Developing an innovation orientation in nancial services organisations

Received (in revised form): 26 February, 2006

Christopher Brooke Dobni

is the PotashCorp chair for Saskatchewan Enterprise at the University of Saskatchewan in Canada. He is also a management consultant and has worked extensively with nancial services organisations, helping them to establish service quality cultures and innovation orientations. He holds a PhD in marketing from the University of Bradford, UK. His articles on innovation, strategy and marketing can be found in many of the top journals, including the Journal of Financial Services Marketing.

Abstract Innovation is the new business mantra, and recent studies have suggested that there is a strong positive relationship between innovation, market positioning strategy and performance. Given the nature of the competitive landscape and the innovation disruption environment in the nancial services industry, an innovation orientation can be effective in identifying and executing growth opportunities for organisations. This paper discusses the dynamics of innovation in the nancial services industry and delineates the relationship between innovation and market-related strategy. It then introduces an innovation model that can be used as a platform by nancial services organisations. The model identies three areas of consideration context, culture, and execution that will help organisations in this industry to develop an innovation orientation. Journal of Financial Services Marketing (2006) 11, 166179. doi:10.1057/palgrave.fsm.4760015 Keywords Operational-level innovation, emergent strategy, competitive advantage

INTRODUCTION Most executives and managers would agree that innovation is the key to growth in competitive environments. Innovative organisations dominate their industries,1,2 as they have gured out the congurations that are best suited to their competitive context. These organisations compete on the basis of innovation, effectively using this state to continually realign themselves in efforts to capitalise on emergent opportunity space. So how do organisations become innovative? Many of the leading management gurus have weighed in with their suggestions on this very question. Leading authors, such as
Correspondence: College of Commerce, University of Saskatchewan, 25 Campus Drive, Saskatoon, Saskatchewan, Canada S7N 5A7. Tel: + 1 306 966 8442; Fax: + 1 306 966 2516; e-mail: dobni@commerce.usask.ca

Christensen and Raynor,3 believe that it is through the discovery of disruptive strategies, Hamel4,5 through revolutionary thinking, and Bossidy and Charan6 feel that it lies in the execution of strategy. There are common threads that bind innovative organisations. First, employees in innovative organisations understand that it is the sum of the people who, through the way they think and act, allow the organisation to be innovative. Second, their cultures possess common characteristics one of creativity, excitement, desire to succeed, and empowerment. Third, they all know why they are at the top of their game innovation is their mantra. Most of them view competitive interaction as an opportunity to discover emergent valueadded opportunities, and not a day-to-day threat to their survival. Lastly, these organisations have made decisions in the past

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to get to a future point, that being to incorporate innovation into the fabric of operations. Yet, organisations that possess the characteristics described above are few and far between. According to consulting rms Arthur D. Little Inc.7 and Strategos8 many organisations that try to become innovative rate themselves poorly at it. Why is this the case, and more importantly, how do organisations overcome the barriers? This paper introduces a model that denes the integration of context and behaviours necessary to drive operational innovation. The imposition of this model will help organisations discover their innovation quotient, identify gaps, and then outline a plan that will facilitate positive change in efforts to move toward an innovation orientation. INNOVATION AND THE FINANCIAL SERVICES INDUSTRY Innovation is currently high on the strategic agendas of many nancial services organisations. In reviewing the literature, it becomes fairly clear that there are different dimensions of innovation.3,9,10 These dimensions range from something that can be described as continuous to radical. Other descriptors include non-disruptive to disruptive, compatible to incompatible, incremental to sustaining, low-end to new market, and seamless to inconsistent. In short, the type of innovation orientation an organisation should pursue is related to the complexity of the competitive context, and the innovation disruption environment that organisations nd themselves in Christensen and Raynor.3 Unfortunately, organisations in the nancial services industry usually have little control over either one. Financial services industry competitive environment The nancial services industry continues to be extremely competitive and dynamic. The outcomes of these competitive forces are

highlighted in Figure 1. Todays nancial services managers are bombarded with a range of issues affecting how they do business, including rapid changes in technology, deregulation, a trend towards consolidation, globalisation, and competition.11 These dynamics have driven the fragmentation and disaggregation of traditional nancial services business while simultaneously developing new opportunity space for dedicated, unique, and niche focused products and services. Organisations that have jumped into this space have done so by recombining and repackaging traditional offerings, and developing new service channels to support them. The challenges outlined above are exacerbated by conspicuous consumerism, which has led to demands for faster and better service, and higher quality. To compete effectively, organisations need to create more customer value. This can be accomplished through process and product/service innovations, for example, by providing higher levels of service that enhances clients and customers operating status,12 and through dening new opportunity space and moving to ll it. Being able to accomplish this will depend on how perceptive the organisation is, and its ability to execute strategy. In essence, the nancial services industry in many ways mirrors a retail marketing environment. Many institutions have become more customer oriented. They have expanded product/service lines, implemented proactive marketing programmes, and expanded customer business through cross-selling. To remain competitive, many of the larger nancial institutions have also consolidated their channels and embarked on cost cutting measures arguably a paradox to higher levels of service, which has traditionally been a cornerstone of nancial service organisations retail strategy. Underlying these initiatives are technology enhancements, which allow nancial institutions to provide services without the bricks and mortar, and enhanced levels of personal interaction and

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REGULATORS
- domestic de-regulation - anti-political sensitivity (trust and combines legislation)

CUSTOMERS
- better informed customers - higher expectations - greater diversity of needs - less loyalty - lower switching costs

Opportunities: new operating formats, sharper segmentation, focused marketing, new channels Vulnerabilities: pre-emption by
keen competition, relevancy of channel/service, overinvestment of capital, mobility barriers

INFRASTRUCTURE
- technology is reducing costs - new channels and marketing options - shortage of new high tech skills - capital for the right investments

COMPETITION
- new, non-traditional competitors - overcapacity - horizontal integration - strategic alliances

Figure 1 Current state of the nancial services industry

relationship development efforts. Essentially, customers are expecting more and organisations have had to nd innovative ways to meet these challenges. Financial services industry innovation disruption environment The innovation disruption environment varies from industry to industry.3 Figure 2 characterises this environment for the nancial services industry (and other industries for comparative purposes). The nancial services industry can be characterised as being low in disruption but high in compatibility. What this means is that major disruptions happen rarely a major disruption being classied as one that fundamentally changes the way the industry works say once every 1020 years. However, when disruptions do occur, they

are usually highly compatible, suggesting that it is difcult for the innovator organisation to protect it, yet easy for the competition to copy. When major disruptions occur, eventually all industry players adopt the innovation as it becomes the new standard. As an example, online banking rst become popular in the early to mid-1990s as technology platforms became stable and secure enough to support them. The major banks quickly adopted this technology as it was highly compatible and none of it was proprietary. It was also a disruptive innovation, one that was few and far between in an industry often characterised by conservatism. This disruption fundamentally changed the business of nancial services as it proved to be one of the major downstream advances in this industry over the past 20 years, and has provided the platform for expanded services such as online trading, card

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every 1 or 2 years

High/High

High/Low

disruption

computers telecomunications consumer electronics

patented products biotechnology pharmaceuticals

universal acceptance

compatibility

compatibility

limited acceptance

medical/healthcare automotive financial services

disruption

professional services (law, accounting, insurance) brewing education

Low/High

once or twice every 20 years

Low/Low

E.g. - ATM - online access - discount brokerage - major new products/service introductions - global expansion/partnerships

Figure 2

Disruption/compatibility quadrant (source: adapted from Christensen and Raynor3)

services, and client/account management strategies. In respect to disruption/compatibility, another good example can be found within the automotive industry where the introduction of hybrid automobiles can be considered a major innovation. Although there have been many innovations over the past 30 years in this industry, this is probably the most signicant since the introduction of fuel injection. It presents an adopt or eventually die scenario for competitors. In environments that are low in disruption but high in compatibility, it is not important to be the organisation that introduces the major disruption, albeit it would be enviable. Disruptive innovations are simply too few and far between to be the sole focus of the innovation objective. In fact, some executives go an entire career without seeing one. Rather, wins are recorded in the rms ability

to adopt and take advantage of the innovation. These rms tend to out-compete rivals by introducing new or improved products and services on an ongoing basis, by offering higher levels of customer support, and through relationship development. Table 1 briey outlines examples of disruptive innovation in the nancial services industry. As large as the industry is, there have been few cataclysmic innovations.13,14 Rather, the unprecedented growth in this industry has been fuelled by constant innovation and the compatibility of those innovations within the industry. THE RELATIONSHIP BETWEEN INNOVATION AND STRATEGY As indicated, there are strong positive relationships between strategy, innovation and performance,1517 and the innovation engine

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Table 1 1970s 1980s 1990s Brief description of disruptive innovations in the nancial services industry Charles Schawb; introduced discount brokerage Fidelity management; created self-service nancial management through easy to buy mutual funds, 401lK accounts, and insurance products Commercial banks; introduction of ATM technology Charles Schawb/Merrill Lynch/Ameritrade/TD-Waterhouse; online stock trading Commercial banks; introduction of online banking MBNA/Capital One/First USA; credit scoring formulas to support credit card business Bloomberg LP; electronic clearing network, nancial news, and data offerings and analysis Expanded card services Continued process and product/service innovations in support of convergence and full service operations nancial advising/wealth management, online banking, account aggregation, and retail e-brokerage

2000s

in an organisation can have a profound inuence on strategy formulation and execution if the context is right. In efforts to better understand how this is possible, it is important to understand the relationship between innovation and strategy. Strategy and innovation are unrelated, yet are interdependent. Strategy for most is deliberate, and is a process of formulation, implementation (or execution), and control.18 Strategy involves budgets, schedules, time frames and cycles, and reporting hierarchies that lead to predictable outcomes that are easy to decode and copy. On the other hand, innovation results from the way employees think; ideas as to how to do things better from cost savings to serving the customer, to the development of new products or services, or dening new market opportunity space. Although ideas in organisations are abundant, rarely does a game-changing idea emerge from the thoughts and ideas of one employee. Rather, it emerges from a context that encourages ideas across the organisation, and allows business units to execute them without fear or discrimination. Strategy is therefore the vehicle to drive innovation. Unfortunately, the strategic context is defective for most. Where strategy fails, innovation is in the strategic architecture employed by an organisation. Knowing this and given the competitive forces and the innovation disruption environment in the nancial services industry,

the outcomes of continual innovation will be resident in the rms ability to take advantage of emergent opportunities. This value space results from unanticipated opportunities, unmet client needs, and problems in search of solutions. Christensen and Raynor3 suggest that emergent strategy bubbles within the organisation and emerges on the backs of employees who are generally not visionary, futuristic, or in a strategic state of mind. They also go on to say that emergent strategy is the most dominant in circumstances in which the future is hard to determine, and when disruptive opportunities are not common. This is characteristic of the nancial services environment described earlier. To capitalise on emergent strategy requires an organisation to be condent, nimble, and quick.19 There are often no plans, resources, or data to support decisions, no time lines, and no future-based models. Very few organisations capitalise on this potential simply for the reason that they are not wired this way. Rather, they are anchored to their deliberate strategy process that is premised on models that use past data and facts. Others including Henry Mintzberg,20 Gary Hamel,21 and Mary Crossan22 have all considered ways to unlock this Pandoras Box as it concerns strategy formulation. The innovation model that follows sheds light on how this can be accomplished (Figure 3).

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Exp Ven erim ture ent atio n

ical holog Psyc erment pow Em
INNOVATION NEXUS

gic Strate ture itec Arch

Org

an Lea isatio n rni ng al

requires the organisation to make certain commitments to itself and to its employees; a commitment to do things fundamentally different and in some ways, altogether new. Respecting context, there are three factors of concentration. These include the Propensity Quotient, Strategic Architecture, and Organisational Learning. Propensity quotient This quotient addresses the likelihood that an organisation will embrace efforts to develop and sustain an innovation orientation. Going down this path almost always involves some maverick rule breaking mentality as you face cognitive, motivational, and political barriers. Put another way, if organisations do not display a propensity for innovation, or if they are not prepared to pick the battles necessary to make fundamental changes or shifts, then its not going to happen. There are many barriers to overcome and for starters organisations need to consider the following questions. Is the organisation prepared to shed current behaviours and actions, and re-cast new ones in their place? Are they prepared to truly empower employees, and to reward them accordingly? And is the organisation prepared to make difcult decisions related to employees, processes, and structure, for example, dealing with problem areas and problem employees? If an organisation wavers on any of these fundamental questions, then it is not likely ready for innovation. Organisations may have to change up to half of their current processes in efforts to support the innovation wave.4 Some of these changes may be difcult and controversial, and inevitably, the prevailing business model will be different from the current one. Strategic architecture The benet of innovation is realised in the ability to identify and pursue emergent opportunities. In many organisations, the

C En luste ac tm r en t

Figure 3 Innovation model for the nancial services industry

This innovation model describes the environment and behaviours necessary for ongoing innovation in an organisation, and is grounded in models of innovation and market orientation that are already well articulated.2326 The innovation environment describes the context in terms of intentions and infrastructure that must be created by management to support innovation. Behaviours, on the other hand, are employee centric, and identify the temperaments and characteristics necessary to drive the market orientation of employees and the implementation of innovation. In the literature, the convergence of environment and behaviours to support innovation is often referred to.15,2729 CONTEXT Every organisation is unique, and the elements that comprise an innovation orientation will vary depending on the personality of the organisation. Successful development and adoption of innovation requires the backbone of a supportive organisational context. However, context is in many ways the Achilles heel of innovation. Innovation, more than any other pursuit,

Pro p Qu ens oti ity en t

E Co mploy nst itue ee ncy

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strategic architecture is actually regressive, as it concerns facilitating innovation because current strategy models are often driven solely by planned strategies.20 This focus actually becomes an impediment to an organisations ability to innovate in the emergent stream.22 Many organisations are aware of this aw but fail to break away from it because it is their safe zone and quite frankly, many are not aware of another way. Strategic Architecture addresses the balance between the emphasis on planned and emergent strategy. If an organisations current context does not support emergent strategy, then it could be potentially turning their back on up to 50 per cent of future valuebased or growth business.20 Organisations in the innovation zone grab a large chunk of this opportunity before anyone has a chance to even think about it. The question here: does an organisations strategic context allow it to take advantage of the growth potential that emergent opportunities hold? Put another way, what would happen in a strategic planning forum if one of the participants asked for 50 per cent of the budget to go toward something they had yet to dene? They mention that they are going on an expedition to discover unarticulated needs and unserved customers. Emergent strategy is unclear it requires organisations to take chances and pursue hunches it does not follow a schedule. It invariably involves higher levels of risk. Respecting innovation, the organisations goal, and challenge, is to convert emergent opportunities into deliberate strategy on an ongoing basis. If this is accomplished, then more emphasis is placed on execution, and less on formulation. Organisational learning Christensen and Raynor3 suggested that employees are an excellent source for emergent strategy. Employees are capable of doing more, yet almost all feel that they lack empowerment, and are underappreciated and

underutilized. They have ideas, they have solutions, they think strategically, yet many do not consider themselves as being innovative or creative. There are a number of reasons for this. First, most do not understand how they might contribute to innovation; they think that being innovative is not within their domain. Second, many do not have the right toolbox of skills. For example, they are often asked to perform tasks that they were not prepared to do. They simply lack the proper training and development. And third, they may be artistic or have key skills and traits, but are not aware of its potential value to the organisation, or even sure if the organisation is interested in them. There are many innovative people out there who might be considered ordinary by most standards. The unfortunate thing is that managers simply do not take the time to get to know their employees well enough to determine if they have capabilities that might be strategically used.30,31 Organisational learning is a two-way street when it comes to innovation providing employees with the necessary training and development opportunities, and having the organisation learn more about the employee. First off, employees have to be educated about innovation. Properly tooling employees involves committed education and training programmes that are focused on developing processes that facilitate the learning of new behaviours. This learning is going to be achieved in two ways; through formal onand off-site programmes, and by example and through reinforcement. Organisational Learning has to become more strategic and be linked to innovation objectives, and new knowledge has to be actionable. Context is important for Conexus, a re-positioned nancial institution in Canada. Conexus (meaning to to join together in Latin) is an amalgamation of several small- and medium-sized nancial service institutions. The primary reason for the amalgamation was competitive survival; they needed to develop a context to build market

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presence in an increasingly competitive market place. Their vision to deliver innovative nancial services in the areas of banking, real estate, insurance, and investments to meet the changing needs of its members would not have been possible with the architecture in place prior to the union. For these organisations, it was a matter of innovate or die. The new context has helped to re-dene employee values and the way they deliver nancial products and services. Outcomes of this union are evident. Employees are more empowered to make decisions that affect customer satisfaction and operations in general. More of their business is coming from the emergent stream as relationship managers engage clients to co-dene new offerings. Emphasis is placed on focused skill development as opposed to general training and development in efforts to tool employees to meet the challenges of this new orientation. These changes are also evident in business results. In 2005, Conexus was named by the Globe and Mail Report on Business as one of the Top 50 Employers list in Canada.32 CULTURE An innovation orientation is best supported through a culture that supports innovative behaviour. To this end, a number of classic articles have recognised the relevance of culture and its inuence on innovation and strategy.3335 Organisational culture is the collective thoughts and actions of employees. It is operationally based, and it dictates how employees think about their customers, and the action they take to meet the needs of those customers.3638 Although culture is far reaching, in the context of innovation it involves employee constituency, knowledge management behaviours, and cluster enactment. Employee constituency An innovative organisation is not built on the backs of a few star employees. To be

successful and enduring, the contagion needs to be organisationwide, and all employees, regardless of status or position need to contribute. Employees dene culture and are the catalyst to an innovation environment, and it all starts with employee constituency. This involves how employees think of themselves vis--vis the organisation and their colleagues it is the foundation of the cultural support structure in an organisation. For example, do they feel that they can contribute? Are they heard? Do they feel valued and equitably treated? Do they trust and respect management? Do they resonate with what the organisation is doing its mission and vision? And is there tension or uidity in the day-to-day operations? Innovation is more likely in an environment of constituency where employees attribute high levels of integrity, competence, reliability, loyalty, and openness to other employees, and view them as equals. In turn, employees will dene their own behaviours in the light of these convictions. The cycle works something like this: employees seek out other good employees or smart teams to work with or to consider as role models. They learn from them, adjusting their behaviours, and a new standard is cast. The team gets better and smarter, and they choose to include even better employees and practices. From this standard, everything ratchets up as good seek out better, and better seek out best. Eventually, they all know why they are at the top of their game. If this atmosphere of constituency does not exist, attempts to become innovative will be nonstarters. Knowledge management generation and dissemination Knowledge levels, changes in knowledge, and the extent of shared knowledge about customers and competitors inuence innovation.39 Knowledge propels innovation and it affords an organisation both offensive and defensive positioning options.

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Knowledge generation behaviours will drive the extent to which employees generate knowledge on the operational cluster. Traits in this cluster include knowledge respecting customer product and service preferences, competitors positioning efforts, and the value chain. This form of knowledge is broad based and includes all business unit employees, allowing them to more effectively anticipate customer needs, and consider the impact of changing competitive landscapes. The objective is to develop an understanding in these areas and integrate this information into their decision-making processes. The ability for employees to dene opportunity space and identify potential vulnerabilities will eventually result in progressive thinking, effectively mapping new ideas, and driving new product and service offerings. Knowledge only becomes powerful if it is shared among those who possess common goals. Organisations are comprised of individuals who accumulate knowledge, and the degree to which this knowledge is shared determines the outcomes of decisions. This is where a lot of organisations stumble when it comes to innovation. They simply lose the grass roots effect that fosters good communication practices. Many have become too territorial, not to mention bureaucratic and departmentalised. The desire to communicate is human nature, but the ability to communicate effectively in organisations has become sufciently suppressed. Knowledge dissemination involves the degree to which there is both intra- and interfunctional communication between employees. And there are two aspects to dissemination, the desire to communicate and the ability to communicate. In fact, this is how smaller rms out innovate larger ones.40 Their desire and ability to share knowledge the basis of the innovation model is more acute. In these organisations, communication propels innovation, whereas in many larger organisations, these traits are often compromised to the point where innovation is hindered.

Cluster enactment Value-creating opportunities are best identied by observing and understanding the relevant business cluster the industry, competitors and customers, emerging technology, channels, and knowledge ows. Many have said that exciting things happen at the edge, through pushing the envelope.5 Innovative organisations encourage employees to step over the edge, and enact environments, either by concentrically expanding this cluster through further development or even moving to a new cluster altogether. Cluster enactment is directly linked to the development of emergent strategy. Emergent opportunity often lies at the margin; an interface that is controlled by those same employees where emergent strategy bubbles. However, it is also these same employees who lack proper skills, training, or incentives to properly manage this interface. Cluster enactment behaviours often provide the most likely source for this portfolio of opportunities as it helps employees understand the dynamics of their cluster. To this end, every employee is a member of the opportunity search party as many of the innovations will come from the interface with business partners, and customers and suppliers. And some of the best ideas will come from the rank and le employees that are on the battle lines. They just have to know that this type of engagement is valued and rewarded. The RBC Financial Group is Canadas largest bank as measured by assets and market capitalisation and one of North Americas leading diversied nancial services companies. They employ over 60,000 people who serve more than 14 million clients around the world. Their values include working together to succeed, personal responsibility for high performance, and diversity for growth and innovation. RBC holds strong positions in all of their markets. Senior management at RBC recognised that

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the basis of innovation is knowledge and to compete successfully would require them to tap into the 60,000 plus employee base to identify and pursue opportunities. For this to occur at RBC they had to change their culture. The view was that if they were to compete in the global nancial services market, employees would have to become more market oriented. For example, they would have to rely on employees to seek out new opportunities, to engage clients, to provide heightened levels of service, and to become more nimble in terms of strategy implementation. This process at RBC began by engaging employees at all levels and building a common level of constituency and understanding. Concerted efforts were made to enhance intra-functional communications, and systems were established to fast track business opportunities that originated from operational level employees. Over time, employees sensed that the culture was fundamentally changing. Their ideas were given due consideration, and they were being rewarded for market oriented behaviours. Today, RBC is one of the Canadas most respected corporations and one of the top 100 sustainable businesses in the world. They have reached this status on the backs of their employees who possess an attitude of accomplishment that is supported by a culture that reinforces the values of integrity, competence, loyalty, and openness. Essentially, all RBC employees are connected to the success of the organisation. EXECUTION A lot has been written lately about the execution of strategy6 and innovation, and rightfully so. The implementation of innovation is difcult and organisations that are healthy enough to consider innovation are also healthy enough to resist change. Ideas are abundant, but the audacity to proceed with execution separates those that think they can, and those that actually do it.

This area addresses execution that involves psychological empowerment, venture experimentation, and co-alignment. Psychological empowerment There are two aspects of empowerment that are relevant to innovation, the empowerment climate and psychological empowerment. The empowerment climate is concerned with the level of information sharing and autonomy. In respect to information sharing, it is an employees understanding of a situation that drives their attitudes and behaviours, and empowerment in this vein is concerned with practices that encourage autonomous actions. The former is closely linked to knowledge dissemination that we have already discussed, while autonomous actions are driven by the degree of psychological empowerment held by the employee. There are four elements of psychological empowerment that are relevant to innovation: meaning, competence, self-determination, and impact.41 It suggests that employees have to sense that there is value in their work (as judged by themselves), and that they are condent that they have the capabilities to perform the work. Empowerment is also best achieved if employees sense they have a choice in how things are implemented, and a belief that they as individuals can personally inuence the outcomes. The elements of empowerment are inter-twined and somewhat affected by employee constituency, and supported by organisational learning. Venture experimentation Organisations like to move ahead with strategic platforms with some degree of certainty. However, being innovative involves a heightened risk propensity and it is inevitable that there will be false starts and failed attempts. The very essence of innovation is to get employees to think differently, to become adventurous, and to take managed risks. Organisations will pursue

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what appear to be opportunities with less certainty than they are traditionally comfortable with. Tradition, however, is the crutch holding many organisations back. Innovative organisations cannot view dead ends, false starts, and failures as reasons not to be innovative. Venture experimentation addresses the trade-off of over-investing or undercommitting. There are already a number of non-traditional techniques such as incubators, lab scales, alliances, trials, and spin-outs. Getting back to the employees, since they act as a source of innovation, they should also have a stake in it as a gatekeeper. Management, having set the tone for a culture that listens to innovation, must also strike a balance that allows an employeemanaged process to act on good ideas. Even more important, they have to be allowed to recover and learn from dead ends and failures. One example of experimentation involves using the relationships already embedded with cluster participants. Here, adequately funded concept trails, co-managed by employees could serve as a test basis for innovations. These lead provideruser concepts, where employees are the providers and clients and value chain players the users, and create a platform for experimentation. Such experimentation, scenario management, and improvisation will not be without cost, and this process will have to consider mechanisms to reel in winners as well as cut loose those that sputter, as any other would. With the proper accord, this co-commitment will reach a comfort zone, which signals when it is best to move on or move up. At the very least, organisations need to consider new ways to take action directed at taking advantage of opportunities. Co-alignment Co-alignment involves the t between employee behaviours and the competitive environment in which an organisation must

compete. Co-alignment research has also provided strong evidence to support the view that successful organisations are those that most effectively interact with their environments in the form of aligning behaviours with the requirements (including changes) of the competitive context.29,42 Researchers27,28 have also discovered that the organisations ability to constantly re- or self-align itself with these changes is the key to fostering ongoing innovation, and there are signicant performance implications if co-alignment is achieved. These include response time and quickness of implementation, increases in protability and ROI, new product/service success, sales/ market share growth, and customer retention to name a few. So, as business environments change, behaviours and actions also need to adjust accordingly.43 This is the crux of co-alignment, and in innovative organisations, this needs to be second nature. To this end, it is more important that structure, processes, and policies are elastic rather than entrenched. This is best achieved through employee initiative, as directives simply will not work. Managers rst need to consider if their organisations culture is aligned with the requirements of the competitive environment to the degree where performance is being maximised, and then provide ques and incentives to maintain this status. For co-alignment to be successful, employees need to be in touch with the dynamics of the cluster referred to earlier. What employees need to know, and how they are supported in this endeavour now becomes a bigger consideration. Netherlandsbased ING Direct is a case study in execution. ING, founded in 1991, is already one of the worlds largest nancial services companies, offering banking, insurance, and asset management in over 50 countries. Their desire to be a leading, global, innovative, and low-cost provider of nancial services44 can be summarised in two words: execution and growth. They have empowered employees to deliver value, enhance customer satisfaction,

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manage costs and risks, and support a performance culture. Growth is achieved by a combination of expansion in new markets and products and by good performance in mature markets. Expansion has occurred in the areas of retirement services, direct banking, and developing markets. As well, they expect to keep expanding in mature markets at a steady pace through cost efciency and customer satisfaction. Although there have been a lot of forays into direct banking since it became popular in the 1990s, ING is arguably one of the most successful ventures. For example, they have been able to execute their strategy in nine mature economies around the globe. Their entry into these markets are predicated on their ability to align their business model, which was so successful in the Netherlands, with the dynamics of the diverse economies in places like Australia, Canada, the US, Spain, Italy, and the UK. In each new market, ING relies on its various teams to deliver a virtual suite of products utilising technology and practices developed in Europe. Everyone has a voice in each new imperative. Staff is empowered to make decisions and align products and channels as necessary to suit the environment. And processes and policies are in place to accommodate these changes and reward excellent performance. THE INNOVATION NEXUS In the nexus, continuous operational-level innovation is achieved. It is a place in which innovation becomes the organisations mantra, and where competitive interaction is viewed as an opportunity to discover emergent opportunities. In the nexus, strategy and innovation which are really two separate forces become interdependent. There exists interdependency between the innovation environment and innovation behaviours, which leads to a performance effect, a knowledge effect, and a people effect. As evidenced in the organisations proled, innovation yields expeditionary ideas

and business model enhancements, and those organisations that are innovative dominant their respective industries. Although the consequences of innovation have not been studied as much as its antecedents, the one thing we do know is that it leads to stronger business performance.15,17,23 This performance effect is supported by knowledge and people effects. Concerning knowledge, innovative organisations are market-oriented and proactive, and employee knowledge is the fuel that propels innovation. As total shared market knowledge increases, so does the effect of the innovation effort on performance. As far as the people effect is concerned, employees know when they are in the zone. They are empowered, they are connected, and they possess a level of constituency that manifests a sense of consciousness about collectivism that if one succeeds, all succeed. They are no longer destined on selfpreservation and promotion. They do what they do not intend to do. For example, they may intend not to trust others, but they do anyway. They become better communicators. They act on a piece of information that they would have blown off in the past. They no longer take the path of least resistance. They seek out emergent opportunities. They just feel compelled to, and the results of these actions are measured in terms of satisfaction levels of employees and nancial returns to the organisation. The nexus is the goal, but it should not overshadow the means to get there. Many organisations are already engaged in activities related to innovation. In many cases, however, these initiatives are not coordinated nor do they go far enough to meet the objectives of innovation. The nexus is the organisations future point and it has to be deliberate in moving to it. CONCLUSION Organisations do not stumble upon innovation, they do not inherit it, and they

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cannot buy or assume it. They create it and sustain it. Innovative organisations possess a certain culture one of creativity, engagement, desire to succeed, and empowerment at the employee level. They outcompete the others, as they understand the difference between competitive imitation and competitive innovation. Innovative organisations pay little attention to matching or beating their rivals they understand strategy convergence all to well. Instead, their goal is to make their competitors irrelevant by developing their opportunity space, effectively creating new value. Organisations in the nancial services industry face a number of challenges. The competition is strong and many organisations already do a lot of things well right from strategy formulation through to execution. As a result, the next level of competitive advantage in this industry lies in the ability of organisations to develop and sustain an innovation orientation. Successful innovation requires organisations to focus on the details that will foster an innovation orientation at the operational level. This model will help managers in the nancial services industry understand, at least implicitly, the interrelationships necessary to create this environment. This understanding will help managers transcend the traditional notions respecting the barriers to developing an innovation orientation, effectively moving the organisation to the next level. REFERENCES

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