.
These changes requisite substantial investment in developing and configuring what was called ‘the retail banking platform’: fundamentally those sets of applications and linked terminals that supported high-street banking as we discern it. Additionally there was a series of more inventive IT initiatives, undertaken as pilot projects, investigating the possibilities of distant access through video links to specialist advice; the electronic transfer of documents linking the bank’s highly distributed sites, and so on. As is common in commercial conditions these systems were efficiently ‘para-chuted-in’ to the particular locations.
The banking and financial sector are mainly an information dealing branch of the economy. The developments in information and telecommunications technology and its swift diffusion in business and society are the most significant force of change for banks long terms. The financial sector is, for instance subject to more basic change than the manufacturing industry. The added value of the banks, and therefore the economic validation of their existence, is based on a guarantee of diverse transformation and transaction functions within the range of financial intermediation. Developments in information technology have caused time and detachment to collapse. These developments are the most significant parameters for the production and allocation of financial products. This technological development has basis the banking sector to become a highly investment-intensive division of the economy within the last quarter of a century. Specialization, critical mass, and a large number of scale, network, and platform effects play an influential role (Geiger, H. 2000). The consequences of technological change can be seen in three areas in particular:
Production. The way in which financial services are formed is changing drastically (processes, structures). The customary value chain has been broken and assembled in a different way. The depth of product range in the banking sector is being fundamentally reduced. The new motto is “market replaces hierarchy.” (Geiger, H. 2001)
Products. Information technology permits the construction of new financial products by reorganizing the transformational elements. These new products often convene customers’ needs better than customary products, which allowed (former) suppliers to realize high yields with low capital commitment.
Marketing, customer bonding. The electronic distribution channels struggle with traditional channels in diverse ways: the need for spatial propinquity is overcome, services are available right away and around the clock, interfaces are consistent, the distribution costs are considerably reduced, and various “technical intermediaries” appear between the bank and its customer.
All three developments not simply change the competitive condition between existing competitors but also permit a multitude of diverse new suppliers to enter the usual sphere of banking. There are diverse reasons that this does not extend more swiftly:
Such basic innovation processes obviously require a certain amount of time to assert themselves. The innovation cycles have, though, become radically tighter when compared to former technological innovations (e.g., the telephone).
The industry is confined from new competitors by supervision and directive, which results in a momentous delay in the adoption processes. This cannot, though, prevent these progressions long terms.
The customers, mainly private persons, are conventional in their financial behavior, and several changes may well only be established and accepted by the next generation of clients (Janssen, M. 1999).
The reorganization of the bank was instigated through the redeployment and centralization of functions. As the level of the functional units improved issues of management control and information became dominant, mainly in the identification and calculation of labor costs. Management information provided a variety of purposes and had formerly been collected in a diversity of ways, but as the move toward larger and more geographically discrete units progressed variously forms of electronic monitoring was introduced. Such management information systems (MIS) became ever more important.
The careful construction of management information exposed in the extract becomes a resource for both rationalizing future work and progressively more to predict or expect volumes of work and staffing. The explanation is not simply a depiction of a certain body of work done over a certain period of time. It is a portrayal that essentially informs their understanding of just what the work they are doing might amount to. Considered within it are representations of what some usual amounts of work to be established and got through might consist of, exposed in both intervallic totals and averages. Inescapably the production of an ‘adequate’ description of the work needs some sort of previous knowledge of just what ‘adequacy’, in the terms of the organization, might amount to. The totals, percentages and so on that mutually make up the ‘management information’ amount to more than simply a ‘truthful depiction of the work we did’. The realistic value of such number work exists in the way it comes to inform work provisions through understandings of what is and is not virtually attainable, and to provide for rationalizations of particular instances of failure or accomplishment.
All of the above divulges the degree to which management information is not something that unproblematically inhabits within the computers, to be accessed at the simple push of a button. In fact management information is a ‘representation’ of the work of individuals, teams, and entire sections that has to be agitated and attained in a rich interweaving of computer-based materials and paper documentation. Management information was one system in which managers sought to practically attain an exhibited orientation to the much vaunted principle of standardization; to offer ‘adequate’ accounts of the work that their staffs do particular circumstances of accountability; and to turn up at practical decisions as to how to give out the ongoing incursion of work. Lastly the practice of mathematising and rendering real-work phenomena open to further revolution and exploitation in ‘standard’ and ‘generalis able’ terms made management information a resource for the conversation of other issues to do with performance and staffing (PriceWaterhouseCoopers. 1999).
Moreover, the banking industry has been subject to considerable government regulation since at least the thirty. The shape of the banking industry is as much resolute by regulation as the shape of regulation is inclined by the development of the banking industry. During seventies and eighties, banking systems around the world were considerably deregulated, dazzling a prevailing view that regulation had become a deforming influence on the industry, no longer serving its unique public policy goals.
Since that time, there has been a transformation in the form and rationale of bank regulation. Regulation was initially aimed at attaching the banking industry to the ends of monetary policy. Banks were subject to controls on the interest rates they could propose on deposits and charge on loans, and were also often subject to quantitative and qualitative controls on their lending. The intent was to permit central banks to manage the volume and direction of bank lending so as to manage aggregate credit conditions.
Bank regulations of this type were distant while it became clear that they were more and more ineffective and incompetent instruments of public policy (Schmid, B. F., and Lindemann, M. A. 1998). Central banks switched to market-oriented method for the implementation of monetary policy, mechanisms that relied on interest rates being liberated to move and banks being free to lend as they saw fit. Such a change in the method of central banks requires abolition of direct controls on banks.
These days bank regulation focuses mainly on safety and soundness (so-called prudential regulation) somewhat than on monetary policy. Since late eighties, most countries have implemented a version of the risk-weighted capital sufficiency regulations (Singer, M., Stephenson, J., and Waitman, R. M. 2000).
The developing regulatory framework within which banks function influences the scope and shape of their activities. Spiraling controls on balance-sheet activities have leaned to encourage banks to move their business off-balance sheet. This has sequentially stimulated banks’ participation with market-oriented activities, together with investment banking and securities trading, where the dogmatic burden is moderately light.
The most modern regulatory developments comprise the emergence of so-called incorporated regulation and the growing accent on disclosure. Given the growing convergence of financial activity across customary boundaries, governments in many developed countries have moved to assimilate or combine the directive of banking, insurance and, somewhat, funds management. The importance is on functional rather than institutional regulation. Financial functions (e.g., deposit-taking) are subject too directive as opposed to detailed institutional forms (e.g., banks and insurance companies).
There is also an increasing emphasis on revelation as an alternative to standards based directively. This development reveals the increasing involved ness of financial institutions as well as the drift towardly market-oriented (and away from balance-sheet-based) financial products and services. The more financial institutions base their operations on the exchange of financial claims, the less they rely on balance-sheet intermediation (Smith, M. D., Bailey, J., and Brynjolfsson, E. 1999). In consideration with this evolution, it becomes more proper for regulators to rely on market conduct and revelation regulation in preference to prudential standards. The former is better adjusted to market exchange as the latter are intended to govern balance-sheet intermediation (Stäger, C. 1999).
The new challenges require clear strategies. Three elements are of customary importance:
It is essential for numerous institutes to focus their market positioning. The axiom is no longer to proffer everything to all customer segments. Now it is to provide those segments whose rations can be met by a specific private bank that, thanks to its special capabilities, has a unique product. A clear peculiarity from suppliers in the top retail segment makes sense. Image and branding deliberations play a part here, as does the insight that the majority private banking institutions do not have a cost structure that allows them to advantageously serve these segments.
The architecture should be suppler. It is still the case that numerous private banks only sell their own products and services and desists from selling products from other suppliers. The worth of a private bank that performs its business with customers’ interests in mind should consequence from giving their clients a general idea of the products on a market that is approximately not possible to keep track of. In addition, assessment of products and their risk-adapted performance and edifice of a customer-specific overall solution is essential.
Intangible capital (employees, networks, and trademarks) is harder to develop. Private banking vestiges, for the time being, fixed on personnel. Employee continuity and quality have a crucial influence on success. Innovative career models and compensatory plans require to be offered so as to recruit and keep top personnel. Networks will considerably increase in significance, set against a background of an inclination toward “unbundling.” As a network provider, private banks organize various product and service suppliers (e.g., news, research, and reporting instruments). The network must be in a position to offer the customer the best potential overall solution and the contributing partners the opportunity for increased value. Through growing competition, a stronger focus on explicit customer segments, and increased cooperation, a strong trademark with a patent message is indispensable. Until now, British suppliers in private banking have leaned greatly on the reputation of “British private banking.” Though; this term could become too general to expand as elusive capital in the future. In addition, private banks will have to develop their own trademarks which obviously converse their position on the market. Excepting the element of personality in the customer–bank relationship, which is inclined by particular employees, an institutional personality must be developed so as to win the customer’s favor (Wallace, P. 1999).
Clients are more organized to use non-bank or autonomous advisor information services if the quality and price are right. Banks presently enjoy the faith of investors, but this can transform in future generations. The generation that is growing up with trademarks such as Microsoft, Amazon, or E-Trade will use the financial services of these companies. A current example is Sony’s advance into private and retail banking. Particularly, those companies that have a great customer base (AOL), and that control a distribution channel (Nokia, Psion) and/ or have specially marketing capabilities, will be the ones that more and more compete with the banks. Within banks a new development in customer segmentation is establishing to emerge. It is no longer the degree of the assets, but the service in demand (customers who need advice or administration and individual customers) that is of significance. The market is ever more developing according to the wishes and desires of the customers. Since the customers have better know how and real substitutes, they are in a much stronger situation than ever before.
The bank’s role as a supplier of information is as a result changing. It is no longer just the financial institute that is used as a source for justifiable financial information. In addition, as a consequence of this development, the subject of money and investment will lose its inscrutability as elite merchandise and become consumer goods. Better access to information and the investor’s improved ability to practice information will lead the investor to make autonomous decisions. The customer will also more deliberately compare services and prices and will consequently change banks more regularly, or rather will have more than one banking connection (reduction in bank loyalty). Dissimilar handling of small and large investors will more and more be looked upon with distrust. The small investor as well wishes to have high-quality services at a fair price. The fact that future investors will have already learned how to contract with modern technology in their first years of school will make certain the unproblematic use of the personal computer and the Internet.
Changes in age structure will have an effect on both the qualitative and quantitative work of the private customer segment and the constitution of requirements of the financial services in demand. Senior citizens will symbolize a dominant demographic force in the future. Despite advisory services and products modeled according to the phases in clients’ lives, the requirement for individual solutions will also increase. The baby-boomer generation is coming closer to retirement age, a time when accretion of assets is at its peak. This group will become the leading group of investors. Differences in behavior from that of earlier generations can be pragmatic according to the example of Internet banking. Those in the mid-thirties perform the greatest number of banking transactions on the Internet. This generation will spend a large portion of their asset through institutional investors or through direct investment on the stock exchange. Generations X (those born between 1965 and 1981) and Y (those born after 1982) has technological expertise are more cynical of state retirement schemes, will trade much more often than their parents, and will invest their money on the stock exchange much earlier.
The changes illustrated put forth an extensive influence on the behavior of future customers. A common denominator will be a call for a modular range of products with integrated insurance benefits and a longing for more flexibility. Though, differences will continue in the choice of sharing channels. The traditional customer will persist to use the channel of habit mainly the cost-intensive bank window and value personal contact with bank representatives. The innovative new bank client, conversely, will gradually more use new distribution channels such as the Internet and call centers. Though this technology reduces costs, the danger of decreasing customer devotion and product interchangeability must not be underestimated.
Thus, the most significant point to recognize is that demand often grows more gradually than technological opportunities. The consequence is a preliminary uncertainty of the market participants. The prospect demographic core’s customer group will, though, reduce this difference in time. “Disruptive technologies” and Internet banking will as some results are the market requirements of the future, yet if the majority of today’s most significant clients do not yet believe them a basic requirement. This is a characteristic feature of “disruptive” killer applications: they are always valued first by the customers who are least advantageous for the company.
In conclusion I must say that the British financial and banking center, like other financial centers, will go on to develop under the sign of e-commerce and will have to meet new challenges. It is hard to predict which old and new suppliers of financial services will come out from this transformation process as winners. Another prediction seems easier: the customer will be the biggest winner. Adam Smith’s “invisible hand” will confirm of this in the electronic market. The British financial center is often accused of leaning too greatly on banking secrecy and of neglecting technological and strategically change that would be desired to meet the new customer needs. Britain has an exceptional infrastructure, advantageous general conditions, and consequently a good position as a universal competitor. The “British banking” trademark is perhaps strong enough to keep its position in international private banking for the next five years. What is more decisive is whether the British banks can also persist to extend their comparative strengths: their trademark is not so much private banking, but management of the private clients’ relationship.
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