Radical Innovations in the Norwegian Banking Industry: A historical study through 50 years
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In this thesis we look at radical changes and its effects in the banking sector in Norway. The objective is to study the outcome of radical technological change in a regulated-, compared to a non-regulated, industry which has been the topic of earlier research. The study embraces lies within the technological development from the 1960s up to the present date. The chosen research method in this paper is a combination of a historical study and a case study. An extensive literature search has been done to reveal relevant articles for our theory section. Our empirical findings stem from in-depth interviews with key persons within the banking industry, combined with investigations of documents, archival records and input from Betalingsformidlingskonferansen 2014. This has given us access to information about the technological development, the industry dynamics and the consequences of radical technological changes in the Norwegian banking industry. We have applied two theoretical perspectives; Radical change theory and Population ecology of organizations theory. Radical change theory states that radical change leads to a period of upheaval where incumbents often succumb to new entrants. Population ecology of organizations theory describes the dynamics in an industry and how the environmental factors dictate which firms that survives. These perspectives have been used to illuminate connections between the empirical findings and the theory. This study reveals three interesting contradictions to the well-established theory of Radical change and Population ecology of organizations. First, the effect of radical technological change on the industry density is highly modest compared to previous theoretical studies. This is a cause of elevated entry barriers due to governmental intervention and tight bonds between actors in the industry. Second, incumbent banks are highly capable of conducting radical innovation as well as incremental. This is explained by the clear incentives for the incumbents to adopt the change, namely to improve the service offering to the existing customers and to rationalize their operation. In addition, incumbent banks generally have more organizational slack which gives them more flexibility in conducting explorative research. They also achieve the opportunity to free themselves from the powerful system solution suppliers by conducting technology development in-house. Finally, the degree of innovation is compromised because of limited competition, short eras of ferment, and high pressures for standardization. The pressures are due to an informal agreement between the actors, resource constraints and governmental interaction. Extended to regulated industries in general, these findings suggest that incumbent firms should adopt a more risk prone innovation strategy because they are in a safer position due to its importance for society. Firms without sufficient resources to conduct explorative research should adopt the new technology when the dominant design is evident to reduce risk and cost levels.