Corporations must be able to adapt and evolve if they wish to survive. Businesses operate with the knowledge that their competitors will inevitably come to the market with a product that changes the basis of competition. The ability to change and adapt is essential to survival. Today, the idea of innovation is widely accepted. It has become part of our culture – so much so that it verges on becoming a cliche. For example, in 1994 and 1995, 275 books published in the the United States had the word ‘innovation’ in their title (Coyne, 1996).
But even though the term is now embedded in our language, to what extent do we fully understand the concept? Moreover, to what extent is this understanding shared? A scientist’s view of innovation may be very different from that of an accountant in the same organisation. The GlaxoSmithKline story in Illustration 1. 1 puts into context the subject of innovation and new product development. Innovation is at the heart of many companies’ activities.
But to what extent is this true of all businesses? And why are some businesses more innovative than others?
What is meant by innovation? And can it be managed? These are questions that will be addressed in this book. ‘. . . not to innovate is to die’ wrote Christopher Freeman (1982) in his famous study of the economics of innovation. Certainly companies that have established themselves as technical and market leaders have shown an ability to develop successful new products. In virtually every industry from aerospace to pharmaceuticals and from motor cars to computers, the dominant companies have demonstrated an ability to innovate (see Table 1. 1).
A brief analysis of economic history, especially in the United Kingdom, will show that industrial technological innovation has led to substantial economic bene? ts for the innovating companyand the innovating country. Indeed, the industrial revolution of the nineteenth century was fuelled by technological innovations (seeTable 1. 2). Technological innovations have also been an important component in the progress of human societies. Anyone who has visited the towns of Bath, Leamington and Colchester will be very aware of how the Romans contributed to the advancement of human societies.
The introduction over 2,000 years ago of sewers, roads and elementary heating systems is credited to these early invaders of Britain. The classical economists of the eighteenth and nineteenth centuries believed that technological change and capital accumulation were the engines of growth. This belief was based on the conclusion that productivity growth causes population growth, which in turn causes productivity to fall. Today’s theory of population growth is very different from these early attempts at understanding economic growth. It argues that rising incomes slow the population growth because hey increase the rate of opportunity cost of having children. Hence, as technology advances productivity and incomes grow. Joseph Schumpeter was the founder of modern growth theory and is regarded as one of the world’s greatest economists. In the 1930s he was the ? rst to realise that the development and diffusion of new technologies by pro? t-seeking entrepreneurs formed the source of economic progress. Robert Solow, who was a student of Schumpeter, advanced his professor’s theories in the 1950s and won the Nobel Prize for economic science.
Paul Romer has developed these theories further and is responsible for the modern theory of economic growth, sometimes called neo-Schumpeterian economic growth theory, which argues that sustained economic growth arises from competition among ? rms. Firms try to increase their pro? ts by devoting resources to creating new products and developing new ways of making existing products. It is this economic theory that underpins most innovation management and new product development theories. Source: Adapted from M. Parkin et al. (1997) Economics, 3rd edn, Addison-Wesley, Harlow.
Innovation has long been argued to be the engine of growth. It is important to note that it can also provide growth almost regardless of the condition of the larger economy. Innovation has been a topic for discussion and debate for hundreds of years. Nineteenth-century economic historians observed that the acceleration in economic growth was the result of technological progress. However, little effort was directed towards understanding howchanges in technology contributed to this growth. Schumpeter (1934, 1939, 1942) was among the ? rst economists to emphasise the importance of new productsas stimuli to economic growth.
He argued that the competition posed by new products was far more important than marginal changes in the pricesof existing products. For example, economies are more likely to experience growth due to the development of products such as new computer software or new pharmaceutical drugs than to reductions in prices of existing products such as telephones or motor cars. Indeed, early observations suggested that economic development does not occur in any regular manner, but seemed to occur in ‘bursts’ or waves of activity, thereby indicating the important in? uence of external factors on economic development.
This macro view of innovation as cyclical can be traced back to the mid-nineteenth century. It was Marx who ? rst suggested that innovations could be associated with waves of economic growth. Since then others such as Schumpeter (1934, 1939), Kondratieff (1935/51), Abernathy and Utterback (1978) have argued the long-wave theory of innovation. Kondratieff was unfortunately imprisoned by Stalin for his views on economic growth theories, because they con? icted with those of Marx. Marx suggested that capitalist economies would eventually decline, whereas Kondratieff argued that they would experience waves of growth and decline.
Abernathy and Utterback (1978) contended that at the birth of any industrial sector there is radical product innovation which is then followed by radical innovation in production processes, followed, in turn, by widespread incremental innovation. This view was once popular and seemed to re? ect the life cycles of many industries. It has, however, failed to offer any understanding of how to achieve innovative success. After the Second World War economists began to take an even greater interest in the causes of economic growth (Harrod, 1949; Domar, 1946). One of the most important in? ences on innovation seemed to be industrial research and development. After all, during the war, military research and development (R&D) had produced signi? cant technological advances and innovations, including radar, aerospace and new weapons. A period of rapid growth in expenditure by countries on R&D was to follow, exempli? ed by US President Kennedy’s 1960 speech outlining his vision of getting a man on the moon before the end of the decade. But economists soon found that there was no direct correlation between R&D spending and national rates of economic growth.
It was clear that the linkages were more complex than ? rst thought (this issue is explored more fully in Chapter 8). There was a need to understand howscience and technology affected the economic system. The neo-classical economics approach had not offered any explanations. A series of studies of innovation were undertaken in the 1950s which concentrated on the internal characteristics of the innovation process within the economy. A feature of these studies was that they adopted a cross-discipline approach, incorporating economics, organisational behaviour and business and management.
The studies looked at: lthe generation of new knowledge; lthe application of this knowledge in the development of products and processes; lthe commercial exploitation of these products and services in terms of ? nancial income generation. In particular, these studies revealed that ? rms behaved differently (seeSimon, 1957; Woodward, 1965; Carter and Williams, 1959). This led to the development of a new theoretical framework that attempted to understand how ? rms managed the above, and why some ? rms appeared to be more successful than others. Later studies in the 1960s were to con? rm these initial ? ndings and uncover signi? ant differences in organisational characteristics (Myers and Marquis, 1969; Burns and Stalker, 1961; Cyert and March, 1963). Hence, the new framework placed more emphasis on the ? rm and its internal activities than had previously been the case. The ? rm and how it used its resources was now seen as the key in? uence on innovation. Neo-classical economics is a theory of economic growth that explains how savings, investments and growth respond to population growth and technological change. The rate of technological change in? uences the rate of economic growth, but economic growth does not in? uence technological change.
Rather, technological change is determined by chance. Thus population growth and technological change are exogenous. Also, neo-classical economic theory tends to concentrate on industry or economy-wide performance. It tends to ignore differences among ? rms in the same line of business. Any differences are assumed to re? ect differences in the market environments that the organisations face. That is, differences are not achieved through choice but re? ect differences in the situations in which ? rms operate. In contrast, research within business management and strategy focuses on these differences and the decisions that have led to them.
Furthermore, the activities that take place within the ? rm that enable one ? rm seemingly to perform better than another, given the same economic and market conditions, has been the focus of much research effort since the 1960s. The Schumpeterian view sees ? rms as different – it is the way a ? rm manages its resources over time and develops capabilities that in? uences its innovation performance. The varying emphasis placed by different disciplines on explaining how innovation occurs is brought together in the framework in Figure 1. . This overview of the innovation process includes an economic perspective, a business management strategy perspective and organisational behaviour which attempts to look at the internal activities. It also recognises that ? rms form relationships with other ? rms and trade, compete and cooperate with each other. It further recognises that the activities of individuals within the ? rm also affect the process of innovation. Each ? rm’s unique organisational architecture represents the way it has constructed itself over time.
This comprises its internal design, including its functions and the relationships it has built up with suppliers, competitors, customers, etc. This framework recognises that these will have a considerable impact on a ? rm’s innovative performance. So too will the way it manages its individual functions and its employees or individuals. These are separately identi? ed within the framework as being in? uential in the innovation process. The need to view innovation in an organisational context During the early part of the nineteenth century manufacturing ? ms were largely family oriented and concentrated their resources on one activity. For example, one ? rm would produce steel from iron ore, another would roll this into sheet steel for use by, say, a manufacturer of cooking utensils. These would then be delivered to shops for sale. Towards the latter part of the century these small enterprises were gradually replaced by large ? rms who would perform a much wider variety of activities. The expansion in manufacturing activities was simultaneously matched by an expansion in administrative activities. This represented the beginnings of the development of the diversi? d functional enterprise. The world expansion in trade during the early part of the twentieth century saw the quest for new markets by developing a wide range of new products (Chandler, 1962). Unfortunately, many of the studies of innovation have treated it as an artefact that is somehow detached from knowledge and skills and not embedded in know-how. This inevitably leads to a simpli? ed understanding, if not a misunderstanding, of what constitutes innovation. This section shows why innovation needs to be viewed in the context of organisations and as a process within organisations.
The diagram in Figure 1. 1 shows how a number of different disciplines contribute to our understanding of the innovation process. It is important to note that ? rms do not operate in a vacuum. They trade with each other, they work together in some areas and compete in others. Hence, the role of other ? rms is a major factor in understanding innovation. As discussed earlier, economics clearly has an important role to play. So too does organisational behaviour as we try to understand what activities are necessary to ensure success. Studies of management will also make a signi? cant contribution to speci? areas such as marketing, R&D, manufacturing operations and competition. As has been suggested, in previous centuries it was easier in many ways to mobilise the resources necessary to develop and commercialise a product, largely because the resources required were, in comparison, minimal. Today, however, the resources required, in terms of knowledge, skills, money and market experience, mean that signi- ? cant innovations are synonymous with organisations. Indeed, it is worthy of note that more recent innovations and scienti? c developments, such as signi? cant discoveries like cell phones or omputer software and hardware developments, are associated with organisations rather than individuals (seeTable 1. 3). Moreover, the increasing depth of our understanding of science inhibits the breadth of scienti? c study. In the early part of the twentieth century, for example, ICI was regarded as a world leader in chemistry. Now it is almost impossible for chemical companies to be scienti? c leaders in all areas of chemistry. The large companies have specialised in particular areas. This is true of many other industries. Even university departments are having to concentrate their resources on particular areas of science.
They are no longer able to offer teaching and research in all ? elds. In addition, the creation, development and commercial success of new ideas require a great deal of input from a variety of specialist sources and often vast amounts of money. Hence, today’s innovations are associated with groups of people or companies. Innovation is invariably a team game. Problems of definition and vocabulary While there are many arguments and debates in virtually all ? elds of management, it seems that this is particularly the case in innovation management. Very often these centre on semantics.
This is especially so when innovation is viewed as a single event. When viewed as a process, however, the differences are less substantive. At the heart of this book is the thesis that innovation needs to be viewed as a process. If one accepts that inventions are new discoveries, new ways of doing things, and that products are the eventual outputs from the inventions, that process from new discovery to eventual product is the innovation process. A useful analogy would be education, where quali? cations are the formal outputs of the education process. Education, like innovation, is not and cannot be viewed as an event.
Arguments become stale when we attempt to de? ne terms such as new, creativity or discovery. It often results in a game of semantics. First, what is new to one company may be ‘old hat’ to another. Second, how does one judge success in terms of commercial gain or scienti? c achievement? Are they both not valid and justi? ed goals in themselves? Third, it is context dependent – what is viewed as a success today may be viewed as a failure in the future. We need to try to understand how to encourage innovation in order that we may help to develop more successful new products.
Entrepreneurship In the United States the subject of innovation management is often covered in terms of ‘entrepreneurship’. Indeed, there are many courses available for students in US business schools on this topic. In a study of past and future research on the subject of entrepreneurship, Low and MacMillan (1988) de? ne it as ‘the process of planning, organising, operating, and assuming the risk of a business venture’. It is the analysis of the role of the individual entrepreneur that distinguishes the study of entrepreneurship from that of innovation management.
Furthermore, it is starting small businesses and growing them into large and successful businesses that is the focus of attention of those studying entrepreneurship. For example, the Sunday Times reported how the founder of The Source, Daniel Mitchell, developed and grew his business from zero to sales of ? 35 million. Mitchell argues that ‘success is about customers, but it is also about the people you employ’ (Sunday Times, 2004). Design The de? nition of design with regard to business seems to be widening ever further and encompassing almost all aspects of business (seeThe Design Council, www.
Designcouncil. com). For many people design is about developing or creating something, hence we are into semantics regarding how this differs from innovation. Hargadon and Douglas (2001: 476) suggest design is concerned with the emergent arrangement of concrete details that embody a new idea. A key question however, is how design relates to research and development? Indeed, it seems that in most cases the word designand the word developmentmean the same thing. Traditionally design referred to the development of drawings, plans and sketches. Indeed, most dictionary de? itions continue with this view today and refer to a designer as a ‘draughtsman who makes plans for manufacturers or prepares drawings for clothing or stage productions’ (Oxford English Dictionary, 2003). In the aerospace industry engineers and designers would have previously worked closely together for many years developing drawings for an aircraft. Today the process is dominated by computer software programmes that facilitate all aspects of the activity; hence the product development activities and the environments in which design occurs have changed considerably.
Figure 1. 2 shows, along the horizontal axis, the wide spectrum of activities that design encompasses from clothing design to design within electronics. The vertical axis shows how the areas of design feed into outputs from choice of colour to cost effectiveness; all of which are considered in the development of a product. The view taken by this book is to view design as an applied activity within research and development, and to recognise that in certain industries, like clothing for example, design is the main component in product development.
In other industries, however, such as pharmaceuticals design forms only a small part of the product development activity. Successful and unsuccessful innovations There is often a great deal of confusion surrounding innovations that are not commercially successful. A famous example would be the Kodak Disc Camera or the Sinclair C5. This was a small, electrically driven tricycle or car. Unfortunately for Clive Sinclair, the individual behind the development of the product, it was not commercially successful. Commercial failure, however, does not relegate an innovation to an invention.
Using the de? nition established above, the fact that the product progressed from the drawing board into the marketplace makes it an innovation – albeit an unsuccessful one. Introduction The commercial banking business has changed dramatically over the past 25 years, due in large part to technological change. Advances in telecommunications, information technology, and financial theory and practice have jointly transformed many of the relationship focused intermediaries of yesteryear into data-intensive risk management operations of today.
Consistent with this, we now find may commercial banks embedded as part of global financial institutions that engage in a wide variety of financial activities. To be more specific, technological changes relating to telecommunications and data processing have spurred financial innovations that have altered bank products and services and production processes. For example, the ability to use applied statistics cost-effectively (via software and computing power) has markedly altered the process of financial ntermediation. Retail loan applications are now routinely evaluated using credit scoring tools, rather than using human judgement. Such an approach makes underwriting much more transparent to third parties and hence facilities secondary markets for retail credits (e. g. , mortgages and credit card receivables) via securitisation. Statistically based risk measurement tools are also used to measure and manage other types of credit risks- as well as interest rate risks-on an ongoing basis across entire portfolios.
Indeed, tools like value-at-risk are even used to determine the appropriate allocation of risk-based capital for actively managed portfolios. It will describe how technological change has spurred financial innovations that have driven the aforementioned changes in commercial banking over the past 25 years. In this respect, the analysis distinguishes itself by reviewing the literature on a large number of new banking technologies and synthesizing these studies in the context of the broader economics literature on innovation.
The various innovations in banking and financial sector are ECS, RTGS, EFT, NEFT, ATM, Retail Banking, Debit & Credit cards, free advisory services, implementation of standing instructions of customers, payments of utility bills, fund transfers, internet banking, telephone banking, mobile banking, selling insurance products, issue of free cheque books, travel cheques and many more value added services. The Role of Finance and Financial Innovation The primary function of a financial system is to facilitate the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment.
This function encompasses a payments system with a medium of exchange; the transfer of resources from savers to borrowers; the gathering of savings for pure time transformation and the reduction of risk through insurance and diversification. The operation of a financial system involves real resource costs employed by financial intermediaries and by financial facilitators (e. g. , mortgage brokers). Much of these resources are expended in the data collection and analyses in which financial market participants engage, so as to deal with problems of asymmetric information.
There are also uncertainties about future states of the world that generate risks, which for risk-averse individuals represent costs. In this environment, new production process or new organisational forms. Hence, a Financial Innovation as something new that reduces costs, reduce risks or provides an improved product/service/instrument that better satisfies financial system participants demands. Financial innovations can be grouped as new products (e. g. , subprime mortgage) or services (e. g. , Internet banking) or new organisational forms (e. g. , Internet-only banks).
The Centrality of finance in an economy and its importance for economic growth naturally raises the importance of financial innovation – and its diffusion. Since finance is a facilitator of virtually all production activity and much consumption activity, improvements in the financial sector will have direct positive ramifications throughout an economy. Further, since better finance can encourage more saving and investment and can also encourage more productive investment decisions, these indirect positive effects from financial innovation and further to its value for an economy.
Given its importance, an understanding of the conditions that encourage innovation would appear to be worthwhile. After all, observed streams of innovations are clearly not uniform across all enterprises, across all industries or across all time periods. The general innovation literature in economics has sought to uncover the environmental conditions that affect the stream of innovations-focusing on hypotheses concerning roughly five structural conditions: the market power of enterprises, the size of enterprises, technological opportunity, appropriability and product market demand conditions.
Of course, when environmental changes occur, we expect to observe an initial wave of financial innovations followed by a new equilibrium flow consistent with the new environmental conditions. Over the past 25 years, each of these above environmental conditions was markedly altered – resulting in substantial changes to the commercial banking industry. Financial Innovation and Banking The literature pertaining to several specific financial innovations appearing over the past 25 years or so that were specifically driven by technological change.
The major discussion is focusing on the lines of: new products & services, new production process and new organisational forms. A1. Products: Mortgage loans are one suite of products that have experienced a great deal of change over the past 25 years in the United States. In 1980, long-term fully amortizing fixed-rate mortgages were the norm and this product was offered primarily by thrift institutions. Moreover, these loans required substantial down payments and a good credit history and the accumulated equity was relatively illiquid. These characteristics have markedly evolved.
The first big change occurred in the early 1980s with the widespread introduction of various types of adjustable-rate mortgages (ARMs), which had previously been banned by federal regulators. The Tax Reform Act of 1986, which ended federal income tax deductions for non-mortgage consumer debt, spurred substantial growth in home equity lending. One mortgage innovation more directly tied to technological change is subprime lending, which was originally predicated on the use of statistics for better risk measurement and risk-based pricing to compensate for these higher risks.
However, the subprime mortgage crisis has uncovered significant shortcomings in the underlying statistical models. * Subprime Mortgages: Subprime mortgage lending, broadly defined, relates to borrowers with poor credit histories or high leverage as measured by either debt/income or loan-to-value. This market grew rapidly in the U. S during the first decade of the twenty-first century – averaging about 20% of residential mortgage orginations between 2004 and 2006. At the end of 2007, subprime mortgages outstanding stood at $940 billion; down from over $1. 2 trillion outstanding the previous year (Inside Mortgage Finance 2008).
Since the onset of the subprime mortgage crisis, research has attempted to identify various sources of the problem. Mayer, Pence and Scherlund (forthcoming) provide an overview of the attributes of subprime mortgages outstanding during this time and investigate why delinquencies and defaults increases so substantially. These authors, as will as Gerarbi, Lehnert, Sherlund, and Willen (forthcoming), point to significant increase in borrower leverage during the mid-2000s, as measured by combined loan-to-value (CLTV) ratios, which was soon followed by falling house prices. A2. Services:
Recent service innovations primarily relate to enhanced account access and new methods of payment-each of which better meets consumer demands for convenience and ease. Automated Teller Machines (ATMs), which were introduced in the early 1970s and diffused rapidly through the 1980s, significantly enhanced retail bank account access and value by providing customers with around the clock access to funds. ATM cards were then largely replaced through the 1980s and 1990s by debit cards, which bundle ATM access with the ability to make payment from a bank account at the point of sale.
Over the past decade, remote access has migrated from the telephone to the personal computer. Online banking, which allows customers to monitor accounts and originate payments using “electronic bill payment,” is now widely used. Stored-value, or prepaid, cards have also become ubiquitous. * Debit Cards: Debit cards are essentially “pay-now” instruments linked to a checking account whereby transactions can happen either instantaneously using online (PIN based) methods or in the near future with offline (signature based) methods.
Consumers typically have the choice of using online or offline methods, and their selection often hinges on the respective benefits. Online debit allows the cardholder also to withdraw cash at the point-of-sale, and offline provides float. According to ATM & Debit News (2007), there were approximately 26. 5 billion debit transactions in the U. S. during 2006. This is up from 6. 5 billion transactions in 1999 – a four-fold increase. * Online Banking: As households and firms rapidly adopted internet access during the late-1990s, commercial banks established an online presence.
According to De Young (2005), the first bank websites were launched in 1995: and by 2002 nearly one-half of all U. S. banks and thrifts operated transactional websites. As of 2007, bank call report data suggests that 77. 0 percent of commercial banks offer transactional websites (and these banks control 96. 8 percent of commercial bank deposits). The primary line of research relating to online banking has been aimed at understanding the determinants of bank adoption and how the technology has affected bank performance.
In terms of online adoption. Furst, Lang, and Nolle (2002) find that U. S. national banks (by the end of the third quarter of 1999) were more likely to offer transactional websites if they were: larger, younger, affiliated with a holding company, located in an urban area, and had higher fixed expenses and non-interested income. Turning to online bank performance, De Young, Lang, and Nolle (2007) report that internet adoption improved U. S. community bank profitability – primarily through deposit-related charges.
In a related study, Hernando and Nieto (2007) find that, over time, online banking was associated with lower costs and higher profitability for a sample of Spanish banks. Both papers conclude that the internet channel is a complement to – rather than a substitute for – physical bank branches. * Prepaid cards: As the name implies, prepaid cards are instruments whereby cardholders “pay early” and set aside funds in advance for future purchases of goods and services. (By contrast, debit cards are “pay-now”, and credit cards are “pay later”). The monetary value of the prepaid card resides either of the card or at a remote database.
According to Mercator Advisory Group, prepaid cards accounted for over $180 billion in transaction volume in 2006. Prepaid cards can be generally delineated as either “closes” systems (e. g. , a retailer-specific gift card, like Macy’s or Best Buy) or “open” systems (e. g. , a payment-network branded card, like Visa or MasterCard). Closed-system prepaid cards have been effective as a cash substitute on university campuses, as well as for mass transit systems and retailers. A3. Production Processes The past 25 years have witnessed important changes in banks production processes.
The use of electronic transmission of bank-to-bank retail payments, which had modest beginnings in the 1970s, has exploded owing to greater retail acceptance, online banking and check conversion. In terms of intermediation, there has been a steady movement toward a reliance on statistical models. For example, credit scoring has been increasingly used to substitute for manual underwriting – and has been extended even into relationship-oriented products like small business loans. Similar credit risk measurement models are also used when creating structured financial products through “securitization”.
Statistical modelling has also become central in the overall risk management processes at banks through portfolio stress testing and value-at-risk models – each of which is geared primarily to evaluating portfolio value in the face of significant changes in financial asset returns. * Asset Securitization: Asset securitization refers to the process by which non traded assets are transformed into the U. S. , securitization is widely used by large originators of retail credit – specifically mortgages, credit cards and automobile loans.
As of year-end 2007, federally sponsored mortgage pools and privately arranged ABS issues (including private-label mortgage-backed securities) totalled almost $9. 0 trillion in U. S. credit market debt outstanding. By contrast, as of year-end 1990, these figures were $1. 3 trillion, respectively. One recent innovation in the structured finance/securitization area is the introduction of collateralized debt obligations (CDOs). According to Longstaff and Rajan (2006) these instruments, which were first introduced in the mid-1990s, are now in excess of $1. 5 trillion.
Like ABS, CDOs are also liabilities issued by financial-institution-sponsored trusts, which essentially pool and restructure the priority of cash flows associated with other types of risky financial assets, including senior and mezzanine ABS, high-yield corporate bonds and bank loans. * Risk Management: Advances in information technology (both hardware and software) and financial theory spurred a revolution in bank risk management over the past two decades. Two popular approaches to measuring and managing financial risks are stress-testing and value-at-risk (VaR).
In either case, the idea is to identify the level of capital required for the bank to remain solvent in the face of unlikely adverse environments. * Organisational Forms: new bank organizational forms have emerged in the United States over the past few decades. Securities affiliates (so-called “section 20” subsidiaries or the creation of “financial holding companies”) for very large banks and Subchapter S status for very small banks, were the by product of regulatory/legal evolution. Indeed, only one new organizational form, the internet-only bank, arose from technological change. These institutions, which quickly emerged and isappeared, may represent an interesting laboratory for the study of “failed” financial innovations. We believe that understanding such experimental failures may hold important insights for understanding the keys to successful innovations. Conclusion Over the last three decades the role of banking in the process of financial intermediation has been undergoing a profound transformation, owing to changes in the global financial system. It is now clear that a thriving and vibrant banking system requires a well developed financial structure with multiple intermediaries operating in markets with different risk profiles.
Taking the banking industry to the heights of international excellence will require a combination of new technologies, better processes of credit and risk appraisal, treasury management, product diversification, internal control and external regulations and not the least, human resources. Fortunately, we have a comparative advantage in almost all these areas. Our professionals are at the forefront of technological change and financial developments all over the world. It is time to harness these resources for development of Indian banking in the new century.
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