With the unfolding of the economic crisis the financial services industry has started facing severe challenges. The prevailing crisis has its roots in continuous situations of imbalance that include long periods characterized by low-interest rates, speedy increases in asset prices and large-scale imbalances in credit patterns and savings. These changes have been said to have been the result of continuous risks in the market as researched and concluded by economic experts. Rapid economic growth in the global economy and in capital markets during previous years have caused markets to adapt to contracting credit circumstances, enhanced government intervention, slow growth in globalization and a very slow rate of economic growth. With the enhancement of financing regulation in Europe and the decline in credit availability, most financial services companies are faced with significant risks of erratic growth. The worldwide recession is also impacting the financial sector adversely because of the capital markets and the decline in aggregate demand. This paper will examine the crisis being faced by Invoice Finance Services of the UK and the strategies that it can implement in coming out with meaningful solutions. Emphasis will be made on the HRM strategies that the company can focus upon in finding people solutions to tide over the difficulties that it faces.
The recent financial crisis has reduced the profitability of financial services companies because of which they are unable to make large investments. Invoice Finance Services is a financial services company engaged in providing invoice and factoring discounting services to medium and small-sized companies. It makes available services to firms that are engaged in manufacturing, printing, recruitment and transport. The company’s services in invoice discounting have been increasingly viewed as providing an alternative to bank overdraft facilities, especially for smaller businesses. Invoice Finance Services assists medium and small enterprises in maximizing their cash flows. In using invoice discounting they enhance the availability of working capital by extending credit on the basis of sales invoices of such companies. Invoice discounting has a number of different uses such as restructuring, financial growth, acquisitions, management buyouts and buy-ins. By calling prepayment facilities against invoices of applicant firms, Invoice Finance Services releases funds to companies that require them immediately. Such services are not impacted by the limitations that are usually imposed by conventional banking operations. The company’s discounting services generate working capital immediately, reduce the pressure on cash flows and link funding to sales in giving forms freedom to expand unhindered. Such services are usually treated confidential, implying that customers of such companies do not know their financial arrangements.
Factoring services provided by Invoice Finance Services are designed in a way that they maximize cash flows while removing the burdens that pertain to sales ledgers. The service also incorporates comprehensive sales ledger administration, collection services and credit control. With factoring, vitally needed cash is released immediately. Factoring allows firms to have a factual view of all account details and to get cash at short notice from Invoice Finance Services. The company is an accredited lender under the government’s Enterprise Finance Guarantee scheme (EFG), which is a government scheme that provides business loans up to 75 percent by way of invoice discounting and asset-based lending. It enables immediate access to working capital in improving cash flows for firms in allowing funding that ranges from £25,000 to £1 million to be used for business needs. Five percent of such loans are guaranteed by the government and the scheme is managed by Invoice Finance Services whereby the entire process is streamlined and results in fast decisions in the context of applications for such loans.
It is now widely acknowledged that the recent financial crisis has weakened the profits of financial services industries and thus they are not able to make the needed profits or to invest on a large scale to expand their businesses. Most financial services companies continue to face hardships in the context of getting credit and funding for further use in offering services to their clients. According to Lawler (2009), the financial crisis in the UK is seen to fall into a full-scale recession. In its wake, it was found that more than a 20,000 jobs in London were lost (Lawler 2009). The crisis is particularly important in the context of Invoice Finance Services, Surrey, UK. Credit rating agencies in London have drastically scaled down for job growth by almost 5 % after a correction in their initial estimate that jobs would remain static. Around 400,000 people work in the financial districts of London, which would mean that the resulting 20,000 jobs lost caused the already depressed corporate property segment of the market to sink further on news of the scale down on jobs. Under this condition the financial services industry had no other way but to consolidate the entire scenario by increasing service charges and finance rates.
The patterns of operations prevailing in the financial services industry show a drop in costs from the point of view of the industry as a whole. This, however, is not encouraging for the employees of the industry although reduction of cost indicates the sustainability of the companies in the long term in addition to being supported by a competitive environment that sustains the existing financial service markets. For this reason the companies are competing to reduce charges and interests levied on the customers. But the worst suffers in this whole scenario are the employees. Thus it becomes important for the management to implement human resource management strategy to consolidate the situation (Lawler 2009). The question remains for Invoice Finance Services, Surrey, UK to find ways to control the drop in costs and to expand business in an ever-deteriorating business environment because unless improvements are made in business performance the biggest risk will be to survive in a recessionary and intensely competitive environment.
Invoice Finance Services which is a London based company faces problems relating to the past credit crunch, which has considerably restrained its flexibility to provide funding at ease to small and medium enterprises that are mostly dependent upon companies such as Invoice Financial Services in view of the convenience and speed that they offer. But because of the credit crunch the company is facing many hurdles in meeting the expectations of its clients. Whatever services it can offer are proving to be extremely expensive for its clients who are now looking for other alternatives and sources to meet their funding needs. There are several instances where a company like Invoice Finance Services has taken strong steps to save the organization.
Due to continuous reduction in business, profits of companies have been evaluated and analyzed and it is found that several companies including many in the Information Technology companies and other financial services companies will have no alternative but to further reduce their staff, and hence discharge employees. With decreased market demands many industries and sectors have been advised to discharge employees as their services cannot be afforded because of business constraints. In this context, several actions have already been taken that have proved to the extreme detriment to employees and the companies because they have had to slow down their productivity in the wake of the recessionary developments. (Mathews 2008). “The last of the four implementation elements is the engagement of employees to support the various initiatives that comprise the overall CRM program. Employees have a crucial role to play within each of the CRM processes and implementation activities outlined in this paper. Change management and project management are particularly
dependent on the engagement of employees for their success. Ensuring the delivery of a superior customer experience during times of unexpectedly high demand requires the active engagement and commitment of all customer-facing staff and is a hallmark of a well-planned CRM implementation. Interviewees stated that employee engagement is now receiving greater attention as their companies place more focus on creating outstanding customer experiences” (Payne, 2005).
According to Heath (2008), one of the most efficient modes of operation in cost reduction is outsourcing (Heath 2008), and in this context it was found that “Almost half (41 percent) of 70 financial services managers questioned in a survey by the Management Consultancies Association (MCA) and the British Bankers’ Association (BBA), expect to increase their current levels of outsourcing because of the credit crunch.” (Heath 2008, p.12) Additionally, it was also reported that around 90% of the managers felt that such measures were was inevitable. Invoice Finance Services is feeling the same pressure and it needs a way out to counter the problem.
The financial services industry has been at the forefront in using strategic and tactical techniques, which is the need of the industry presently. The primary objective of Invoice Finance Services is to find innovative ways and means to enhance its business, which can be achieved by first garnering the required sources of funding and then luring customers with the best competitive conditions in the financial sector so that more clients become loyal to the company in the competitive environment. The core thrust area in this regard is the use of HRM initiatives to motivate employees to perform better in terms of enhancing the image of the company and in using the most efficient techniques in creating better profitability for the company. Mistakes in pricing are made by majority of the financial institutions because they experience residual credit exposures while optimizing their risks that are based upon the pricing strategies of their products. Such conditions become all the more pertinent from the consumer side of the business and the steepness of the yield curves and strict credit screening procedures. But such factors will be certainly reversed in the coming months as markets mature again and customers start feeling comfortable in patronizing financial services companies again. Optimization of prices will emerge again as a strong strategic issue as firms will be compelled to solicit additional basis points to make extra profits by placing before regulators and investors their expertise to handle the applicable risks.
Customer profitability management has become a crucial topic that is now discussed in financial services companies and banks to have realized that they must focus on such issues in needing to develop short and long term policies that enable them to give more attention to their profit-making accounts and to lessen the costs related with servicing accounts that contribute fewer margins. Management of customer profitability is a tricky affair in analyzing such applications. If for instance, an analysis for a financial services company gives the result that ten percent of its customers account for 150 percent of its profits, then it implies that either the analysis is not correct or the result does not entail the taking of any appropriate action. Most such companies have to face the same situations because of which accuracy in allocating shared costs that could lead to better decisions becomes difficult. There is an added issue in relating to the context of whether financial services companies should manage their marketing and sales programs in soliciting loyal customers. Although some percentage of the financial services business could be in the nature of catering to bulk and large customers, the small firms’ segment is immense and should be intelligently tapped in terms of marketing and sales analytics to attract new customers. Under these circumstances the prevailing shortcomings can be addressed by using similar techniques.
Just as it happens in other businesses, a major factor that impacts market shares is retaining and luring new customers. It is important to manage the communication processes with clients efficiently and research has found that very few companies in the financial services sector have mastered the customer research processes and thus risk losing clients. They may not be able to earn a good reputation in terms of customer service and customer retention.
The goals that should be set by Invoice Finance Services are simple, such as speed, equality and competitive price, which are made possible by motivating its people to adopt new techniques and to prevail in a competitive environment. Commodities have become international for most industries and the impact of engineering is significant. In many organizations, the learning curve in engineering has become an unaffordable luxury. Competitive pressures mandate finding ways to reduce the total time required to introduce new products in the market. Competition along with more complex production and distribution environments requires identifying and reducing necessary costs, such as costs associated with development, manufacturing, distribution and service (Kesler 2007). Payne (2005) has asserted in this regard that, “the purpose of CRM is to efficiently and effectively increase the acquisition, growth and retention of profitable customers by selectively initiating, building and maintaining appropriate relationships with them. Developments in information technology can help improve customer relationships and make it possible to gather vast amounts of customer data and to analyze, interpret and utilize it constructively. However, there is often a gap between an organization’s CRM vision and the results it obtains. The prime objective of this paper is to propose an integrated model of CRM strategy and implementation that can help organizations realize their CRM vision more effectively” (Payne, 2005).
In contemporary Strategic human resource management based on higher profit earning, attitudes of the business authorities on human resources have come to dominate and employees are again being viewed as a cost to be managed rather than an asset to be effectively deployed. Thus it is a managerial frame of reference which does not easily bring itself together with companies or social positions which are distinctively more politically influenced. As taken from the examples of the ‘leading edge’ companies like BP, Glaxo, BT, Hewlett Packard, Citicorp, WH Smith etc, instead of all drawbacks in Human Resources Management (HRM) ideologies of management, it has numerous facilities (Lawler 2009). Thus this approach could always be followed by the companies for finding solutions to their management-employee problems.
Financial services companies such as Invoice Finance Services are facing a great deal of upheaval in reorienting themselves with the changing techniques and diverse needs of customers, especially in the context of molding its employees in responding to the happening changes and the new challenges. It is thus important to examine the literature in the area of customer relationship management in the context of people management and to augment the knowledge gained from this study. There is thus a need to analyze the issue by using credit management strategies and billing systems as applicable to the financial services industry. Such a situation is possible only if the four diverse components such as people, processes, technology and data are efficiently integrated within the working environment. Customer data will enable a basis for the management about the initiatives to be taken in regard to consumer expectations and technology will assist in getting to know the classification and character of customers on the basis of their previous behavioral patterns. It is more important to place extra focus on customer lifetime values than on product lifetime value. The process of customer lifetime value enables marketing teams to analyze costs of acquiring services and of retaining a given set of clients in the market segment.
Customer relationship Management concerns establishing, developing, maintaining and optimizing relationships on a long-term basis that are mutually valuable amongst customers as well as the organization. Such efforts require the active participation of employees and marketing teams. According to Fox and Stead (2001), successful customer relationship management rests on recognizing the desires and aspirations of customers that are achieved by considering them in the heart of the business by including them within the firm’s core strategy, with its people, technology and business procedures. The contractual functions that fall amongst the main tasks of marketing are reflective of relational orientation proposed by Mcgarry and his focus upon creating cooperation and mutual dependency amongst the marketing actors. McGarry’s works did not create much of a flurry of interests as much as Wroe Alderson’s (1965) work had done in terms of inter-channel and intra channel cooperation. Adler (1966) had noted the symbiotic relationship amongst companies that were not attached or related by traditional marketing and intermediary relationships. Vardarajan (1986) had also researched diverse manifestations of symbiotic relations in marketing in financial services industries.
Human resources management has been widened in recent years to imbibe integrated perceptions about customer service, sales, marketing, logistics, channel management and technology to engage customer satisfaction. Most firms refer to it as (HRM) in interacting with employees to maintain cordial relationships with them. Especially in the context of the ongoing global recession firms will benefit in adopting such measures so as to tap added customers as the recession gets over and the economy takes off for better results in terms of performance and profitability in the new millennium. Reichheld (2003) has noted that customers play a vital role in assisting corporate performance whereby relationships with them can be endured and profits enhanced. Some scholars have revealed that the costs of retaining present customers are usually very low as compared to the costs of enlisting new ones. In a similar vein, Reichheld (2003) has held that the benefits accruing from high levels of loyalty are immense and many companies benefit from the cost-effectiveness diversities amongst firms. Such improvements can be made by initiating measures of customer retention and improving corporate performance. This way the company can invest added resources in improving and encouraging relationships with its employees, which will have a positive impact in the context of customer retention. According to Malte Geib et al (2006), “The integration of the financial services industry and the focus of many financial services companies on core competencies have led to the emergence of financial services alliances. These alliances face a variety of challenges regarding an integrated approach to customer relationship management (CRM) by the partner companies” (Geib et al, 2006).
Financial services companies are facing a great deal of aggressive competition while working in domestic and international markets. Such diversified and uncertain circumstances have made companies restructure their functioning so as to improve their chances of growth and survival. Restructuring initiatives have included amongst others, the appearance of new paradigms that are usually referred to as relationship marketing. Relationship marketing mainly involves the company’s human resources and is essentially concerned with different kinds of relational marketing initiatives and the term has become a buzzword with financial services companies and reflects a number of different perspectives and themes. Relationships between businesses and customers have assumed greater significance in getting competitive advantages. But such understanding of relationship marketing provided new meanings in the context of paradigm arguments that view marketing activities as being integrated activities that involve people working in the organization with focus being made on building and maintenance of relationships over given time periods. Personal interaction, relationships and social exchanges are the most important elements of relationship marketing.
Invoice Finance Services need to adopt customer relationship management to identify and enhance the establishment and maintenance of relationships with stakeholders and customers. The firm will be able to benefit since objectives of all the parties are met through mutual exchanges and fulfillment of the commitments. A review of the literature in this context has revealed that there are nine varied kinds of relationship marketing:
- The partnering involved in relational exchanges between manufacturers and their external goods’ suppliers (Lawler, 2009)
- Relational exchange involving service providers, as between advertising or marketing research agencies and their respective clients (Lawler, 2009)
- Strategic alliances between firms and their competitors, as in technology alliances (Lawler, 2009).
- The alliance between a firm and nonprofit organizations, as in public-purpose partnership (Lawler, 2009).
- Partnerships for joint research and development, as between firms and local, state, or national governments (Lawler, 2009).
- Long-term exchanges between firms and ultimate customers as particularly recommended in the service marketing area (Lawler, 2009).
- Relational exchanges of working partnership, as in channels of Distribution (Lawler, 2009).
- Exchange involving functional departments within the firm (Lawler, 2009).
- Within-firm relational exchanges involving such business units as subsidiaries, divisions or strategic –business units (Lawler, 2009).
Deregulation and globalization along with advancements in information technologies have significantly altered the managerial concepts in financial services industries. Although customer relationship management had originated in the industrial context, the financial services industry can benefit considerably by enhancing customer relationships because services are created and delivered by the same institution. The service provider can succeed in the long term if relationships are developed and strengthened amongst the providers and customers of the services. The strong emotional trust and bond between the service provider and the customer create the need to maintain and enhance the relationships. Inseparability is largely accepted as being a distinct feature of services. Services are by and large produced and used concurrently, which implies it is normal for customers to have direct inputs to provision of service. Businesses that provide services have to rely on strong relationships with customers in view of the inherent interpersonal focus and comparative lack of objectivity in evaluating service qualities (Czepiel, 2001). Loyal customers can bring enhanced revenues and lead to foreseeable sales and profitability and they are more prone to making additional purchases of services. This usually results in low levels of customer turnover and mostly develops new business for the company through word-of-mouth recommendations. Additionally, loyal customers have the potential to decrease costs for the firm because eliciting new customers entails a lot of marketing costs and efforts.
Satisfied and loyal customers prove to be less costly in servicing and do not entail additional marketing, sales and set up costs, which can also be amortized for long durations in the context of longer customer lifetime. Customers that are loyal and are in a matured servicing relationship with a service provider expect to have efficient services delivered to them. There are varied kinds of relational advantages by way of efficient customer relationship management. Customers can receive social benefits by being in long-term relationships with financial services firms and the additions in terms of benefits obtained from core services develop a kind of friendship amongst service providers and customers. Another group of relational advantages that are often reported by respondents in research studies pertains to psychological benefits. Customers have often responded by declaring that they have a strong sense of security and feeling of comfort after a relationship has been developed with a service provider.
In the deregulated environment of today financial services companies are constantly being forced to find new ways to have an edge over their competitors and to outperform each other by efficiently and effectively reaching out to customers in providing more sophisticated goods and services. They have been gradually moving away from the conventional marketing and retail relationships to lure new customers and to retain existing ones. They have also been resorting to cross-selling products and more significantly, motivating customers to make use of their services pertaining to multi-products and services. For such companies, customer relationship management proves to be of immense help in order to survive and grow efficiently. In order to retain customers in the competitive environment, financial services companies have started to enhance the depth of their relationships by implementing customer relationship management schemes. Successful programs on customer relationships in financial services cater to four main areas; processes, technology, people and strategy.
The processes in such organizations are the main drivers of changes that eventually give direction to the firm. The strategic directions make the two core enablers, people and technology to use systematic interactions towards efficient systems of customer relations management. Organizations that are knowledge-based collect information about their customers in order to give them a framework to develop an understanding of the market. Innovation in technology plays an important role in enabling the efficient collection of customer information, in the development of abilities to store, examine, share and transfer large amounts of data at least cost. The increasing use of sophisticated databases, data mining and data warehouses software programs enable firms to examine behavioral patterns amongst customers, specific levels of profitability and lifelong value pertaining to their customers. According to Geib et al (2006), “the main inhibitors of a consistent approach toward customers are found in business processes and information systems that are not sufficiently integrated. Some partner companies’ customer-oriented business processes have only an incomplete knowledge of their customers, which is especially conspicuous in after-sales service management and complaint management processes” (Geib et al, 2006).
In most financial services companies including Invoice Finance Services, it is not usual to have website interactions in a single database nor do they have lease agreements in one administrative system. Although a little difficult, it helps in integrating the huge information systems that can provide important information about the financial behavioral patterns of customers, their preferences and signals in the context of intended actions. Advanced data examinations techniques help in providing a projection of behavioral patterns accurately. This enables financial services firms to ascertain the likelihood of purchasing given services and products by customers. Such models can be customized to the given firm’s business domain and customer behavioral patterns. They are not necessarily dependant upon behavioral and non-behavioral correlations and are more specifically based upon the actual interaction that customers have with financial services companies.
Customer relationship management enables delivery of value to such business organizations. The marketing strategy becomes more result-oriented and focused if firms can find out the kind of customers and their purchasing patterns so that products can be delivered in keeping with their choice, which increases the return on investments. Such paradigms are based upon the assumption that if satisfied customers are created they will always serve the business towards consistent competitive advantages for the firm. There is need to analyze the history of customer interactions by making use of the database, which helps in ascertaining the apparent needs of customers. Such a strategy permits the marketing team to target customer groups that have expressed interest in the services and products of the financial services company. Subsequently, it becomes possible to identify prospective groups of customers that may appear to be the same as the initial target groups and may respond to the offer of financial services when offered.
A matured examination of the customer information makes possible the mechanism to manage meaningful customer relations. Analyzing the data allows marketing teams to plan strategic marketing, communication, standardize the delivery of service qualities and establish a meaningful basis to interact through personal and web-based communication. By developing quality financial products a large number of results that could have been transformed into long-term profitable relationships become reality in terms of sustained sources of revenue and profits. In financial services companies, management of customer values is a recurring process that commences with defining customer actions. In understanding the customer base organizations can analyze the current customer base to get information about different segments through the rate of customer usage or by way of patterns of customer choice, customer attrition rate, profitability and behavioral characteristics. It is not easy to manage customer expectations and they are often the main reason for dissonance that results in loss of the current customer base. Hence it is essential to understand customers in the context of product quality and service delivery levels if firms are to develop long-term symbiotic and value-oriented relationships with customers. According to Geib et al (2006), “the partial standardization of CRM systems in financial services alliances inhibits the exploitation of economies of scale as well as the integration of systems. Consequently, obtaining a comprehensive view of a customer relationship becomes complicated if the integration of systems containing knowledge of customers, such as operational and analytical CRM systems as well as transaction systems, is limited” (Geib et al, 2006).
Invoice Finance Services must design a customer value model which will take care of the common understanding of customer behavioral patterns and their needs. It will also enable the delivery of values in a very cost-effective manner. It is also important to define the customer’s approximate life cycle in the future and performance measurement mechanisms along with the related service mix offerings, which are all crucial factors for financial services companies to succeed. The customer value model can be augmented by effectively introducing the incorporation of systems, business technology, service providers and infrastructure including the development of measurement systems to measure progress. Such an integrated strategy helps in the calculation of customer lifetime value (CLV) in analyzing and calculating every cost related to acquiring and retaining customers and the related revenue that is generated from every category of customer. The creation of customer lifetime value comprises processes of improvised segmenting and data analysis for database marketing. They also consist of processes of automation of decision-making techniques in response to customer needs, planned activities of retention and decision-making processes to make sure that the retention initiatives are aligned with customer lifetime value. Identification of customer segments for the purpose of cross-selling and up-selling financial services, developing product and service portfolios that are in keeping with customer concepts of lifetime value and aligning customers with appropriate channels by lifetime value have strong bearing on ascertaining such objectives. In this context Adriane Payne (2005) has opined that “To implement a large-scale and complex CRM initiative, companies will typically have to undergo substantial organizational and cultural change. A critical dimension of any large CRM program, therefore, is an effective change management program. We make a distinction here between change management which is concerned with strategic organizational change and employee engagement which we view as a more operationally-oriented set of activities. These activities are, however, closely entwined.”(Payne, 2005)
Many financial services organizations are not aware of the impact created by customer relations management strategies and do not understand the gap in developing a customer-centric organizational setup. This is so because customer relationship management has always been viewed as a technical strategy instead of strategic development. A program of customer relationship management primarily includes customer retention, credit management, payment management, customer billing and invoicing, customer service, inventory management, customer fulfillment, customer acquisition, sales automation, marketing planning channel management, product development and preventing fraudulent actions. In devising debt management strategies to take care of the expected credit risks in the future legislation changes, financial services companies are expected to reframe their business processes and models in order to become more customer eccentric. This approach aims at challenging the prevailing utilitarian thinking by making propositions of moving from approaches of reactive debt recovery towards a model of proactive credit management. The former strategy enables debt to increase with little effort towards aligning risk to payment upfront. The prior debt recovery history of the customer is used in increasing the intensity of future recovery efforts. This approach makes use of both external and internal information in segmenting the customer base and in determining the customer credit rating, which is based upon the qualities of the customer profiles to which they cater.
Such data is useful for ascertaining the applicable terms of payment and in tuning the following debt recovery activities. Payment performances are used as a feedback means to understand the represented risks of profile groups, to realign terms of payment that are reflective of changes in the context of customer perceived risks and to improve the overall debt strategies. The main feature of credit management efforts relates to the fact that customer data is held on a central basis and is independent of credit and billing management systems so that they comprise part of customer knowledge across the organization, which is capable of supporting customer relationship management strategies. Payne has said in this regard that, “there are a number of potential obstacles to this transition, not least the entrenched interest in preserving the status quo. Understanding and acting on change management requirements is therefore a prerequisite to successful CRM implementation” (Payne, 2005)
In keeping with these strategies, financial services companies are in a position to realign by shifting from being conservative providers of financial services to become organizations that are profitable and that adopt proactive strategies in terms of their client and HRM initiatives. This becomes possible if the base services are packaged into products that are tailor-made for given customer segments. Some of the characteristics that can be utilized in defining products for financial services companies are payment frequency, payment method, user rate, bill media and bill frequency. Selecting applicable settings for all such parameters enables the products to be tailored in reflecting the costs to serve and the risk categories. If these characteristics are subsequently aligned to customer segments, credit risks can be reduced, profits maximized and greater customer retention can be supported. By providing credit facilities in a product and applying appropriate discounts to depict reduced cost to reflect in a single bill, up-selling and cross-selling can be considerably enhanced. Thus it is true that applying customer relationship management in the financial services industry helps in developing greater customer value and in reducing business risks considerably. The costs related to serving a given segment of customers can be approximately ascertained by way of a risk-return trade balance in the context of financial services providers.
Human Resources and Strategic Innovation
Strategic innovation has become a hot topic amongst financial services industries. Strategic innovation is considered to be crucial driver of valuation, performance and growth. For this reason a large number of financial institutions have to place innovation on the top of their business agendas. However, research has shown that a wide gap exists amongst the willingness of such companies to innovate and their ability to do so especially in the context of strategic innovation. Well-established companies such as Invoice Finance Services are finding it extremely difficult in translating their innovation ambitions into practical projects and new business ventures. Some businesses in the sector have altered their strategies in attempting to change the rules of the game.
There is increasing recognition about the fact that if companies wish to come out of the immense competition they have to move away from the well-established traditional industry recipes. The business media has come out with the term strategic innovation in referring to companies that significantly altered the rules of the industry by working in radically different ways. A typical example in this regard is that of Dell when it reinvented the computer by introducing its build-to-order models. Many firms confuse strategic innovation with innovation; strategic innovation relates to more than just making investments in R&D and thereafter introducing new next-generation products and services. Strategic innovation relates to capabilities and activities that are leveraged in a manner that customers are offered value that is in complete contrast with established industry strategies. It is not about creating unique products and services but about redefining the nature of the current products and services and about it are made available to customers. It is pertinent to mention in this context that Ryanair and EasyJet did not make discoveries about air travel but they played a major role in redefining the utility customers achieve out of it, its price levels and management. Likewise, ING Direct never invented banking but the company redefined servicing in the sector in terms of distribution strategies and price levels.
It is often true that revolution in industries happens because of strategic actions that are taken by newcomers that raise interesting issues. Questions such as why most strategic innovations are affected by newcomers, why incumbents face several issues with strategic innovation, how incumbents ought to react towards the threats of strategic innovations and so on are being asked. Leading scholars in this area have observed that many industry leaders in different fields that have become market leaders such as Dell, The Body Shop and Circue were newcomers. Styles and Goddard (2004) have asserted that for specific reasons incumbents are unable to break through innovations although they do make steady improvements in the existing businesses. The issue thus arises how incumbents, especially in the financial services sector should react to the threats emanating from strategic innovation.
Firstly most management teams of well-established companies do not have adequate motivation to introduce strategic innovation. In essence, innovation is amongst the main management buzzwords in the current business scenario, which is why most companies assume it as one of the strategic priorities. But the truth is that there are very few companies that directly initiate and manage innovative practices. Another major issue faced by most well-established financial services companies is that they encounter problems in the phase of idea generation in terms of strategic innovation. Most managers feel that they are unable to initiate strategic innovation because of lack of competence in this regard (Barsh et al, 2008). Strategic innovation does not only concerned with inventing and coming out with new ideas. In fact the new ideas have to be commercialized and transformed into financially viable and appealing projects. Most of the strategic innovations are not managed efficiently during the phase of innovation project development. Another challenge faced by established financial services companies in the context of successfully innovating is to shift from innovation mode to exploitation mode. It is not enough for firms to identify a hole in the market; they have to change the innovation project into successful businesses.
Employee and Customer Participation in Value Creation
There have been significant changes in marketing thought and the marketplace, which suggest that it is not enough for financial services firms to be customer-oriented only. They have to make use of opportunities in learning from customers and partnering with them in creating values that meet their aspirations and personal requirements. By encouraging customer participation firms can have an edge in competitive effectiveness, which is reflective of major shifts from an approach that is product-oriented towards service-centric logic in marketing. This new service dominating approach looks at customers as proactive creators instead of passive recipients of value and assumes that companies act as facilitators in co-creating value instead of producing standard value perceptions. The concept of value co-creation is specifically salient amongst professional financial services that are customized, focused on contact and superior in credence property. Bitner and Brown have for instance, given the example of Mayo Clinic, which has been able to collaborate with patients in identifying solutions to their needs.
Customers of financial services firms can also participate by giving information to their financial companies and together they can make decisions about making investments or seeking specific funding options and plans (Auh et al, 2007). Therefore customer participation has to benefit customers through better quality of services, enhanced customization and improved service control (Troye, 2008). Overall, it should be beneficial for companies by way of enhanced customer satisfaction and gain in productivity. Firms must note that customer participation may not immediately result in positive value because increasing involvements in the service processes could result in shifts of power from service employees towards customers thus increasing role conflicts and employee workloads.
Co-creation of value is a core tenet of the service dominating logic and the main assumption in customer participation. Value has to be delivered to both customers and the firm through customer participation and through customers that believe enhanced values from their service associations will appear to be more contented. But extant studies in regard to customer participation about loyalty and customer satisfaction are mostly inconsistent and mixed. Some researchers believe that participating clients tend to be more satisfied as compared to non-participating customers when services are better than anticipated. Others believe that customer participation has a positive relationship with quality of service and satisfaction levels although it has mixed impact on potential purchase patterns. Additionally, most of the evidence in regard to value co-creation is either theoretical or is reflective of anecdotal accounts in business-to-business literature. Some empirical research efforts have confirmed and examined the value co-creation processes in the context of business to business activities, more specifically from a dynamic perspective. There is a contingency approach that analyzes future moderating factors such as individual cultural value orientation, which could result in influencing the strengths of the relationships amongst customer participation and value creation that however remains missing in most situations.
In considering a collectivist approach which is in contrast to the individualist approach, value orientation is reflective of conditions whereby collective and groups interests are given precedence over needs and aspirations of individual customers. The collectivist approach implies higher level of consciousness of relationships with other customers and places higher value on harmony amongst groups. Such a difference in cultural value orientation resembles the distinction in values as embodied in friend versus business roles as discussed by several scholars. Friendships are inherently oriented and prescribe the cooperative actions and related issues of collectivist value orientations, while business relationships are instrumentally oriented by incorporating the utility-maximizing and calculative qualities of individualist value orientations. Customers that have high individualist value orientations choose rewards that are in proportion to their own contribution. They stand higher chances of enacting the role of a business person and are less bothered about building relationships and more with outcomes of customized services. They tend to focus more on efficient communicative practices that save time and problems and give immense value to opportunities that provide inputs in enhancing control on the processes and decisions that are favorable for economic conclusions.
Collectivist employees have to be motivated to a greater extent in acting as partners during the delivery of service because they feel good in working with customers in order to achieve collective objectives. They also have a strong desire to share and accommodate the perceptions of customers, which implies that customer participation facilitates their work objectives and fulfills their aspirations of doing a good job in meeting the expectations of customers. In this context there is added cooperation amongst employees that have high levels of collectivist value orientations. This is because they consider cooperation as being a means to maximize the benefits coming to them on an individual basis. Thus, with increasing collectivist value orientation amongst employees, customer participation has a lesser impact on the creation of stress levels amongst employees and a stronger impact upon the creation of relational value amongst employees.
Employees and Ethical Issues
The financial services sector has been quick to exploit the happenings at financial institutions such as Allied Irish Bank and Enron by condemning them straight away. However public perceptions about majority of the financial institutions pertaining to the fact that they are mainly engaged in making profits at the cost of all other considerations. This perception remains unchanged and regulators are faced with the question of what solutions could be found in changing such behavior. The financial services sector faces a difficult task in balancing the demand from their large number of stakeholders, in terms of investors, the community, shareholders and other pressure groups in addition to the demands from regulators. In fact, all who deal with the financial services sector are its stakeholders in having relationship with it. Hence it is not surprising to note that the entire sector has to bear a great amount of public scrutiny. The pressure is felt by the sector especially in the context of strictly complying with all regulations. For instance, the detailed handbooks released by regulators reveal the crux of the issue, because of how the sector conducts its business in keeping with all regulations most financial institutions would not be burdened with problems. But many players in the sector have reached the stage whereby they have been grossly misinterpreting the guidelines in keeping with their convenience and now questions are asked on several of their actions. The financial services firms have to comply with given codes of conduct that include rules and guidelines pertaining to ethical practices and conflict of interests. In spite of such codes being laid down by regulators, trust levels have to be re-examined and viewed as being the subject of challenges. Many observers have felt that the handling of complaints about the operation of financial services companies, is indicative of a practice of protection by certain interests in the regulatory framework.
Behavior and actions that are understood as being unethical have the potential to lead to reduction in the bottom line, which is not only for a single year and can have a ripple effect in linking and being linked or being considered as being linked to unethical firms and situations that can prove to be very damaging to the firms and parties involved. Once the firm’s reputation goes bad it becomes difficult to rectify the same because experience has shown that reputation issues do not remain confined within national boundaries. Moreover, there is always a great deal of pressure from government and consumers to compensate in several ways and such requirements can prove to be extremely damaging. Consumers are now becoming increasingly aware of the ethical stands and they command substantial power without being required to do much in raising specific issues that have to be clarified by financial institutions to maintain their reputation and justify the questioned actions.
The confidence level enjoyed by the financial services sector cannot be strengthened as customers view them as having shifted from a given aggressive though legitimate business strategy towards unethical practices that involve corner-cutting. When customers start having a declining trust in the sector they will tend to avoid using the services and products available. A company that has demonstrated high standards of ethical practices will indeed develop loyalty. Additionally, promulgating such a stand across all business associations will greatly increase awareness amongst staff about ethical practices, which will in turn result in identifying problems and in creating a positive reputation for the firm. Adopting positive ethical practices implies that firms exhibit genuine desires to promote high standards of behavior amongst employees or else their efforts will be viewed as being opportunist, manipulative and empty. Although it is easy to assume that such aspects are more relevant only in the context of individuals that act on the impulse to enhance ethical standards, it is not in itself a problem of lack of willingness in the sector to enhance standards. They have to come from increased interest to do so amongst all people in the sector. When pooled, the efforts of people can be significantly representative of opportunities to maintain and increase confidence in the market.
In the context of Invoice Finance Services, the UK financial services sector is known for good ethical practices as compared to other parts of the world, which could assist in absorbing the present shocks in due course. It cannot be denied that reputation in the financial services sector is very important from the business perspective of ethics and reputation of the firm is extremely important for all stakeholders including customers. The overall regulatory approach in the UK is driven by the Financial Services and Markets Act (FSMA), which is mostly value-based. Thus financial institutions have a role to play in stimulating wide-ranging discussions on ways to enhance standards, more specifically ethical standards of behavior. There is a meeting point between regulation and ethics because standard of behaviors impacts people’s ability to attain the objectives provided by the FSMA. If ethical standards are poor, they have will have a detrimental impact and pose risks in sustaining consumer protection and market confidence. Such circumstances can also give way to financial crimes and negatively impact public confidence and awareness. Conversely high levels of ethical standards can create considerable benefits for all stakeholders. The following table gives a realistic break up of the considerations and advantages in the context of adopting a framework of strong ethical values in the financial services sector:
Framework for the Development of Values
The different values as demonstrated by firms usually impact the regulatory relationship that people have with them. The interactions are depicted as under:
|Values and culture of firms |
|Regulatory relationship |
Supervising / educating
Educating / consulting
Mature relationship / benchmarking
Most firms do not attempt to aim at making unsubstantiated and powerful claims about morality impacts in complementing the business environment although there may not always be immediate business advantages. There is always an apparent gap between actions being taken for achieving business objectives and for taking the most appropriate actions under the given market conditions. But this does not imply that ethical approaches are not compatible with enhanced shareholder values. A number of strong efforts have been made in improving corporate governance by businesses in recent years and most of such efforts have emanated from provisions in the Combined Code of Corporate Governance. The incorporation of the European Convention on Human Rights into the UK law has created new legal complications and there have also been many publicized failures such as Worldcom and Enron that have put added pressures on firms to enhance transparency and openness. It is also perceived, especially amongst regulators that the wrongdoings of a few firms ruin the prospects of several others. Firms that engage in unacceptable behavior make things extremely complex for even those firms that have demonstrated high ethical standards.
Financial services industries play an important role in the economy and influence the lives of majority of the people. Hence it is required of the industry to not only demonstrate the required expertise but also to practice with a high sense of integrity. It is usually difficult to make decisions about the ideal course of action in view of the large number of choices available that have equal significance. Sometimes the right decision cannot be taken due to limitations and hurdles arising from unavoidable circumstances. But financial services firms need to realize that business activities must be pursued with caution and not as a matter of routine. The Financial Services and Markets Act and the commitments and principles included in the FSA guidelines comprise some pertinent core values that should be followed in enabling financial services companies to get back on track towards greater success. The core values that will assist companies such as Invoice Finance Services to break away from the shortcomings are:
- Open, honest, responsive and accountable practices should be adopted.
- The firm should be committed to acting incompetent ways, with responsibility and reliability.
- Colleagues and customers should be dealt with fairly and with respect.
Ethical consideration should be always put into consideration and implemented on a regular basis. In accordance with the basic test selected it can be assumed that it is possible that the outcome would be relatively logical in the sense that it would ultimately follow the trends of social facilitation theory and thus it would be agreeable with the statistical method and thus a well-formulated strategy can be constructed. Furthermore, the entire scenario would be ethical too. However, it should be stated that there would be few independent variables in the context of the test that could not be explained by the statistical method statements. Here the ethical consideration of the office personnel or the ethnic background of the general mass may not be a very relevant factor. Thus there could be some flaws to the collection of the population but if these aspects are kept in mind then the shortcomings would easily be negotiated during the ultimate computations. As a result the test would appear to be a full proofed measure that would be able to define and prove the fundamental aspects and statistical method applied under ethical considerations.
Invoice Finance Services is in the grip of problems that emanated from the past credit crunch, which has considerably restrained its flexibility to provide funding at ease to small and medium enterprises. Small and medium scale companies are mostly dependent for their funding needs upon companies such as Invoice Financial Services in view of the convenience and speed that they offer. However because of the credit crunch Invoice Finance Services is facing many hurdles in meeting the expectations of its clients. The financial services industry has been at the forefront in using strategic and tactical techniques, which is the need of the industry presently. The principal objective of Invoice Finance Services is to find innovative ways and means to enhance its business, which can be achieved by first garnering the required sources of funding and then luring customers with the best competitive conditions in the financial sector so that more clients are loyal to the company in the competitive environment.
There is strong empirical evidence to suggest that value creation is very important for financial services companies to make strategic efforts in improving customer satisfaction. By improving customer satisfaction firms can add new dynamics to the relationship between customer and service provider, which will directly engage customers in co-creating value for the firm. Thus it is important to understand how firms can make use of the advantages and prevent the disadvantages pertaining to customer participation in such procedures. The findings of this research will have a lot of implications for firms that are planning or have already involved their clients in value creation process, especially in the financial services provided by such firms. Customer participation entails both benefits and cost and companies have to regularly review and identify the points beyond which addition of costs exceed the incremental benefits arising from firms’ activities.
In order to be sure that an effective value co-creation procedure is in force, companies must motivate customers to take part because with customers that have higher collectivism and distance of power value orientation, more efforts have to be made in helping them to realize the economic values attached to their participation. However financial services companies benefit if they look beyond providing just economic benefit while motivating clients. A customer participation culture has to be cultivated because employees have to also adapt to their new roles and the viewpoint of clients as co-creators impacts and requires employees to consider the new role of customers and their expectations while planning to execute daily functions. Employees should also recognize the business values associated with the innovative techniques they must understand their responsibilities and the manner in which their actions can enable them to benefit in having a number of personal advantages.
If firms can culturally match the dynamics of employees and customers, firms can benefit by helping employees in maximizing the co-creation of value for the firm. Such matching is more rewarding for services that need to have teamwork. Management needs to assess the clients’ cultural value orientations and allocate financial executives that match the performance of such functions. For instance they should not assign an executive who assumes a friendly role with a client that embodies a business person attitude. Friendship and business relationship create expectation that most conflicts and negatively impacts business results. It is to be understood that the initial period of speedy development and profitability, along with growth of capitalism has led markets to experience shortage of credit availability, and increasing environment of government interventions, slow growth in international expansions and an extremely slow rate of economic growth. With added regulation of prevailing practices and the prevalence of credit decreases, the financial services industry faces a great deal of risk in terms of slow and erratic growth in the sector. The recessionary pattern is also impacting capital markets adversely and decreasing aggregate demand.
Financial services companies are facing a great deal of aggressive competition while working in domestic and international markets. Such diversified and uncertain circumstances have forced companies to restructure their functioning so as to improve their chances of growth and survival. Invoice Finance Services faces problems relating to the past credit crunch, which has considerably restrained its flexibility to provide funding at ease to small and medium enterprises. Such enterprises are mostly dependent upon companies such as Invoice Financial Services in view of the convenience and speed that they offer. However because of the credit crunch the company is facing many hurdles in meeting the expectations of its clients. The present services provided by financial services companies cannot be afforded by clients given the overall lack of financial resources and opportunities. Hence clients have started looking for alternatives to meet their funding needs. Firms in the sector continue to be in the grip of extreme financial hardships and companies such as Invoice Financial Services have no choice but to take strong and difficult initiatives that often prove to be detrimental to the interests of clients.
In the context of Invoice Finance Services, the UK financial services sector is known for good ethical practices as compared to other parts of the world, which could assist in absorbing the present shocks in due course. It cannot be denied that reputation in the financial services sector is very important from the business perspective of ethics and reputation of the firm is extremely important for all stakeholders including customers. Invoice Finance Services assists medium and small enterprises in maximizing their cash flows. In using invoice discounting they enhance the availability of working capital by extending credit on the basis of sales invoices of such companies. Invoice discounting has variety of uses such as restructuring, financial growth, acquisitions and management buyouts. By calling prepayment facilities against invoices of applicant firms, Invoice Finance Services releases funds to companies that require them immediately. Such services are not impacted by the limitations that are usually imposed by conventional banking operations. The company’s discounting services generate working capital immediately, reduce the pressure on cash flows and link funding to sales in giving forms freedom to expand unhindered.
The recent financial crisis has significantly reduced the profitability of financial services industries because of which they are unable to make further investments that are required to expand their business so as to survive in an intensely competitive environment. Many financial services companies continue to be in the grip of the financial crisis in being unable to obtain funding and credit in order to provide added services to their clients.
With the unfolding of the economic crisis the financial services industry has started facing severe challenges. The crisis is believed to have its roots in excessive volatility that includes long periods of low-interest rate situations, prompt enhancement in asset prices and large-scale imbalance in credit accessibility and savings options. The given change in the prevailing circumstances has been considered by several economic forums as being a consistent pattern of risks in the recessionary circumstances. Extraordinary expansion in the global economy and in the financial sectors during the last few years has made markets adapt to difficult credit conditions, enhanced government interference, declining growth in the international arena and extremely slow economic growth across almost all sectors of economic activity. With the enhancement of regulatory pressures in Europe and an increase in credit conservatism, the financial services sector has to cope with severe risks of erratic and uncertain growth. The worldwide recession is also impacting the financial sector adversely because of the capital markets and the decline in aggregate demand.
Strategic innovation is of immense significance to financial services companies and their managements have to play the game better in addition to looking towards better options. However strategic innovation is mostly not taken seriously by such companies, which lack the motivation to make strategic innovations. The top management of companies such as Invoice Financial Services needs to provide the right organizational environment so that strategic innovations are developed and nurtured as a distinct business objective. The management of the company has to ensure that innovative projects are managed efficiently with the focus being made on efficient management of budgets and what matters most is the introduction of a learning environment. Learning will enable the refinement of the business concepts and business will grow subsequently. It is clear that strategic innovation is a challenging objective and amongst the many that try, very few are able to succeed in coming out with positive outcomes. Managers in the company must be aware that threats and opportunities related to strategic innovation have to be handled in the right spirit because simply jumping into the fray will not guarantee success.
Invoice Financial Services will have to engage in rapid modernization to face the increasing competition in a global environment. It has to aggressively engage in an ongoing fight where all contenders are struggling to get a larger share of the pie. Since profits are declining because of enhanced competition and customers are having enhanced expectations and with a large number of new entrants in the sector it is a big challenge for Invoice Finance Services to prove its metal. Customers have become conscious of the fact that they are protected by government regulations and can easily shift from one company to another. Such developments warrant that Invoice Finance Services develop an integrated customer relationship management strategy across its entire line of functioning and for all products despite its undisputed strengths in several product lines. In generating customer lifetime value the company can meet the growing demands of customers. Integration of its processes, people, technology and information will allow Invoice Financial Services to provide higher value to its customers.
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