Obtaining Innovation from External Sources: Exploring how banks obtain innovation from external sourcesto cope with the changing environment of the financial services industry

Abstract

The financial services industry is changing faster than ever before and incumbent banks are facing several challenges. The changes include intensified competition, changing consumer behavior, novel and disruptive technologies, and regulatory pressure. Innovation has become key for survival in the financial services industry and banks are now looking for innovation beyond their firm boundaries. In this thesis, we have sought to explore how banks obtain innovation from external sources to cope with the changing environment of the industry. The ongoing change of the industry is often referred to as digital disruption. We define three overarching themes of the digital disruption of the industry; intensified competition, novel and disruptive technologies, and changing consumer behavior We have employed two of the largest incumbent banks in the Nordic as case companies, namely DNB and Nordea. In the first analysis, we analyze how the banks in fact obtain innovation from external sources. The findings show that customers, users and competitors, as well as future potential competitors, are all utilized as external sources of innovation. However, competitors seem to be most utilized external source of innovation, through the use of accelerator programs. Through these programs, the banks can access innovative products and services, as well as novel and disruptive technologies. Furthermore, the case companies differ in how they incentivize, enable, and acquire the innovation. In the second analysis, we link the industry changes to the question of how banks obtain innovation from external sources. The analysis show that obtaining innovation from customers solely have the potential to cope with the changing consumer behavior characterizing the industry. User innovation is found to have a potential to cope with changing consumer behavior and new digital technologies, whereas competitor innovations seem to have the potential to cope with all three themes. Our thesis sheds light on a highly relevant topic and contribute with practical insights and findings on how obtaining innovation from different external sources may help the banks to cope with the ongoing digital disruption of the financial services industry. We conclude the thesis with a summary of findings, and highlight a set of implications for further research.