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Hard and soft ways to create value from information flows: Lessons from the Canadian financial services industry (Note 1)

Article submitted to the CJAS Special Topic Issue on Electronic Business and Commerce in Canada
by Albert Lejeune* and Tom Roehl**

January 20, 2003

* Professor at the University of Quebec in Montreal, School of Management (ESG), Department of Management and Technology, P.O. Box 8888, Centre-Ville Station, Montréal, Québec, Canada H3C 4R2. Telephone: (514) 987-3000 #4844, fax: (514) 987-3343; e-mail: lejeune.albert@uqam.ca. ** Assistant Professor at Western Washington University, Bellingham, Washington, College of Business and Economics, Department of Management Parks Hal 351l, MC-9075, Bellingham, WA 98225-9075. Telephone: 360-650-4809, fax: 360-650-4844, e-mail: Tom.Roehl@wwu.edu.

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Abstract: Over an extended period during the 90’s, we studied the Canadian banks transformation using long interviews with the top management of five banks and secondary data. We observed how the Canadian banks have changed to take full advantage of the increased technological potential for developing and exchanging information. The failure of the ‘Pure players’ have shown that the information advantages of the Internet are not sufficient to lead to sustainable competitive advantage. Existing financial institutions can make better use of that same information flow by combining it with organizational changes that make the new information more strategically valuable. By aligning information technology and the hard elements of their organizational architecture with soft elements like reputation, cooperation and information sharing, traditional banks have developed powerful advantages in the 90’s. Résumé: Nous avons étudié durant les années 1990 la transformation des banques canadiennes à l’aide d’entrevues en profondeur et l’utilisation de données secondaires. Nous avons observé les changements majeurs de ces banques pour exploiter au mieux le potentiel croissant des technologies de l’information. L’échec relatif des banques virtuelles a démontré que les avantages informationnels basés sur le réseau Internet ne mènent pas à des avantages concurrentiels durables. Les banques traditionnelles ont réussi à faire un meilleur usage des flux informationnels en les combinant à des changements organisationnels valorisant stratégiquement leur information. En alignant les technologies de l’information et les éléments « hard » de leur architecture organisationnelle avec des éléments «soft» comme la réputation, la coopération et le partage d’information, les banques traditionnelles se sont créés des avantages stratégiques puissants.

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Introduction: The problem area
Value chains, processes, and activities are kept together by the “glue” of information. Since this glue has started melting (Evans & Wuster, 2000), the traditional physical model of a bank has been coming apart. Some observers contend that specialization will inevitably become the dominant business model in banking and financial services (Klinkerman, 2000). The new entrants would be small specialized electronic banks. However, despite the hype, Web services won’t disrupt the financial services industry any time soon (Landry, 2002). In fact, the traditional banks have extended their dominance to internet banking in Canada (Insurance Canada, 2002). How did the generalist banks successfully struggle to find effective ways to utilize the newly available technologies to reenergize their organizations using these new technologies? Canadian banks found themselves in the mid 90’s with an organization that did not have good flows of information with its most important clients. They needed to find ways to take advantage of the new information technologies within their organizations.The bank – soon transformed into a “one-stop” financial services group – becomes available where customer business is. As the number of branches has steadily diminished, the level of integration between traditional and automated branches has become more sophisticated. In short, the banks recreated their contact points with their customers to take full organizational advantage of the information flows that the new technologies allowed. Why is this new combination superior to a banking relationship that is based solely on new information technologies themselves in an Internet bank? Wouldn’t it be more efficient to start a new Internet bank from scratch? Canadian banks initially thought so.

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Matthew W. Barrett, former Chairman and Chief Executive Officer of the Bank of Montreal, justified the mbanx Internet banking start-up in 1996 with the following arguments: “We have combined outstanding technology with outstanding people to offer a much broader group of clients the kind of service and advice that was previously the purview of corporate and wealthy clients. This is really the democratization of banking – high tech and high touch for a broader number of Canadian households.” In other words, the e-bank concept was once thought to deliver to be a better mix of hard high tech and soft high touch: the best digital access coupled with the best customer relationship management. In the Canadian banking industry as in other developed countries, the e-bank model has not met the optimistic predictions of the early 1990s. The mbanx business model is a failure, and in Europe, the virtual banking approach has encountered the same profitability disappointments. Very few US Internet banking units were profitable in 2000, and few expect profitability anytime soon. Our paper will present a set of theoretical concepts that can help us understand the reasons for this business failure. The main argument of this article is that the e-bank has been an inferior delivery vehicle for the combination of high tech – high touch banking that the new technologies offered. Only a combination of the technology and organization can provide an advantage in the marketplace. Technology alone is not enough.

This article will unfold as follows. The next section reviews the concepts of information flow and invisible assets necessary for sustained competitive advantage and places the research within the streams of organizational architecture and information management research. We describe the nature of the sample from the Canadian banking industry and

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explain our research methodology. We then substantiate our argument with findings from interviews with Canadian IT and general managers in Canadian banks. The final section explains what our research findings imply for strategic management, organizational architecture and technology.

Literature review
This research draws on the interplay between resources, technology and strategy leading to new capabilities (Foss & Robertson, 2000). Particularly, it draws on three streams of research: The Resource-Based View (RBV) of strategy research, the organizational architecture and transformation research and the research on information management. The notion of soft vs. hard dimension is derived from the opposition between the invisible (or intangible) vs. the physical (or tangible) assets in the RBV. Specifically, the invisible assets will be described as information flows following the pioneering work of Itami and Roehl (1987), a contribution opening the way to the knowledge concept analysis in strategic management (Nonaka & Takeuchi, 1995) and introducing the intellectual capital story. Second, using concepts specific to the organizational transformation and architecture (Kay, 1995; Morabito et al., 1999; Wigand et al.1997; Nadler et al. 1992) we refine the Itami and Roehl concepts by proposing a definition of the hard and soft dimensions of the information flows using the concept of hard and soft contracts. Following Kay (1995), the firm is a collection of contracts. Its internal organization is a set of arrangements between principals and agents. Its relationships with its competitors are non-cooperative games and those with its suppliers and customers are co-operative games. Our conceptual framework highlights the distinction between the hard and soft dimensions because of the non-imitability of those soft arrangements or

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architectures. What is clearly formulated, formalized, explicit and precise in hard contracts in the physical or in the digital world can easily be imitated and won’t be the source of sustainable competitive advantages.

From the Resource-based view to the information flows
To turn the new elements of e-commerce technology and Internet information systems into competitive advantage, the firm must find some way to turn them into an invisible asset that other firms cannot easily copy (Barney, 1991). Yet the very nature of the ecommerce revolution, its openness and the ability of all players to access the new technologies, means that hard aspects alone are not going to be easily transformed into a competitive advantage for the firm. Customers may still benefit from lower costs and increased bargaining power. Yet firms will have to find something extra if they are to find competitive advantage in these new technologies and systems. This can be found in the soft aspects of information management (Brynjolfsson & Hitt, 2000). Even if hard elements are easily accessible, two possible sources of competitive advantage remain: effective utilization of these hard technologies within the wider organization of the firm, and unique combinations of the soft organizational and hard systemic aspects of the ecommerce revolution. We will show that some firms in the Canadian banking industry, over a much longer period of time, have been able to turn the new hard elements in their information systems into competitive advantage. They did this by positioning their organization to take better advantage of hard technologies, and by combining hard technologies with their companywide organizational skills in unique ways. Organizations need to change to make optimal

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use of new technologies (Penrose, 1959). This stimulus can lead organizations to develop new approaches to dealing with information flows. Firms that have capabilities and experience in working together are likely to be able to respond more quickly to the demands of a changed environment. There may be some danger of being trapped in the old routines of the organization (Nelson & Winter, 1992), but these same organizational routines may be helpful in finding ways to make optimal use of the kind of technological change that the e-commerce revolution has to offer. When a firm does make use of these organizational skills, the resulting information flows are more likely to be an invisible asset than those based purely on information technology or information systems. These flows can be from firm to its environment, from customers to the firm and internally to the firm. Competitors cannot easily duplicate the “experiences of working together.” These assets are not easily purchased in the market, and even when created within the firm, take time to develop. A firm that responds quickly to the challenge of new technologies and systems, thus has an organization that has an advantage in dealing with technological change. Combinations of assets can often be used to set a firm’s strategy apart from competitors’ strategies (Itami & Roehl, 1987). Firms that might not have a single outstanding technology may still be able to create a portfolio of invisible assets that allow them to be competitive. International business literature also addresses this issue. Matthews (2002) argues that firms from developing countries can still become multinationals by combining the skills and relationships available globally with a dynamic internal company organization.

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In the case of e-commerce, it is the combination of hard and soft elements that can produce a portfolio of assets that is hard for competitors to easily copy. Firms that combine the hard elements of e-commerce technology and systems effectively, are likely to find themselves strongly positioned in the marketplace (see Globerman, Roehl & Standifird (2001) for examples from electronic brokerage). Systems for knowledge development work best when the firm has created an atmosphere in which organizational innovation can easily take place (Nonaka & Takeuchi, 1995). Thus a firm that has taken the first step of establishing an organization that is able to create soft elements is also able to create new combinations of assets that further strengthen its position (Brynjolfsson & Hitt, 2000; Itami & Roehl, 1987). The RBV school has shed light on the hidden side of the competitive assets: the soft, invisible or intangible assets. They are at the heart of the key capabilities of the innovative firm (Christensen & Overdorf, 2000): for example, leadership and change management as resources, new knowledge creation as processes, and reciprocity and information sharing as values. Ideally, these assets should be created in the course of regular operations, since doing so reduces the cost of acquiring the assets and tests them against the day-to-day issues faced by all employees of the firm. What Itami and Roehl call invisible assets are assets that have these characteristics. Hard resources alone are often easily available to competitors, as Globerman & al. (2001) have shown in the case of the electronic brokerage industry. By focusing on flows, we focus on those outcomes of a new technology that are more likely to lead to the kind of characteristics that have invisible asset advantages.

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Since the beginning of the 90’s the great Canadian banks are mutating, becoming “Giants aware” and demanding new mergers. For these new giants, the Internet is not a disruptive technology (Porter, 2001) but a new way to cut costs, while simultaneously creating combinations of services while better serving the consumer. The Internet had the potential to be a disruptive technology that would allow new entrants in banking to capture market share. Christensen (2001) makes a strong argument for the attractiveness of that kind of strategy, yet this is not the case in Canada or in North America. Established firms have found equally viable uses of and combinations using the same technology, in contrast to the Christensen story where existing firms are not able to make the adjustment.

Concepts from the Organizational Architecture and Transformation Literature
Roy Smith, a professor of finance at New York University, has declared: "In the last 20 years, the banking industry has changed more than at any time since the Italians invented it. Deregulation, globalization and technology improvements have completely altered the way banking functions both as a societal instrument and as a means people use the banking business to make money." (Kelleher, 2000). We must understand that by transformation he is meaning more than reengineering, going virtual, new channels and new IT investments. We need to make a distinction between the transformation (Watkins, 1998; Bartlett & Ghoshal, 1995) and the IT-enabled business process redesign (Hammer, 1990; Hammer & Champy, 1993). Reengineering implies the alignment of two hard architectures, the process – which can be explicitly stated – and the IT-IS deployment, which must be strictly formalized. The collection of

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such precise contracts specifying the routine processes, job skills, roles and behaviours of people and structures constitutes the hard architecture of an organization (Morabito et al., 1999). But the bank transformation implies a redefinition of the soft architecture. A new vision, a new culture, training and learning programs and incentives, teamwork and reciprocity were the hallmark of the best-managed banks of the 90s in Canada, like the Royal Bank mentioned by Quinn (1992). In the 21st century, the traditional bank is competitive only in terms of its complexity that we can define by the enacted alignments between the hard and the soft architecture. The natural metaphor for that is the double helix structure of the DNA, which was described 50 years ago, in 1953 by Watson and Crick. The double structure of hard and soft contracts is bounded together by a number of alignment threads. If hard contracts for data entry, processing and analysis are generating explicit knowledge, that knowledge cannot be generated without the competences, the discipline and the precision of the professionals and employees. If soft contracts are generating tacit knowledge, that knowledge is created along a continuum starting with the hard data. Hidden behaviour like cooperation and information sharing is also a double-helix product. Long-time job contracts and future contract opportunities create a better climate for cooperation and information sharing. Tentatively we can propose that a competitive advantage is obtained only by those organizations whose “double-helix contracts” cannot be precisely stated or identified, and cannot therefore easily be imitated (Morabito, 1999; Kay, 1995). For example, the banks that were slow to transform themselves viewed the ATMs as a substitute to the physical world made of hard contracts: the branches and their real estate contracts and the tellers within the branches and their employment

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contracts. At the same time, the best performers were using the ATMs to test, discover and better segment the local markets. The ATMs were used to channel the customer information and were the first stage in the creation of knowledge before analysis and simulation, learning and knowledge creation using soft contracts. If the RBV model emphasizes the soft aspects of the organizational resources, the notion of an organizational architecture illustrates the details of a soft dimension and its interplay with the hard dimension. Banks too must change to correspond to the evolution of information flows.

Concepts from Information Management: The patterns emerging from the information flows
Key IT initiatives like CRM (McKenzie, 2001), ERP or enterprise systems (Davenport, 2000) and the e-business models (Timmers, 2000; Kalakota & Robinson; 1999; Gulati & al., 2000; Hartman & Sifonis, 2000) are playing a critical role in driving the design of new information flow systems, the creation of new routines (Beer & Nohria, 2000; March & al., 2000) and the new understanding of the information concept associated with the virtual value chain (Nonaka & Takeuchi, 1995; Rayport & Sviokla, 1995; Evans & Wuster, 1999). E-commerce has initially been investigated in the area of technology and the MIS systems that manage it. This can be defined as the hard element of the architecture of management information systems. Papers discussing the economic and strategic impact of the Internet also emphasize the importance of information itself and systems for exchanging that information, in this case the market. Both approaches allow for all players to have access to the technology, and expect this to lead to better performance.

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In traditional discussions of information management, it has generally been recognized that hard elements are not sufficient, and that the management of these hard elements matters (Powell & Dent-Micaleff, 1997). E-commerce or E-banking are based on a hard Internet architecture. That architecture enables new business models and organizational structures and cultures; and in an interactive feed-back loop, the new business models secure an effective application of the e-applications inside the hard architecture (see Figure 1). The customer relationship management software (CRM) must go hand in hand with a customer relationship philosophy inside (Ballantyne, 2000) and outside the bank to deliver benefits (Houston & James, 2001; Lejeune & al., 2001). We are looking, in this research, for dynamic alignment between hard and soft dimensions of the banks information flows, which facilitate new patterns emergence, such as profitability and flexibility. The hard dimension is made of more elements than the IT infrastructure and applications. If the hardware, systems and data are, in practice, the technical core of the e-banking, then the formal structures, job skills, roles and behaviours of both the employees and the consumers, are also parts of the hard architecture. Formal preconditions for a new job, new job description urging the tellers to define themselves as advisers and sellers, new organizational structures defining new managerial positions and others are similar to hard contracts leading toward a hard architecture. On the other side, the soft architecture is exemplified in the concepts of tacit knowledge, hidden cooperative behaviour (reciprocity and information sharing), informal structures, learning, people values and the complexity of the products offerings (Kay, 1995; Morabito et al., 1999).

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Figure 1. The interplay between the hard and soft architectures Source: Adapted from Morabito et al. (1999: 103)

enables

Hard Architecture

Ensure effective application of

Soft Architecture

At the end the consumer – considered as a designer (Slywotzky et al, 2000) - can define new rules of the game at the micro level by cooperating and sharing information (Frenzen & Nakamoto, 1993). The marketers objective being to present consumers with information on which to base their decisions. But, as mentioned in the TNO Report (2001), it is not yet clear which on-line service providers are merely re-packaging existing service types and customer relationships, as opposed to developing new business concepts. The next section will put in context the three information flows in the Canadian industry by focusing on the transaction process, conceptually similar in the traditional and the electronic banks.

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The Research Arena: The Canadian Financial Services Industry
The Canadian banking is an excellent source of research on the questions we have raised in the previous section. The industry has been forced to change its strategy due to the challenges of the changing financial system, even before the Internet offered the stimulus of yet further new entrants and strategic options. E Commerce technology seemed to be an especially significant challenge for this industry due to the data-intensive nature of the industry, and due to the attractiveness of 24/7 access and access independent of location. Thus, an investigation of the Canadian banking industry is an important test of the implications of E Commerce for theorists of information management. According to the Fraser Institute, the Canadian financial services industry includes a plethora of institutions such as banks, trust companies, mutual fund providers, insurance companies, investment houses, and credit unions. It is a vital and dynamic component of the Canadian economy. In July 2002, 14 domestic banks, 33 foreign bank subsidiaries and 20 foreign bank branches were operating in Canada (Department of Finance, 2002). The industry employed over 235,000 Canadians in 2000 and had a Canadian payroll of around $ 16 billion. The Canadian banks have deployed over 8,000 branches and 18,000 automated banking machines (ABM), the highest number of ABMs per capita in the world. Canadians conducted 2.2 billion debit card transactions in 2001 from over 328,000 merchants (Department of Finance, 2002). In 2001, non-interest income accounted for over 50 per cent of gross revenues for banks. Beyond its sheer size relative to the economy, the financial services industry is an important facilitator of economic activity. In 2002, 16 per cent of Canadians use the Internet as their main means of

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banking (Canadian Banker, 2002). Our findings from a Canadian sample should thus be useful for other countries as well.

The units of analysis and definitions
It would have been really difficult to engage the bankers into a discussion of hard-soft information flow discussion. So we asked them to tell us stories of some IT applications that are critical to these information flows. Together, the three information flows form a transaction process that is common to all the industry participants.
The IT applications

The data were collected from interviews where our informants were asked to document hard IT applications: ATMs (Automated Teller Machines) or ABMs (Automated Business Machines) and the CIF (Customer Information File). We define the CIF by the existence of one unique access to the customer data (the customer number on the banking card instead of the account numbers), the integration of all the customer and socioeconomic data in one database and the use of a relational data structure that enables queries, reports and analysis.
The information flows

The information concept can be positioned on a continuum that exists between the data and knowledge concepts. Between the two poles, the data, captured at the ATM, are endowed with relevance and purpose that are determined by application of knowledge, in a process context i.e. the application of the CIF as a selling tool (Morabito et al., 1999). The ATMs and the CIF are part of the three key information flows presented in the theoretical section: 1) The corporate information flow that is the information flow from

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bank to customer through the CIF, 2) The environmental information flow, from customer to bank thanks to the ATMs, and 3) the internal information flow. Those information flows display hard and soft properties. The soft dimensions refer to informal and imprecise and/or hidden arrangements that will permit the creation of new routines, new knowledge, more flexibility and open information exchanges by intelligent delivery channels supported by the local IT platform. The hard dimensions refer to the formal, precise and visible arrangements that must be aligned with the soft dimensions.
The transaction process: Toward a real-time bank

The transaction process is a dynamic system which is composed of the interplay of the three information flows. Highly digitalized, the transaction process is conceptually similar for both the bricks and mortar and the virtual banks. The process has three parts. The transaction preparation (ATMs deployment, portals, advertising, merchants management etc.) generates corporate information flow to offer transaction opportunities to the customer. Using those opportunities, a customer making a deposit at a ATM will trigger a transaction generating the environmental flow : this is the completion of the transaction process. The transaction support (data processing, CIF updating, reports creation etc.) uses the internal information flow and is essential for effective organizational response to new information flows (See Figure 2).

Figure 2.

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The three information flows and the transaction process
CUSTOMERS
(ATMs, branches…)

The environment
Transaction preparation
Network

Environmental information flow

Corporate information flow

Customers relationships Transaction completion Transaction support Transaction support

CUSTOMERS INFORMATION FILE The bank
Process
Network

Network

Product
Internal information flow

The result of this combination of new technologies and organizational elements is that those transactions and the events that are triggering them can be processed in real-time (Luckham, 2002; Ranadivé, 1999; Hogan, 1999).

The research approach
After collecting rich secondary data on the Canadian financial services industry, we conducted interviews with 25 vice-presidents and directors of Canadian banks (see table 1). Using an open interview protocol, we asked questions about two issues: 1. The story of deployment of the ATMs and CIF; and 2. The contribution of each of these applications to the bank performance. Each interview was recorded, fully transcribed, sent to the informant to get his agreement and then coded following the grounded theory approach (Strauss & Corbin, 1991). The long interview technique let the informant

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describe freely the main issues around those IT applications. Rich data enable us to describe the organizational and technological contexts.

Table 1 The Informants by Functional Area

Functional Area

Marketing

Information Center

IT Network and Architecture

IS Management

Branches Management

Operations Management
Operations Director

The Mutual Bank The Eastern Bank The Metro Bank The Best Bank The Commerce Bank

Marketing Director and 2 advisers

Director Marketing

VP former IS Development VP Systems actual VP systems Director IT VP Systems architecture

President VP IT Business Unit Systems VP Marketing Director of the Information Center VP Network Management VP IT Network VP Systems VP Systems Regional VP Downtown Regional VP Suburbs Regional VP Downtown Regional VP Suburbs

IT adviser in the marketing function VP Marketing Director of the Information Center

Director Credit Cards Operations Director central back-office management

In choosing in-depth interviews, we have deliberately chosen to build up our analysis via stories rather than from constructs. The preference for a qualitative analysis implies that the group of informants is not treated as a sample justifying quantitative inferences, but it is viewed more accurately as a means to discover "true" categories of variables to explain the phenomenon under study. The results of the initial round of interviews were written up with detailed descriptions of the cases (Lejeune: 1994, 1995). Complementary research was undertaken with graduate

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students in the banking industry. The usual sources of evidence, and the 9,000 coded narrative vignettes, form the raw material of the undertaking. In the tradition of case study research, we present quotations from managers as part of this article, and make this an important element in presenting our case.

Findings
At first glance, our findings confirm the precarious nature of the information flows. The hard contracts are not well defined. They are not aligned; the soft contracts rarely exist in a consistent way. Only one manager out of 25 saw the information flows between the ATMs and the CIF. That manager declared : ”I can’t describe separately the ATMs and the CIF, because the Bank must issue a customer card to enable the access to the ATM. And that means that we must clear our customer databases in order to issue only one card for each customer”. (V.-P. Network Management at the Bank A). In their stories, close to all the other informants connect the ATMs only with other electronic delivery means (EFT, POS etc.), and not with the CIF. The reverse is also true. They rarely speak about the ATMs in their CIF stories. How can a bank manage those information flows without a shared vision of those flows? By analysing further the transcribed material, we came to understand that the contexts around those IT applications are very distinct. The ATMs context is essentially created by the customers’ presence and their behaviour when they are facing the digital devices. But the context of the CIF is made of various internal process elements (from employees training to IT architecture development). These information flows are not always disconnected, however. In our sample, one of the banks is truly dominating the others (and the market) in terms of hard/soft contracts

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alignment leading to effective information flows. Those data will help us to discover the true categories clarifying the hard and soft dimensions of the information flows in the Canadian banking industry. When an information flow is effective, despite numerous difficulties and challenges in its soft and hard elements, it will display new characteristics leading potentially to new competitive advantages. But we have to understand the pattern of soft and hard dimensions. From our data, we will present – for each information flow – the best patterns and the resulting characteristic(s) in the order of the transaction process: 1. The transaction preparation that uses the corporate information flow 2. The transaction completion using the environmental information flow and 3. The transaction support through the internal information flow. Table 2 The Structure Of The Data Presentation: Name Of The Observed Organizational Pattern Hard architecture Soft architecture
Hard elements / contracts Enables --------------------------------à ß----Ensures effective application of Soft elements /contracts

Emerging characteristic(s)

For each pattern, we will summarize the combination of hard and soft elements. Each pattern will be presented using a table (see Table 2): On the left side, we will enter the key elements of the hard architecture; on the right side, the key elements of the soft architecture. On the bottom line, the resulting characteristic(s) will be entered.

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Transaction preparation: The architecture of the corporate information flow
In order to give customers the opportunity to provide the appropriate amount of high quality information to the bank, the bank needs to provide a system for the customer to provide that flow and stimulate the flow from the customer. This requires both the physical elements like ATMs and the soft elements that present the bank’s services to the customer in an effective manner. The role of the external information flow is to create both visible and invisible assets. Visible assets are in this case an electronic belt of ATMs, POS etc. connecting the client with the bank. The invisible assets are the image and the reputation of the bank stored in the client’s head. From the data, we can define the following characteristics and patterns:

1.

Using customer behaviour to lower costs.

2. Improving corporate image. 3. Improving the human/machine interfaces.

4. The importance of alliances. 5. Information flows targeted to appropriate consumers.
1. Using Customer Behavior to Lower Costs

Once the bank has disseminated the ATMs in the environment, the ATMs are an excellent source of information. As customers change their pattern of interaction with the bank, the bank can also reduce costs. At first glance the consumer behaviour is key to the ATMs deployment (see table 3). Disabilities, age, education, moral and ideological resistance, illiteracy and urban or remote localisation can slow down the use

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of the ATMs. Another problem is the customer card issuance and effective use with a personal code that can be quickly lost.

Table 3 First Pattern In The Corporate Information Flow: Using Customer Behaviour To Lower Costs Hard architecture Soft architecture Enables --------------------------------à New – induced – customer Customer knowledge and use ß----Ensures effective application of behaviour through the client of the electronic devices. card, costs incentives and telemarketing. Emerging characteristics: Lower costs

Besides home banking through Internet and telephone banking, the banks use a variety of channels to connect the client with its sales force and its operations. But the customer behaviour can challenge the bank’s expectations. Old behaviours generated high costs for each transaction made at the branch counter with an employee. With the new interfaces like the ATMs and home-banking over the Internet, the costs are going down by one dollar or more for each transaction.
2. Improving Corporate Image

Banks can increase their visibility and their reputation by using the new technologies, thereby distinguishing themselves in the marketplace (see table 4). The bank that is now dominating the Canadian market has been making significant investments in its electronic presence and started the Canadian Interac network idea. The following quote from a manager at that bank indicates how hard it was initially to see the value of these wider connections. Table 4 Second Pattern In The Corporate Information Flow: Improving Corporate Image

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Hard architecture Soft architecture Enables --------------------------------à Multiplication of the ATMs Corporate image of a modern ß----Ensures effective application of and the bank logo in the and progressive bank environment, the INTERAC network, the automated branch etc. Emerging characteristic: Reputation “The Interac idea belongs to the Bank A. The same gentleman (who initiated the ATMs massive deployment) put forward the idea of interlinking all the bank's machines through Interac (a shared industry network); we all thought this was crazy. Why would you give up this natural advantage, having this very robust network, in favour of letting the competition virtually catch up to us?”
(V.-P., Network Management at the Bank A, Toronto)

Few banks made a priority of becoming a selling organization in the financial services market. They did not see the impact of the ATMs deployment on the corporate image The following quote was typical: “And then there were periods when Bank B neglected that (electronic network) development. Others expanded successfully, to the point where when you get ahead in that area the image is very strong and you see the banking machines of a given financial institution everywhere”. (Marketing Director at the Bank B, Toronto)

Yet when the bank sees the potential combinations that come from the deployment of the hard and soft elements, the strategic value in additional reputation can be significantly higher than ATM’s alone. “Our senior executive would love to say things like we’ll have 1,000 branches in the year 2000. But my notion is that until I get my model applied against each market, maybe the number is 5,000, but they aren’t branches, as we understand them today. There are 5,000 doors, some electronic, some manned, some unmanned, some small boutiques for specialists, and some are full service flagship heavy footprint.”
(V.-P., Network Management at the Bank A, Toronto)

The best bankers have learned that the customer is no longer looking for a branch but for a relationship supported by many “doors” or delivery channels.

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3. Improving The Human Machine Interface

Banks want to provide a flow of information about their services so that customers will want to increase both the frequency and the variety of their interactions with the bank (see table 5). Table 5 Third Pattern In The Corporate Information Flow: Improving The Human Machine Interface Hard architecture Soft architecture Enables --------------------------------à Better electronic interfaces: Respect, cooperation with the ß----Ensures effective application of from the ATMs to the bank customers, new banking portal routines for the customer Emerging characteristics: Better customer relationship, profitability

An effective and user friendly interface will induce new banking routines for the customer and generate higher profits through lower transactions costs and potentially increasing market share. Headquarters and local units work together to make an effective interface, but they must take care to see it as more than a technical exercise, as the following quote indicates. “The client-machine interface is of great importance: While firms spent a lot of time to create a sophisticated interface, they thought of it only as a technical problem. Traditionally we have engineered the customer to face ourselves, so our systems design people do the screen layouts and . But since they have a very strong technical orientation. It is a very hard, push this button, push this button, I don't think it works very well. We can do a considerably better job in making the interface to the customer a more positive relationship oriented interface. We've bought this machine with excess capacity, it can do more”. (V.-P. Network Management at the Bank A, Toronto) The search for new interfaces leads also to new delivery channels like kiosking and home banking, that provide similarly attractive opportunities for customers.

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4. Providing Sufficient Locations to Receive the Corporate Information Flow: The Importance of Alliances

Banks need to provide a system of access points that encourage frequent access. Banking activities are taking place where the people gather for business or transport convenience. Partnership with wholesalers, gas stations or hospitals will increase the transactions revenue fees (see table 6). ATMs are more and more frequently deployed in stores and other areas of business activities. So the merchants help to build the ATMs network. Each bank has a group that is responsible for all those corporate programs, typically national agreements with major third parties who would like cash counters deployed in their stores. Table 6 Fourth Pattern In The Corporate Information Flow: The Importance of Alliances Hard architecture Strong physical locations
Enables --------------------------------à ß----Ensures effective application of

Soft architecture Flexible alliances

Emerging characteristic: Growth through revenues sharing

The expansion of these entry point options requires substantial network information flow as well.
5. Information Flow Targeted to Appropriate Customers

Of course not all corporate information flow precedes the customer flows. With this last corporate information flow topic, we anticipate the interactions between the various information flow elements (see table 7). Once customer information flows are incorporated into the Customer Information File (CIF), the bank can find ways to tailor its offerings and the consequent corporate information flow to various customer groups. Based on the knowledge developed from the increased customer information now

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codified in the CIF, the firm’s outbound calling center can make targeted offerings or monitor customer satisfaction and profitability. It can focus on the 20% of the customers that yield good returns. They can use census information as well to focus their efforts. Those new marketing activities generate additional new information about the customer as the bank understands what gives value to the customer. All his or her business can be consolidated in one place, allowing an analysis of the profitability level for each customer. Table 7 Fifth Pattern In The Corporate Information Flow: Targeting The Appropriate Customers Hard architecture Customer segments analysis using the CIF
Enables --------------------------------à ß----Ensures effective application of

Soft architecture Marketers’ creativity and telemarketers’ actions

Emerging characteristic: Growth and profitability

We have shown how the bank can use the increased information now available due to improvement in IT technology to provide much more information to customers about the services on offer. Soft elements from the interaction of various units in the bank and even with partners are necessary, however, to take full advantage of the new IT-enabled information flows. We now move to the effective utilization of flows of information from customers to the bank, environmental information flows.

Transaction completion: The architecture of the environmental information flow
The Canadian banks have taken advantage of the new technologies and systems to get a flow of much richer and more reliable information about their customer base. They take

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advantage of the flow of information that comes as part of the day to day use of the new technologies by customers. But they have achieved more than the utilization of the new individual technologies. Rather they have used them to channel the various flows into a single conduit that allows them to receive information from a wider variety of sources that include both traditional and new technology methods of service delivery. That delivery network is the conduit that enables the banks to serve the entirety of the desires of all of their customers . It is the various digital (ATMs, POS, EFT, etc.) and the physical (branches, trust or insurance offices, regional and provincial headquarters, etc.) that combine to form the conduit. The environmental information flows, from the environment to the bank, are coming from the customers, the merchants, the competitors, the regulators, and the technology suppliers. That environmental flow enables the bank to understand the precise nature of market segments, the products and services desired by customers, the technology changes and competitor positions in the market. Our research identifies the following characteristics and patterns when environmental flow is utilized effectively: 1. Increasing knowledge of the customer. 2. Using IT to increase responsiveness. 3. Improving service quality. 4. Speed and quality.
1. Increasing Knowledge of the Customer

The bank can use the data generated as customers use the ATMs to help it redefine the nature of the bank branch (see table 8). They can then begin to answer the following kinds of questions: What is the amount of customer deposits for a specific Zip code?

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What are the customer segments in one vicinity? Can we better serve the customers: with the ATMs or the branches? As information flows to the bank from the various transactions of a customer, the bank has also the potential to identify the ideal set of services that the bank can supply to that customer. A manager comments: “ Personalizing our customer relationship and identity, mapping our services, profitability by customer, lifestyle, economic, sociographic data, the CIF is a very powerful tool.”

Table 8 First Pattern In The Environmental Information Flow: Increasing Knowledge Of The Customer Hard architecture Soft architecture Enables --------------------------------à CIF, client based Customer knowledge at the ß----Ensures effective application of applications, tools and data branch level, customer relationship strategy Emerging characteristic: Growth and profitability

Soft elements are important in finding the best ways to utilize this new information flow, however. It is important to identify a role for the various units of the organization in the utilization of this environmental information flow. Reorganizing the jobs and activities in the branches can bring real value, focusing on the development of new relationships and deepening relationships with customers. One of the banks we studied started the development of the CIF in the 70’s, thirty years ago! The branch style at that time was evolving following a new customer relationship philosophy. The bankers realized that with the CIF information available, they were in a better position to provide quality service and maybe identify other product needs when the customer was sitting down in a face-to-face interaction. More than that, the investment in linkage of the CIF to the service systems has provided great support. This also improves the bank’s ability to service clients.

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Combining the sophistication of the new information processing (hard) and the organizational and strategic changes in the bank (soft) leads to faster growth and greater profitability.
2. Using IT To Increase Responsiveness

The potential information flow from customers makes the activity at the branch take on a wider scope of activities. The point of sale terminal (POS), for instance, only indirectly deals with cash transactions as the merchant and the bank settle up. The bank can not do this transaction on its own, but must depend on the involvement of a merchant partner. There is no bank sign on the POS terminal, so customers may not associate the transaction with the branch. Table 9 Second Pattern In The Environmental Information Flow: Using IT To Increase Responsiveness Hard architecture Soft architecture Enables --------------------------------à IT-centric branch Real-time customers culture
ß----Ensures effective application of

Emerging characteristic: Responsiveness

Even the physical branch needs to look different. New branches are now designed with the automated capability as a focal point, recognizing that many people prefer to deal almost exclusively using the ATMs or the other automated equipment that are often located centrally at the front of the branch (see table 9). Many of these new branches operate as essentially semi-automated units, where the only cash availability is through banking machines; the individual bankers that are on staff are dealing strictly with noncash issues. So the design of the branch is more a function of clients’ behaviour and the bank’s marketing philosophies; ATMs are not substitutes for branches.

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3. Improving Service Quality

Banks faced the challenge of utilizing the information provided by the increased customer information flow to provide a more sophisticated mix of products to their customers. After the banks had completed a period of diversification and acquisitions, the private customer was able to access to more than 350 products and services in areas as varied as insurance, banking, and trust services (see table 10). Table 10 Third Pattern In The Environmental Information Flow: Improving Service Quality Hard architecture Soft architecture Enables --------------------------------à Formal sellers and advisors Learning about the products, ß----Ensures effective application of roles the customers, tacit knowledge Emerging characteristic: Better service and relationships

If the ATMs have obviously been an overwhelming success in terms of transaction banking for clients, then that leaves the advice and counsel of the bank as the heart of the customer relationship. Mortgages, loans and asset management require real personalized service. The increasing complexity of banking products demands better and more precise competencies. The banks needed to increase the breadth of expertise throughout their branch system to sell the wider portfolio of products that the environmental information flow indicated customers wanted. A bank manager comments on the saliency of this new focus. “Take mutual funds − five years ago we didn’t sell any. Today, they’re one of the most important products among the investment products that clients are looking for. We need to have qualified people who can advise them. Then you realize there are problems because the people you’ve go. They try to pass exams and they can’t do it, they don’t have the ability to play ”. (Marketing Director, Bank B, Montreal)

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Using and updating effectively the CIF is one of the main challenges for the branch employees as they monitor the new customer behaviour. The CIF tool has to be inspected, verified, and tested in coordination with the centralized operations management. Year after year more and more products were integrated to the CIF making it a strategic relationship tool. This labour-intensive activity is key to take full advantage of the newly enriched environmental information flow.
4. Speed and Quality

The full utilization of the environmental information flow requires integration with the wider IT platforms of the bank at the branch level. Combinations of CIF and other hard and soft elements at the branch level lead to competitive advantage (see table 11). As one banker put it, “The local platform is really the lifeblood of how a bank serves their clients. Information technology investments can’t be limited to the CIF. Even if the banks didn't have CIF they would need a computer platform to access their service systems. What kind of network capability you need in terms of platforms and for decision support systems? What emerging tools, personal computing tools do we need to develop and provide to bankers to help them in this complex environment to deal with clients? That, I would say, raises the need for a network is beyond the CIF.” (V.-P. Information Systems, Bank B, Toronto) Table 11 Fourth Pattern In The Environmental Information Flow: Speed And Quality Hard architecture Soft architecture Enables --------------------------------à Local IT platforms and Better choices, decisions ß----Ensures effective application of analytical software processes and coordination Emerging characteristics: Speed and quality The massive deployment of ATMs exchanging data with the CIF led to a new scenario regarding selling techniques. Once a banker has predicted the customer's need, he has identified a gap that the bank can fill. He may then blend the use of the CIF with the

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self-service delivery and merchandising techniques and perhaps some very useable graphics to present the new opportunity to the customer. The main soft element sustaining the environmental flow is the customer relationship strategy. That strategy is not a matter of IT investments but a matter of culture, values and soft contracts. Another key soft dimension is the learning capability at the organization level. In the 90’s a bank had to learn and to change some routines and decisions processes. The hard elements are largely IT-based and cannot differentiate the banks in the Canadian market. But not all the hard elements are digital: the branch redesign requires a thread of hard contracts. The vision, the quality and the new concept deployment speed will all impact the bank image.

Transaction support: The architecture of the internal information flow
The banks’ initial response to the new technologies and systems was to focus on making these hard elements as effective as possible. IT people within the banks concentrated on delivering functionality. They thought that this alone would lead to an advantage of better data and smoother internal information flow. Yet in reality, as the interview quotes will show, the strategy only became successful when they changed the soft elements in their information processing architecture to work with these hard elements. Management had an initial focus on the machine and the client card. The bankers had not taken a product or business orientation focus before the 90’s. Once they realized that only the combination of hard and soft elements have value, several new strategic questions had to be addressed in structuring the internal information flow: How can we implement and manage the customer relationship philosophy? What will be the most

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successful areas for product innovation? What processes can we implement to improve our systems both in the front and in back office? We found the following patterns and characteristics to when we asked respondents to describe the internal information flow: 1. Focused innovation. 2. Working together within the branch. 3. Achieving high quality service and responsiveness. 4. Building on the knowledge using the information flows.
1. Focused Innovation

Recognizing the importance of organizational change using greater exchange of information among units, firms targeted the integration of business processes in the 1990’s. All the tasks and activities at the branch level were to be automated and the methods redefined to take full advantage from the new technology. The first goal, to sell more products to each customer, led to the multiplication of accounts that were never used, generating additional operating costs, network traffic and management effort. Table 12 First Pattern In The Internal Information Flow: Focused Innovation Hard architecture CIF, client based applications, tools and data
Enables --------------------------------à ß--Ensures effective application of

Soft architecture Product and process innovation

Emerging characteristics: Growth and profitability

The strategies were redefined to make more effective use of the CIF (see table 12). The system now asks the employee to sell new products and services that really add value to the customer and the bank. The CIF also enabled the customers to do transactions, the

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electronic funds transfer, and the transfers between accounts, from coast to coast. One manager described the adjustments as follows: “If an observer looked back to 1975 in a branch and someone came in and said, "I want to change my address." The teller had to ask, "Well, what's your account number?" And everything was account based. The teller had to go to each account and each service system. The CIF impact was taking the focus away from an account focus to a client focus in terms of the way that the bank wanted to manage relationships”. (V.-P. Information Systems, Bank B, Toronto)

The bank now had the necessary informational links within the organization to respond to the expectations of the customers. Changes in the soft architecture within the bank allows for more effective processing of all the information flows.
2. Working Together within the Branch

If the organizational flows within the local units are to be increased, more authority has to be given to this level of the organization, allowing it to create the appropriate flows of information within that region. Since the end of the 80’s, the large banks have been comprised of the retail network for the consumers and the commercial network; each sphere decentralizing its decision-making activities at the district level (see table 13). Table 13 Second Pattern In The Internal Information Flow: Working Together within the Branch Hard architecture Soft architecture Enables --------------------------------à Branch autonomy, formal Teamwork, informal ß----Ensures effective application of decentralization cooperative structures Emerging characteristics: Flexibility A number of the management levels were eliminated, even at the top level during that period. The aim was to reconnect the people on the ground with the top management of the bank. The regions (40 branches at the beginning of the 90’ss, reduced to 10 branches

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recently) received a new importance and autonomy through the appointments of regional vice-presidents and directors. As we saw with the focused innovation issue above, the internal flow must also lead to better and new customized products and services to be really effective. Without access for various units to the flows from the environment, there is no way for other parts of the organization, especially those that create new products or identify ways to bundle existing products, to take full advantage of the customer information flow and the flows within the bank. This triggers greater autonomy at the branch level. The decisions at the local level have to implement the local market management idea. The strategy is formulated by the regional director with his team, including branch employees who have been empowered in the decision process.
3. Achieving High Quality Service and Responsiveness

In order to take advantage of the new technology, banks first needed to incorporate it properly into the discipline of their data and financial systems. At meetings, the decisionmaking processes and the informal exchanges can draw on the newly available information flows, the bank can create respect and generate cooperation among the employees. The financial discipline, for our informants, is one of the strongest features of their organization (see table 14). A manager presents this challenge as follows. “We have a very dynamic and unique capability in Canadian banking of being able to find out a great deal more about our customers using our Customer Information File. The next level of performance is financial. In our company we have extremely good costing data, the best I've ever seen. So I can determine at any given level what the return on capital is. Quality management information is critical. It has a purpose. Namely we must enhance the financial performance of our ATMs. That may be indicative of our customer's not being as satisfied as they could be.” (V.-P., Network management, Bank A, Toronto)

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Table 14 Third Pattern In The Internal Information Flow: Achieving High Quality Service and Responsiveness Hard architecture Soft architecture Enables --------------------------------à Precision and financial Respect, cooperation between ß----Ensures effective application of discipline in everyday employees behaviour Emerging characteristics: product/process quality and capacity to change

The value of the whole CIF is no greater than its data integrity. Information exists on everything with the risk of excess and ‘info-besity’ and loss of impact on the decisions and actions. But the headquarters can try to filter, summarize and present information pertinent to the regions and the branches. The precision and the quality of the data are the foundation for predictive tools, particularly on the selling side. Such tools can predict the customer’s next purchase with a reasonable degree of accuracy based on their age, income, family status, and banking history. Rather than control of information, all units have found that the flow of information has the most value. This happens not just within the region, but between region and headquarters, and it allows for a combination, in this case of organizations, that take full advantage of the IT resources.
4. Building on the Knowledge using the information flows

In the Canadian banking industry, the growth of the internal information flow has required all members and units to take on new roles. Take the back office, for example. It has become a processor and router of information instead of a mere processor of transactions. This provides an ease of connectivity between the various units that supply information and those that use it. This organizational resource is necessary for the

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efficient internal flow and the effective utilization of the flows that come into the organization (see table 15). Table 15 Fourth Pattern In The Internal Information Flow: Building on the Knowledge using the information flows Hard architecture Soft architecture Enables --------------------------------à Information systems and Learning and training, technology; back-office and ß----Ensures effective application of knowledge creation in the branches redesign back-office as in the branches Emerging characteristic: New knowledge creation

It is an essential part of the corporate software of the firm. This requires continuous improvement and evolution of this function. As one manager put it, “Over the next ten years, there will be technological changes in financial institutions. Centers like this one will be significantly reduced by, say, three quarters. A lot of manual work will eventually be done either by the banking machine, phone services, or home computers. That said, there will always be a small part at central operations such as this, but, there is still going to be a major reduction that is going to happen. The branch will absorb a part of it, banking machines will absorb a part and finally the user is going to absorb a part too”. (Director, Processing Center, Bank B, Montreal) The system encourages employees to create new information as well. The employees have to be continuously trained to follow-up on the changes to operations and procedures. They also have to improve their knowledge of the customers and the new products. As one manager put it. “The banking machine allows us to have the employees do work that is much more interesting for them, especially for our tellers. It’s a way of enhancing the value of their job behind the counter. We’re at the stage where they’ve gone back to school, I have 25% of my working population that has gone back to university, at night, on BIC (Bankers Institute of Canada) programs or whatever, in order to increase their knowledge of certain products, because they want to get ahead in personal banking here. All this is created because they’ve been successful − my employees have been successful in directing customers to the machines”. (Regional V.-P., Bank A, Montreal)

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The new information flows that are generated by IT allow units and individuals to create new knowledge, making a kind of knowledge spiral (Nonaka and Takeuchi, 1995), once organizations are in place to utilize all the IT technology.

Discussion and conclusion
The detailed information from the Canadian banking industry contributes to our knowledge in the several theoretical and practical areas we presented at the beginning of the paper. We end the paper by presenting some comments on the implications of our study for the some of these theoretical concepts. We focus on two areas: 1. the interaction of markets, organizations and technological innovations, and 2. the importance of combinations in understanding the application of theories to a real world industry. E-Commerce advocates were initially overly optimistic about the ability of new technology to change the nature of competition in markets, and its ability to create more efficient markets. Now with the bursting of the internet bubble, there is a pervasive pessimism about the significance of these technological changes. Our evidence from

the Canadian banking industries suggests that neither extreme position is viable. Those who thought that E Commerce would triumph had both too much and too little faith in markets. They had too much faith that the more impersonal, market-based banking would always dominate the traditional form of banking. They thought that existing organizations would ‘not get it’ and would lose out to the new players. In this sense they were consistent with the organizational theorists who said that the banks would be trapped in their old routines. Markets would force the old players out. Yet instead we found in the banking

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industry that organizations can be stimulated by markets as well. We clearly found that there were competitive changes, as some banks responded faster than others. Yet in the banking industry we found that markets stimulate organizations to change, rather than simply replacing old players with new ones. We have shown that the traditional banks were equally adept at taking advantage of the new technologies. These commentators also underestimated the power of markets. The new technologies offered the potential for all players to offer a much more sophisticated variety of services. We documented in the Canadian banking industry that the well-managed firms saw these opportunities and changed their strategy to take full advantage of the new opportunities. If existing players respond to this market stimulus, then the change in competitive positions may be much harder to ascertain. The stimulus of markets led to IT-centric bank branch systems as the banks sought to respond to not just the challenge but the opportunity that the new technology-driven markets offered to them. Combinations frequently create an intangible asset. The E Commerce commentators also underestimated the market in another area. Since the IT-based technologies were generally available to all—this was after all the principle of the Internet age—traditional banks could take advantage of the same technologies as the new players. They could buy the services of IT personnel; they could purchase training for their employees and purchase services of consultants. The efficient operation of these factor markets allowed a traditional bank to carry out the kinds of organizational and technological change that we have documented in this paper. The powerful market forces thus operate not just by ‘exit,’ but by ‘voice’ within the organization, calling out for change.

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Our research suggests one additional point that makes a transition to our second area, strategy research. One Canadian bank realized the necessity for change faster than the

others, and changed its organization more radically than others. This was rewarded by an enhanced position in the marketplace. Is it possible that we will also see this in E Commerce as well? Perhaps it will be more fruitful not to study the difference between E Commerce and traditional forms of business, but rather in each of these markets, what makes one firm more competitive than others. Our data suggest that we might have multiple models for success in an IT-centric industry, and that study of the most successful firms in both traditional and newcomer groups might be a more fruitful arena for enhancing our understanding of the impact of E Commerce. Strategy research focuses on how firms build competitiveness and protect that position against competitor’s response. The Resource based View (RBV), with its focus on intangible (invisible) assets that are hard to match, has been very useful in structuring our presentation. We believe that our case study reinforces several points in RBV and perhaps connects it more clearly with the market-based analysis presented above. Our analysis of the Canadian bank experience shows three points that are important for RBV theorists: 1. Organizational elements are very important in creating assets that are hard to imitate; 2. Combinations of assets can become powerful drivers for competitive position even though each individual element might not be significant; and 3. Efficient markets often offer elements of tangible assets for combinations that allow for innovative strategies for firms not previously possible. By focusing on the soft elements in the strategies of the Canadian banks, we have demonstrated how important the organizational elements are for an established firm.

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Firms need to build new organizational elements to take advantage of the technology, but they can also sometimes build on existing organizational skills to do so. For example, the bank that was the most advanced in its transformation process built the best CIF thanks to its traditional precision in data handling and financial discipline. Because we focused on the interaction of soft and hard elements, we were able to discover a large number of cases where the two elements are combined to make a strong position. The emphasis on core competence in the strategy literature has often been misused to imply that a single strength is sufficient for competitive advantage. We show that the combinations of seemingly insignificant elements can provide a strong competitive position. Rather than ignore these elements, the banks found ways to combine them, especially organizational elements, to create new competitive opportunities. As F. Warren McFarlan said, while the cost and time it takes to handle transactions are decreasing, the need to have confidence in the people on the other side of the structure is as strong as ever (Young, 2000). By focusing on the idea of intangible assets, the RBV has often ignored the tangible assets that are available in the market. In fact, Mathews (2002) says that the use of these tangible assets denies the power of RBV. Yet if we understand the power of combinations in creating a sustainable advantage, then we can combine elements of the tangible asset pool available in markets to create a responsive organization. The Canadian banks were able to use the technology made available by the IT innovations, assets available in markets, and create an intangible asset like the CIF that could be used to distinguish their bank for both other traditional banks and newcomers.

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There are objective factors supporting better IT developments by the traditional banks than by the pure-players. The following are a few of the traditional bank assets that can combine with and support the IT development: large market shares with the financial back-up that comes with it; customer trust and established brand name; transactions volume that allow for greater cost reduction from IT introduction and expectations regarding the image of the bank (TNO, 2001). A few years after the Bank of Montreal had integrated its mbanx virtual bank, the Bank One in the US is going to integrate its pure-play Internet bank Wingspan into its other Internet initiatives. Times are changing. The Canadian customers have decided that they are not yet in favour of the ‘pure-players’ even if the theory states that the generalists are usually beaten by the innovative new comers that are very specialized.

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Notes
Note 1: We would like to thank the late Professor Zimmerman, founder of the CIERA (Center for International Education in Research in Accountancy, College of Commerce, University of Illinois at Urbana-Champaign) for his support toward in promoting joint international projects. We are particularly indebted to all the managers from the five large Canadian banks who cooperated with us. Data collection and analysis were undertaken thanks to SSHRC Grant #410921097 and financial help from the PAFACC program at the University of Québec in Montréal. HEC Montréal gave us a significant support during the last revision of the article. We are also indebted to this special issue editor, professor Charles Davis, and to all the anonymous revisors for their hard work and soft advices.

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