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Technological Innovation as a Strategy for Competitive Advantage within the Namibian Banking Industry

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International Journal of Management Science and Business Administration

Volume 8, Issue 1, November 2021, Pages 68-72


Technological Innovation as a Strategy for Competitive Advantage within the Namibian Banking Industry

DOI: 10.18775/ijmsba.1849-5664-5419.2014.81.1006  
URL: https://doi.org/10.18775/ijmsba.1849-5664-5419.2014.81.1006

1 Asa Romeo Asa, 2 Dennis Tsanga, 3 Christeline Januarie, 4 Mekelaye Kamati

1, 2, 3, 4 Namibia University of Science and Technology,
Faculty of Management Sciences
Windhoek, Namibia

Abstract: The purpose of this paper is to analyse the effectiveness of technological innovation as a strategy for driving competitive advantage and increasing market share in the Namibian banking sector. A comprehensive literature review was done with the collaboration of a quantitative research approach to draw data relating to technological innovations and their impact on competitive advantage. Employees at Nedbank and FNB in Windhoek were selected as respondents representing the entire Namibian banking sector population. The findings revealed a positive correlation between technological innovations as a strategy and competitive advantage and increased market share. The current fourth industrial revolution (4IR) expects organisations, banks in particular to tailor make their strategies to technological advancements the revolutions brings with else risk losing market share to existing competitors and emerging challenger banks.

Keywords: Strategy, strategic management, competitive advantage, technological innovation.

Technological Innovation as a Strategy for Competitive Advantage within the Namibian Banking Industry

1. Introduction

It has been noted from history that great wars won by countries resulted from military strategies that endured through the battles, and such is the same with the businesses in a VUCA 21st century. Without strategy, businesses will not survive this volatile, uncertain, complex and ambiguous (VUCA) thanks to the emergence of the 4IR. One of the key areas of sustainable competitive advantage in this era is technological innovations. The financial sector has experienced a lot of disruptions lately as technological advances forcefully shifted the rules of the game. There has been a lot of emergence of new players in the banking sector to challenge traditional banks and technological innovations has made this possible. The era is characterised by insurance companies contemplating on offering banking services, with large chain supermarkets and telecommunication giants joining the band. The Namibian banking industry is dominated by four major banks namely Nedbank, Standard Bank, FNB and Bank Windhoek. The threat of challenger banks for the dominant four in Namibia is imminent, with such calling for sustainable strategies to be in place to ensure competitive edge and market dominance. The Namibian banks are henceforth expected to seek the precise approach/strategy that will drive and manage technological innovations to ensure increased share of the market and sustainable competitive advantage. When businesses continuously develop, apply and achieve new ideas, value is added to the organisation and so is survival, sustenance and ultimately competitive advantage (Horta, Silvera & Camacho, 2015).

Many academics and companies have in recent years been researching on how the banking sector is being significantly disrupted by technological advancements resulting in increased publications of this topic. Nevertheless, this paper aim to add in this body of knowledge by intently looking at technological innovations as a strategic driver of competitive advantage in the banking sector.

This paper is organised in the following manner: Preceding this introduction about technological innovation as a strategy for competitive advantage, section 2 embroiders the literature review on the subject matter, outlining the concept of strategy and strategic management, technological innovation and digital technology in the banking sector with the importance of technological innovation strategy concluding the section. Research methodology is explained in section 3, while section 4 provides an overview of the results and findings. Lastly, section 5 concludes the paper.

2. Literature Review

2.1 Concept of Strategy and Strategic Management

A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage (Hitt et al., 2017).  All attempts by an organisation to succeed emanating from idea generation, decision making and day to day activities constitute a strategy. This is further elaborated by Thompson et al. (2016) stating that a company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability. This success sought for is lasting and not temporary with the organisation’s future and growth being secured. Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages (Dess et al., 2014). It is important for firms to acknowledge that there is no permanent competitive advantage, hence the need for continual innovative tendencies aligns organisation strategy with current business environment. Competitive advantage is defined as the ability to implement a strategy which creates superior value for customers that is difficult for competitors to duplicate or too costly to imitate (Hitt et al., 2017).  Hence, Namibian banks are expected to continuously formulate and implement value creating strategies in order to attain sustainable strategic competitiveness.

2.2 Technological Innovation

The current volatile business environment requires firms to consistently generate ideas that enable them to tailor make their products and or services in line with current needs and wants of the market for them to remain relevant and ahead of competition. Innovation is defined by Vaughan (2014) as the process of invention, development and implementation of new ideas, products, services, technologies, systems and programmes. As businesses embrace technology and institute it in their processes, products and services, value is created thus imparting positive influence on the success of firms. Innovation has a great influence on how opportunities are derived. It is however, noted with concern that traditional banks have been suffering from technological inertia, with most of them having a tendency of taking a relaxed approach when it comes to issues of technology leading them to lowly embracing new ways of doing things. As a result of their inflexibility in technological advancements, it is small businesses in the form of challenger banks with their thirst to survive and grow that benefit in the process by pioneering new technological ways of doing things shunned by large banks.

2.3 Strategy Formation and Implementation

At the centre of every business’ success is the ability to create/develop, implement/execute and successful achievement of set objectives and goals through application of different strategies. Formulation of a strategy is not easy, but however implementing it is even more difficult as a well formulated strategy on its own is not of value unless it has been successfully implemented and executed. Herbiniak (2006) argued that while strategy formulation is difficult, making strategy work and executing it is even more difficult. In support of this, Cater and Pucko (2010) concluded that while 80% of firms have the right strategies, only 14% have managed to implement them well. Strategy execution is commonly the most complicated and time-consuming part of strategic management, while strategy formulation is primarily an intellectual and creative act involving analysis and synthesis (Bell et al., 2010). Strategy implementation is the stage in the strategic management process were actual action need to be taken to put in place the formulated strategies and can be a very daunting task especially in the imminent virtual banking industry which is characterised by rapid changes.

2.4 Digital Technology in the Banking Sector

Financial services used to change slowly, with banking changing even more slowly as evidenced by most banks’ continuous distribution of a large portion of their products through branch network more than 25 years after the launch of the internet (Cranston, 2019). In South Africa, as much as in other countries, this era has come to an end as new banks with leaner, cheaper business model and highly virtual enter the market. This is the new trend in the banking sector globally as technology advances. The banking sector is highly competitive in Namibia whose population is not in excess of three million. The emergence of the Internet has transformed the ways banking services are delivered in the 21st century, thus making it crucial for the banks to incorporate such in their bid to enhance customer satisfaction. According to Kamutuezu (2016), from the Namibian perspective, there have been increased use of digital technology in transacting online at any given time as banks introduced digital platforms such as e-wallet, blue-wallet, easy-wallet and internet banking. These technologies are still facing some resistance with some clients owing to factors such as cyber-criminal activities, lack of knowledge of the benefits the systems come with and sheer ignorance of the availability of such facilities hence reliance on conventional banking ways. In support of this notion, Behzod and Richard (2017) highlighted that some customers still depended on the physical evidence rather than digital technology in an era of self service through technology.

However, from a futuristic point of view, the target market is shifting from the elderly to the millennials (Generation Y known as digital natives) and new generations such as Generation Z (the centennial generation) who have internet as part of their DNA thus highly technological conscious.  Failure by banks to move this direction results in loss of competitive urge against robust competitors especially new innovative entrants in the market. As more and more of the world population thrive to keep abreast with the ever revolutionizing technology in the global economy, the onus hence lies with the banks to follow these trends in consumer behaviour and align their activities accordingly in order to elevate their performance in turn profitability. The above analysis thus force the banks to plan, formulate and implement strategies that will ensure competitiveness in this increasingly competitive market.

2.5 Importance of Technological Innovation Strategy

Technological innovation strategy is important in so many ways including the following:

Improving efficiency and effectiveness – the banking sector is one of the highly technology driven industries were technological competition on local and global scale is very critical element that need utmost attention of managers. In 1911 by Joseph A. Schumpeter an Austrian political economist alleged that technological progressions would be the main push or pull force behind drastic changes in form of emergence, fusion, disruption and evolution of industries over time with the rapid changes giving birth to what is now experienced as VUCA business environment (Mahmood et al., 2013). Therefore, to remain relevant and competitive, banks should adopt continuous strategies that aim synchronising business activities with current technological trends. This calls for the utilisation of technological innovations such as Artificial Intelligence (AI), Big Data, Internet of Services (IOS) and Chatbot Systems to ensure effective and efficient delivery of services to banking customers.

Improving competitiveness and profitability – organisations that pioneer new technologies and innovations always stay ahead of the pack as they continuously enjoy first mover advantages as they create value benefiting customers. According to Liu et al. (2016), assessing an organisation’s technological capabilities determines its ability to develop and introduce new products that meet market needs, to manufacture these products using the appropriate technologies and processes, to develop new technologies and products to meet future needs, and to quickly respond to unexpected technology updates by competitors and to unforeseen opportunities. In so doing, organisations are able to create sustainable competitive advantage in so many ways as among others, the ability to attract and retain highly competent and rare skilled human capital. Hence, innovation (Bekmez, 2013) is one of the key driving forces that generates sustainable competitive advantage in markets.

Ease of service delivery – one of the key success factors within the banking industry is exceptional customer service which aims at delighting customers by offering those services way beyond their expectations. There is a positive rapport between customer service and ICT (Kabanda, 2014), with banks benefiting hugely from adoption of ICT which has seen a global positive response by customers. With ICT, banking has been made very easy and flexible as time and geographical barriers to transacting have been eliminated. However, efforts should be made by banks and other businesses at large to develop ways of protecting their customers from cyber-crime as online trading has become also the playground for fraudsters.

3. Research Methodology

In order to critically understand the extent of technological innovations in creating competitive advantage and increasing an organisation’s market share, a comprehensive literature review was done with the collaboration of a quantitative research approach. The literature review was carried out through the use of major scientific literature data bases from SABINET and Google Scholar. Additionally, peer reviewed journal articles, books and other documentation such as electronic business newspapers were used as secondary data sources. Theories of technological innovation were investigated and in-depth literature relating to strategy and strategic implementation was identified and analysed linking them to the current technological trends within the business environment specifically the banking sector.

In order to acquire objective information a quantitative study was done in Windhoek with data collected from two of the dominating banks: Nedbank and FNB branches. Questionnaires were used as the main tool od data collection were respondents representing the target population made up of all licensed commercial banking institutions in Namibia i.e. Bank Windhoek Limited, First National Bank Namibia Limited, Nedbank Namibia Limited, Standard Bank Namibia Limited, Trustco Bank Namibia Limited, Banco Atlántico (branch of foreign banking institution), Bank BIC Namibia Limited and Letshego Bank Namibia Limited. Purposive/ judgemental sampling technique was used to select the a sample of 80 respondents with 40 respondents from employees at Nedbank and the other 40 respondents from FNB employees as they are well acquainted with the issues pertaining to technological innovations at their workplaces.

The data gathered was then inputted into Excel Spreadsheet software for classification and tabulation to ease analysis and interpretation as totals from all categories were being converted into percentages. This aligns to citings by Leady and Ormrod (2010) that electronic spreadsheet is a software programme that allows a researcher to manipulate data displayed in tables, graphs, pie charts, histograms and so forth.

4. Results and Discussion

Results from the quantitative study revealed that 60% of the respondents fell between the ages of 21 – 35 years making up the majority with 33% of the respondents falling the category of 36 – 50 years and the remaining 7% the elderly above 50 years of age. With regard to years of service within the banking sector, the following results were acquired: respondents who served the banks for 1-5 years constituted 40% making up the majority with those who served for 11-15 years coming second at 20% while 7% was made up of those that had served between 6-10 years.

The above demographics reveal that most of the employees in the banking sector are young adults who are well placed to understand the effectiveness and importance of technology in the current business world. When asked about their position regarding technological innovation improving profitability and competitiveness, 87% (as shown in the figure below with 47% agree and 40% strongly agree) consented to the notion which aligns to remarks by Dognson et al. (2008) that firms that get technological innovation strategy right, create value and profit, develop sustainable competitiveness, and become vibrant, fun places to work, attracting and retaining the most productive and creative staff.

Figure 1: Improving profitability and competitiveness

With reference to whether of technological innovations improve efficiency and effectiveness, 80% (40% agree and 40% strongly agree) were in agreement while a paltry 7% professing no knowledge as shown in Figure 2 below:

Figure 2: Improving efficiency and effectiveness

These observations tally with the literature stating by Ngina (2016) that effectiveness and efficiency is the core of service provision if any service provider is to survive in a competitive industry.

When asked about the effects of technological innovation as a competitive advantage strategy on whether it leads to sustainable competitive advantage, the results as shown in Figure 3 below show that the majority of the respondents agree (87% with 27% strongly agreeing and 60% agreeing) that it does lead to such an advantage.

Figure 3: Lead to competitive advantage

This corresponds to literature by Hana (2013) that technological innovation foster competitive advantage. Additionally, Casarez and Mulholland (2009) supports this view by reiterating that absence of technological innovations is  synonymous to businesses that fail to adjust to technological advancements and thus susceptible to lack of competitiveness and complacency as there will not be responding to the changes in the global environment they are expected to.

5. Conclusion

In conclusion, generally the literature and findings from the quantitative study at two of the major banks in Namibia reveal that pursuit of technological innovations will increase the competitiveness of banks and eventually their market share. The current business environment is very volatile with a lot of disruptive changes mainly in technology creating gaps in the market for opportunities for new challenger/innovative banks to step in. Traditional banks are henceforth expected to be craft competent and develop and implement strategies that aligns with the changing global trends, needs and wants of consumers or else face loss of market share.

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