Influence of External Pressures on the Digital Transformation of Institutions
Master’s Thesis 15 credits Department of Business Studies Uppsala University Spring Semester of 2020 Date of Submission: 2020-06-03
Jiayin Yu Fenfen Pan
1 Supervisor: Pao Kao Abstract
More and more institutions have begun to implement digital transformation. Identifying the reasons behind institutions’ digital transformation can help them make the right strategies. This thesis focuses on the digital transformation taking place in the financial industry and uses organizational institutionalism theory to analyze the influence of external pressures, and what responsible strategies institutions may adopt. We use qualitative methods to conduct the research. We interview eight employees from different institutions in the financial industry in China. Our findings show how coercive, mimetic, and normative pressures affect these financial institutions differently, and in responding to these pressures, these financial institutions develop office management systems and new digital products and services. The study evaluates to which extent the new digital reality fits the theory of the influence of external pressures on institutions. For managerial practice, the findings provide guidance in describing and diagnosing external pressures that drive digital transformation, and in coping with these pressures appropriately to formulate effective digital transformation strategies.
Keywords: digital transformation, organizational institutionalism, coercive pressure, mimetic pressure, normative pressure, organizational response
i Contents
1. Introduction...... 1
1.1 Digital Transformation...... 1
1.2 Digital Transformation as an Organizational Change...... 1
1.3 Research Questions and Research Design...... 2
2. Literature Review...... 3
2.1 Digital Transformation...... 3
2.1.1 Definition of digital transformation...... 3
2.1.2 Measures of digital transformation...... 5
2.1.3 Value of digital transformation...... 5
2.2 Organization Change under External Pressures...... 6
2.2.1 Institution and organization...... 6
2.2.2 External institutional pressures...... 7
2.2.3 Organizational strategic response to external institutional pressures...... 9
3. Research Methodology...... 11
3.1 Research Design...... 11
3.1.1 Qualitative study...... 11
3.1.2 Multiple case study...... 12
3.1.3 Concept operationalization and question guide design...... 12
3.2 Sampling and Data Collection...... 14
3.2.1 Purposive sampling...... 14
3.2.2 Accessing research target group...... 15
3.2.3 Semi-structured interview...... 16
3.3 Data Analysis...... 17
3.4 Validity and Reliability...... 17
4. Findings and Analysis...... 18
4.1 Digital Transformation...... 18
4.1.1 Office management information systems...... 18
ii 4.1.2 Value of office management information systems...... 19
4.1.3 Digital products and services...... 20
4.1.4 Value of digital products and services...... 21
4.2 External Pressures...... 22
4.2.1 Coercive pressure...... 22
4.2.2 Mimetic pressure...... 23
4.2.3 Normative pressure...... 24
4.3 Response to External Pressures...... 25
4.3.1 Imitation...... 25
4.3.2 Translation...... 26
5. Discussion...... 26
5.1 Digital Transformation and Value...... 26
5.2 External Pressures...... 27
5.2.1 Coercive pressure...... 28
5.2.2 Mimetic pressure...... 29
5.2.3 Normative pressure...... 29
5.3 Response to External Pressures...... 30
5.3.1 Imitation...... 30
5.3.2 Translation...... 31
6. Conclusion...... 32
7. Limitation and Future Research...... 33
References...... 35
Appendix...... 38
iii 1. Introduction
1.1 Digital Transformation
With the development of information technology and Internet technology, digital transformation has become a new management fashion (Liu et al., 2011), and a growing number of institutions from various industries have begun the process of digital transformation. Digital transformation is a change in the institution’s application of digital technologies to develop a new business model that enables the institution to create more value and attain competitive advantage (Verhoef et al., 2019). In the financial industry, for example, many banks are implementing e-banking projects and establishing own e-banking systems to add value and reduce costs (Liu et al., 2011). European insurer Axa, for instance, invested 950 million euros in digital transformation from 2015 to 2017, helping the institution reduce costs by half in the next five years (Catlin et al., 2017). As many industries are experiencing intensive competition, it may be crucial for institutions to obtain competitive advantage through digital transformation (Mergel et al., 2019).
Given the visible trend of digital transformation, recent research has started to address relevant topics, such as definition and evaluation of digital transformation, digital business strategy, and the influence of technical factors and other organizational capabilities (Mergel et al., 2019; Fischer, 2020; Park & Mithas, 2020). At the start we conceived analyzing internal factors as they offer a more stable basis. However, the often used resource-based view lacks a clear conceptual model to explain heterogeneity (Liu et al. 2011). Though some attempts have been made, for example, Liu et al. (2011) start with strategic fit to develop frameworks, which show how organizational factors fit the demands of digital transformation; Park & Mithas (2020) discuss the configuration of capabilities such as leadership, strategic planning, and HR focus for competitive performance in complex digital environments. We considered these elements summarized without a classic integration framework, and it may still be hard to provide a standard explanation. Therefore, we turned to external aspects.
1.2 Digital Transformation as an Organizational Change
Digital transformation can be considered as an organizational change. Previous scholars study the reasons for organizational change (DiMaggio & Powell, 1983; Wedlin & Sahlin, 2017), 1 and find that organizations with the inertia to maintain the original systems often change due to external pressures. These external pressures can come from governments, competitors, and customers (DiMaggio & Powell, 1983). To cope with these external pressures, organizations will adopt different methods to change, such as imitating successful transformation models of other institutions, or modifying and applying these models according to their own situation (Wedlin & Sahlin, 2017).
While many digital transformation projects in institutions may have happened due to external pressures, most institutions do not understand the nature as well as the impact of digital transformation, and they do not have a clear plan to approach it. Therefore, they struggle to initiate these projects successfully under pressure (Fischer et al., 2020). Some experts have researched on the external pressures that other industries face and their responses to the pressures from the perspective of organizational institutionalism (Zucker, 1987), but few experts analyze external pressures with a focus on the financial industry from the digital transformation context based on organizational institutionalism.
The last five years have witnessed rapid digital transformation in the financial industry of China. The development of fintech has reduced costs and enhanced customer retention, meanwhile, it has made risks in financial institutions more complex especially high credit risk (PWC China, 2020). The financial industry is highly competitive. It is under the strict supervision of the government and closely watched by consulting institutions. So it faces strong external pressures, and we want to know what kinds these pressures are. The financial industry is different from the traditional manufacturing industry, which doesn’t have many non-current assets and different processing and manufacturing processes, so the digital transformation of the financial industry is easier to imitate and translate. Analyzing the digital transformation of financial institutions from the perspective of institutionalization can help financial institutions treat external pressures correctly and take the right countermeasures.
1.3 Research Questions and Research Design
As an increasing number of institutions begin to carry out digital transformation, this thesis aims to analyze enabling factors of organizational digital transformation from the perspective of external pressures. We focus on the financial industry in China and develop a theoretical
2 framework based on the institutionalism theory. Thus our study is trying to understand the following research question, which can be further broken down into two sub-problems:
How do external pressures drive the digital transformation in Chinese financial industry?
1) What external pressures do Chinese financial institutions face to begin digital transformation? 2) How do Chinese financial institutions respond to external pressures on digital transformation?
To address the proposed questions, this study begins in the next chapter with a broad literature review on digital transformation and organizational institutionalism. In chapter three, we explain out research design and method, conduct eight case studies, and interview key employees from eight different institutions, who are knowledgeable about digital transformation projects. The interviews provide findings of the external factors and responsive behaviors in terms of corporate practice, which is analyzed based on the theoretical framework. We continue with a discussion, and conclude our thesis with managerial implications, limitations, and future studies.
2. Literature Review
2.1 Digital Transformation
2.1.1 Definition of digital transformation
Based on recent relevant discussions, Verhoef et al. (2019) define digital transformation as a change in the institution’s application of digital technologies to develop a new business model that enables the institution to create more value and attain competitive advantage. They also conclude that institutions in pursuit of digital transformation ought to implement business model innovation through utilizing digital technologies to promote interactions across borders with suppliers, customers, and competitors (Verhoef et al., 2019). The new business models are such as digital platforms, ‘product-as-a-service’, and pure data-driven business models.
When referring to digital transformation, two similar contents, digitization and digitalization, are often mentioned. Some literature has set out to distinguish and bring clarity to these terms.
3 Verhoef et al. (2019) identify digitization, digitalization, and digital transformation as three phases of digital transformation, the first two of which serve as more incremental stages while the last one is the most pervasive phase. Similarly, both Fischer et al. (2020) and Mergel et al. (2019) describe the interdependence and different definitions of digitization, digitalization, and digital transformation. Digitization indicates converting analog information into a digital representation. It typically digitalizes internal and external documentation processes without affecting value creation activities (Verhoef et al., 2019). In digitalization, IT or digital technologies serves as a key enabler for institutions to increase competitiveness and enhance customer experience. Digitalization may use robots in production, introduce digital elements to product or service offerings, as well as improve communication and distribution channels or relationship management digitally, which allow more efficient coordination between processes.
Comparatively, digital transformation is thought to be a holistic effort and institution-wide phenomenon which emphasizes comprehensive changes of culture, organization, and business relationship. It goes beyond digitization, the simple change of routines and tasks, and it further exceeds digitalization which employs digital technologies for business process optimization.
As for the external factors that cause institutions to adopt digital transformation measures, Verhoef et al. (2019) recognize that institutions transform their business digitally in response to changes in digital technologies, increasing digital competition and consequent digital customer behavior. Mergel et al. (2019) study digital transformation in governments and find that the main drivers for change are derived from the external environment, thus they point out that it’s a process heavily influenced by external pressures, which are from citizens’ expectations, businesses, political actors, and technological changes.
Based on the literature above, we consider digital transformation as an organizational change that reconfigures an institution’s business model with integrated digital technologies to promote value creation. We say that the business model is reconstructed because there are complex, revolutionary, and ongoing changes in key activity domains such as strategy, structure, and power distribution, which may cause a radical departure from its current model (Liu et al., 2011). Besides, we take digital technology into account since researchers constantly mention it as an indispensable and fundamental role, and information analytics capability driven by IT is a significant part of the configuration of organizational capabilities
4 that lead to successful digital transformation. Finally, value creation indicates the outcome and positive impact of digital transformation.
2.1.2 Measures of digital transformation
Digital transformation happens in many contexts and institutions adopt different strategies to go digital. Measures are related to redesigning business processes and structuring new business operations. Some institutions leverage business process management (BPM) to build necessary competencies for relevant projects to approach digital transformation. Fischer et al. (2020) find three digital transformation meta objectives that vary among communication/learning, unification/optimization, and certification/automation. Institutions in pursuit of unification/optimization perform best when using a hybrid model. The communication/learning strategy archetype asks for decentralization and collaboration while the certification/automation archetype expects institutions to implement top-down governance.
A common growth strategy in the transformation is the use of digital platforms, which is more prevalent in pervasive phases of digital transformation. With a platform business model, institutions can grow through market penetration, product development, market development, and diversification (Verhoef et al., 2019). Banks in diverse markets are also establishing digital platforms to integrate financial services into the daily activities of consumers and SMEs (Dallerup, 2018). Other remarkable strategies in the financial industry are such as smart branches dedicated to self-service, and banking-service ecosystems that utilize fintech to organize economic activities innovatively. For instance, Alibaba’s B2B and B2C e- commerce platforms have formed a diversified trading ecosystem which includes banking and payments. Ping An, one of China’s largest financial groups, has reshaped itself as a “tech + fin” ecosystem institution, which renders insurance, loans, and investments across platforms of different functions such as housing and health care (Dahl, Ng & Sengupta, 2020).
2.1.3 Value of digital transformation
A lot of literature highlights the significance of digital transformation to institutions’ value creation. In a digital context, the reconfigured business model defines the revenue structure and addresses value creation processes related to the value network surrounding the institution, 5 including suppliers, customers, and third parties. The value proposition of digital products and services involves three elements, i.e., customer segmentation including strategic pricing and positioning of product portfolios, innovative differentiation and bundling of product units, and negotiable commissions of channel owners (Nylen & Holmstrom, 2015).
Liu et al. (2011) focus on the competitive advantage that allows the institution to create superior value for customers and profits for itself. Competitive advantage comes from better use of resources instead of better resources (Liu et al., 2011). For instance, the Open Plan developed by the Woolwich, a UK financial institution, integrates its existing resources into the information system and converts them into new capabilities to meet customer demands more quickly. The Woolwich continues to promote this system throughout the organization to generate sustainable competitive advantage (Shah & Siddiqui, 2006).
Digital transformation allows an institution to obtain competitive advantage by not only focusing on cost savings but also involving process improvement that will enhance customer experience. For commercial banks, it can primarily help to change the way information is created to better respond to the personalized long tail, increase flexibility, simplify operational processes, and optimize risk management.
2.2 Organization Change under External Pressures
2.2.1 Institution and organization
An institution is a series of established rules, law-abiding procedures, and moral and ethical norms of behavior. It aims to restrain the individual behavior that pursues the maximum benefit (DiMaggio & Powell, 1991). Formal organizational structures are produced under the high institutionalization background, which is the reflection of the rationalization of institutional rules. The rationalization of institutional rules can increase the legitimacy of organizations, that is, incorporating norms that can play a causal role will enable organizations to conform to common values of society, thus contribute to the survival and development of organizations (Meyer & Rowan, 1977).
At the same time, the external environment of an organization is often unstable, and the organization needs to change to adapt to the external environment. These changes may include its structure, management methods, employee roles, working process, etc. (Meyer & 6 Rowan, 1977). Digital transformation indicates that organizations ought to better respond to environmental changes through change management when implementing new strategies or introducing new technologies (Kotter, 1995). The change is a continuous process which involves subdividing a long-term goal into many phased goals, and constantly adjusting to environmental changes while achieving these small goals (Kotter, 1995).
2.2.2 External institutional pressures
Institutionalism theory suggests that the institutional environment will affect the operation of an organization. These universal norms or perceptions construct institutional pressures on organizations and promote organizations to integrate the social legitimization elements into their structures to avoid illegality (Meyer & Rowan, 1977), and to improve their sustainability and resource acquisition ability.
The isomorphism between organizations stems from the organization’s adaptation to institutional pressures (Zucker, 1987). Institutional theorists believe that there are two kinds of isomorphism. The first is competition isomorphism, that is, organizations compete not only for resources and customers but also for political power and institutional legitimacy. The second is institutional isomorphism, which has three mechanisms: coercive isomorphism, mimetic isomorphism, and normative isomorphism (DiMaggio & Powell, 1983), and correspondingly, the organization is under three kinds of external pressures.
Coercive pressure. Coercive isomorphism is from the formal or informal pressure exerted by other organizations on which an organization relies, as well as the cultural expectation that organizations play a role in society. This kind of pressure can be compelling force, persuasion, or collusion (DiMaggio & Powell, 1991; DiMaggio & Powell, 1983). Most of the coercive pressure comes from regulators and major resource providers, who manipulate great power or influence and can enact laws or regulations to force organizations to accept their values, otherwise, organizations would lose legitimacy or important resources (Leicht & Fennell, 2008).
The government’s policies can constitute coercive pressure on institutions. For instance, the State Council of China has issued a plan for promoting the development and reform of big data, which points out that big data has become a national basic strategic resource (Wei et al.,
7 2017). Zhejiang Province is implementing a five-year plan to double the digital economy, aiming at developing a platform economy, sharing economy, experience economy, and express economy to accelerate digital transformation in various industries and fields including the financial industry (Liu, 2019).
What’s more, managers are also fashion-oriented. Though the adoption of popular management technology may not lead to the success of institutions, it can promote legitimacy for them (Bakker, 2007). The purpose of digital transformation of financial institutions may also be to obtain or maintain legitimacy and make themselves conform to social norms and perceptions. In recent years, the stock of digital institutions has risen sharply, which indicates that digital transformation can allow institutions to access more funds and other resources, while consumers are also changing their behavior and turning purchases to online stores (Verhoef et al., 2019). And the rise of big data and new digital technologies such as AI, 5G, blockchain, and the Internet of Things, will exert a significant impact on the organizational structure and supply chain (Verhoef et al., 2019).
Mimetic pressure. When organizational technology is difficult to understand, the goal is vague, or when the environment produces symbolic uncertainty, the organization is likely to shape itself in the form of other successful organizations, and the uncertainty is a key driver to motivate imitation (DiMaggio & Powell, 1991; Zucker, 1987). As more and more organizations are established, it is common for new organizations to imitate old ones, and managers are also actively looking for models to imitate. Compared with self-created models, imitating other successful organizations can effectively reduce the time cost and opportunity cost (DiMaggio & Powell, 1983). Though organizations are exploring diversity, there are only a few variables that they can choose, which leads to the trend of homogeneity among organizations (DiMaggio & Powell, 1991; Kimberly, 1980). Although it may be merely a ceremony for organizations to conduct “innovation” based on old models and enhance their legitimacy, it shows their willingness to improve working conditions and practical actions at least (DiMaggio & Powell, 1983).
Normative pressure. Normative isomorphism is from professionalization, that is, formal education and legalization based on the cognition created by universities, as well as the development and deepening of professional networks that span organizations and rapidly spread new models (DiMaggio & Powell, 1991; DiMaggio & Powell, 1983). Leicht & Fennell (2008) believe that normative pressure comes from the socialization of institutional actors,
8 forming a set of values and defining specific organizational arrangements as the “best and customary” way of organizing specific activities.
A growing number of institutions begin to recruit employees with digital expertise and have set up new positions, such as digital management experts and chief data officers. Some training institutions have also launched digital transformation courses to help institutions train digital transformation talents. As a cross-organizational professional network, consulting institutions conduct in-depth research on the digital transformation of institutions. They specifically recruit employees with digital expertise to set clear objectives and specific performance indicators for their clients and ensure the formulation of suitable digital transformation strategies (PWC China, 2020). Profound digital strategies are crucial to digital transformation, and institutions must deal with multiple dimensions of digital transformation at the same time, including its strategies, organizational structure, operation, and culture. Also, institutions need to measure the KPI to facilitate the adjustment of their business model (Verhoef et al., 2019). Wei et al. (2017) propose that commercial banks should base digital transformation on organizational processes, techniques, employees’ abilities, and databases.
2.2.3 Organizational strategic response to external institutional pressures
In order to cope with external pressures on digital transformation, institutions will take a series of measures. Many scholars believe that the circulation of institutional elements such as digital transformation elements (we concretize them to internal office management systems and external digital products and services) between institutions is through the mechanism of imitation and translation (Wedlin & Sahlin, 2017).
Imitation. Imitation is a basic social mechanism that connects people, and the process of imitation includes self-identity and recognition of what they want to be (Wedlin & Sahlin, 2017). An organization will imitate other related organizations or the organizations which are recognized by it (DiMaggio & Powell, 1983; Leicht & Fennell, 2008). A manager of China Minsheng Bank suggested that Chinese domestic banks learn from the experience of advanced international banks to promote the adaptive transformation of traditional corporate business (Trade Finance, 2017). For instance, he proposed to imitate Wells Fargo which is a pioneer in digital transformation. Wells Fargo started with Internet banking in the 1980s, since 1990s it has focused on building customer relationship management (CRM) systems 9 that enable both customers and bank clerks to see assets across products, and later the turning point, dot-com bubble and rise of smartphones, turned Wells Fargo’s emphasis to mobile apps (Trade Finance, 2017). Along with media reports, evaluation of certification agencies, and other activities, organizations also pay more and more attention to their image and reputation in the process of imitation (Wedlin & Sahlin, 2017).
The main motivation for imitation is to become more similar to a prestigious leadership organization, but there might be another motivation for distinguishing itself from others (Wedlin & Sahlin, 2017). Accordingly, in terms of marketing, Chinese banks are expected to adopt a variety of methods according to their own conditions to form their competitive advantage in order to improve sales efficiency and optimize customer experience, such as building an intelligent customer management system to realize precise cross-selling by use of big data to explore customer relationships and diversified needs (Trade Finance, 2017). And actors such as consulting institutions, think tanks, and academia might play an intermediary role in the process of imitation (Bakker, 2007).
Translation. When an organization imitates the successful models of other organizations, it will innovate according to its existing institutional environment, which leads to variation (Wedlin & Sahlin, 2017; DiMaggio & Powell, 1983; Leicht & Fennell, 2008). Wedlin & Sahlin (2017) believe that there are certain rules for template innovation. The first rule involves context, and when the widely spread model is highly abstract, the influence of time and space factors can often be ignored; the second rule involves logic, and when a popular management experience is edited into a specific model and plan, it is easier to spread; the third rule involves formulation, which means that it is easier to spread different management technologies and concepts after they are packaged with labels.
Each translation is embedded in time, structure, and cultural background, which consists of the actors involved in translation and the process of translation (Wedlin & Sahlin, 2017). In such a translation process, new meanings are created and endowed with activities and experiences based on the current context and vision (Leicht & Fennell, 2008). More and more banks integrate big data sets in their business processes according to their own conditions. They are customer-oriented and rely on rich data accumulation and strong model analysis ability to carry out customer selection, innovative product design, risk control, personalized services, and credit management (Wei et al., 2017). Accelerating the digital transformation can help institutions attract more investors and consumers and maintain legitimacy.
10 3. Research Methodology
3.1 Research Design
3.1.1 Qualitative study
Qualitative methods are an integral part of implementation research. Distinctively, qualitative methods study the meaning of people’s lives under real-world conditions, represent views and perspectives of research participants, cover social, institutional and environmental contexts that surround and interact with implementation processes, contribute insights into existing or emerging concepts that attempt to explain some certain social processes, as well as strive to collect, integrate and present data from multiple sources of evidence (Hamilton & Finley, 2020; Yin, 2011).
To address the two research questions raised above, i.e., what external pressures Chinese financial institutions face to begin digital transformation, and how they respond to external pressures on digital transformation, a qualitative approach is chosen for investigation. It’s more suitable to employ qualitative analysis as it describes what, how, and why, which are the main problems to be solved in our study. We have made it clear that this study analyzes external pressures from three institutional dimensions, and the need is to investigate institutional sources of pressure, how and to what extent it works in reality, which are not difficult to observe. Thus measurable indicators are not necessary. Meanwhile, organizational change in digital transformation is unique which must be tailored according to the vision of the institution (Heyler et al., 2016).
Given that the purpose of our research is to find out the external pressures and their impact on institutions to implement digital transformation, we aim mainly to explore and understand how variables, such as external pressures, strategic responses of organizations, and value of digital transformation, are applied in the empirical context. Detailed real-world evidence from several financial institutions is required. The consistency allows us to answer the initial question as unambiguously as possible.
Among the qualitative methods, we conduct individual interviews for gathering data, since interviews are key methods in implementation research. Hamilton & Finley (2020) subscribe that as for qualitative research questions, talking with people, in one-on-one interviews, small groups, or focus groups can be the most effective way to understand their thoughts about a 11 new innovation and efforts to implement. To balance the tension between rigor and feasibility, we take a targeted approach, given that “with a narrow research scope and a relatively homogenous target audience, a sample size of 6-12 is usually adequate to reach ‘saturation’ ” (Hamilton & Finley, 2020, p. 3).
3.1.2 Multiple case study
We adopt a multiple case study to gather broader empirical evidence. In appropriate single- case designs, a single case represents the critical case in testing a well-formulated theory, represents the extreme or unique case, or represents the typical, revelatory, or longitudinal case (Yin, 2009). It’s clear that under this research topic, a single case is not representative and persuasive. A multiple-case design can be “a set of cases with exemplary outcomes in relation to some evaluation questions” (Yin, 2009, p. 59). Thus we select multiple cases to analyze within each situation and find out similarities and differences across cases, based on which we are allowed to draw a more holistic and convincing conclusion.
Typical financial institutions in digital transformation are the cases. Each case can provide a unique perspective to reveal the interplay between the organization and the external pressures it has to face during the transformation process.
3.1.3 Concept operationalization and question guide design
There are three major concepts in this study: digital transformation, external pressures, and organizational response. We divide digital transformation, value, and response into several specific parts; and we visualize three types of external institutional pressures as three kinds of external stakeholders. Table 1 shows themes and sub-themes of the interview content, as well as example interview questions.
The detailed question guide is shown in the Appendix. In the guide, we frame the questions in terms of different digital transformation measures and sources of external pressures. Then, we arrange smaller questions in order according to the specific content, time, motivation, way, and influence of the transformation measures.
12 Table 1. Themes and Sub-themes of Questions
Themes of Operationalization / Sub-themes Example Interview Qs Questions
Which new office management system does your institution use in the past five years? office management systems Digital digital products and services transformation Which new digital products other measures and services (e.g. digital ecosystem) has your institution launched in the past five years?
How does this new office management system affect expanding market share your institution in the cost reduction following aspects? Value of digital improving efficiency transformation risk reduction How does this new digital access to external resources product and service affect your other value to the institution institution in the following aspects?
What causes your institution to use it, and what external pressures does your institution face?
In the past five years, has your institution introduced new digital systems or products and services in response to government policies, and what External coercive pressure governments are the policies? pressures on mimetic pressure competitors institution digital normative professional In the past five years, has your transformation pressure institutions institution introduced new digital systems or products and services in response to competitors, and what have competitors done?
In the past five years, has your institution asked for help from professional organizations on how to introduce new digital systems or products and
13 services, and what advice or help have you received?
Organizational responses to imitation What is your competitiveness external translation compared with competitors? pressures
We run two pilot studies in the beginning to ensure that the questions can be effectively answered. It has enabled us to narrow down and standardize the questions. The interviewees are employees who have rich working experience in financial institutions and participate in the digital transformation process. In response to their answers, we have refined and split some questions, and also deleted some redundant questions, which allows us to narrow the scope, standardize the questions, and make interviewees understand the questions more accurately. After that, the same question frame is used for all the interviewees to formulate comprehensive empirical data assumptions.
3.2 Sampling and Data Collection
3.2.1 Purposive sampling
We use purposive sampling to select specific study units to yield the most relevant data. According to Yin (2011), convenience sampling selects units in consideration of their ready availability thus it’s likely to produce an unwanted degree of bias. Snowball sampling selects new units as a branch of existing ones. Random sampling is carried out in accordance with the principle of equal probability and its results can be generalized numerically to the entire population. The numerical mode of generalizing is rarely found in qualitative research. Obviously, these kinds of sampling are not suitable for this study. Our topic needs the most relevant and rich data yielded, and we didn’t plan to make generalizations.
In comparison, purposive samples are chosen deliberately. Yin (2011, p. 88) suggests that if the “study’s broader level and main topic was an organization, the sample at the narrower level of data collection would need to include the top leader of the organization”. Since our research objects are financial institutions, we intend to find the staff at the executive level. Besides, China’s eastern coastal region has the most developed financial industry, with
14 Zhejiang and Shanghai at the forefront. So financial institutions from the two areas can be representative thus become our target group.
3.2.2 Accessing research target group
To meet the requirements of sample quantity and quality, we scoured our networks in the preparation stage of sample selection, and, disappointingly, many of them stated their inability to answer this subject. But others said they could answer or try. We ended up inviting ten people who fit the bill, and only eight confirmed talking further. Thus the paper represents eight participants from eight different Chinese institutions of the financial industry (Table 2).
A few of the participants are our alumni and friends, and the rest are people that we reached through relatives or acquaintances. Therefore, even though they are managers of institutions in China, a country with high power distance acceptance, they are relatively willing to be interviewed.
Among the institutions, five are joint-stock and the rest are state-owned. Gender of the respondents is evenly distributed, though we believe that gender has little effect on interview results. They have accumulated no less than eight years of full-time working experience, meanwhile, all of them hold leading positions with some in different departments. More importantly, they possess knowledge of digital transformation and are well-informed with related projects within their institution and the industry. Therefore, the selected sample of respondents fits the purpose of interviews, given that all interviewees can represent the perspective of different corporate privies with considerable experience as well as knowledge to contribute acceptable answers.
Table 2. Interviewee Sample
Duration of Interviewee Institution Gender Age Position Employment (years) 1 M Bank F 35 Branch Manager 12 2 Z Bank M 32 Product Manager 9 3 N Bank F 30 Product Manager 8 4 H Bank F 40 Branch Manager 17
15 5 J Bank M 39 Branch Manager 14 6 X Bank F 42 Sales Manager 17 7 C Insurance M 34 Account Manager 10 8 P Insurance M 45 Sales Director 24
3.2.3 Semi-structured interview
Data collection is completed over a relatively continuous and intense phase, which lasts around a week in the middle of April. A total of eight interviews are carried out, each lasting about an hour, ranging from 30 minutes to 70 minutes.
Before interviews, we promise that the interviewers will keep interviews confidential, so that the interviewees can answer the questions truthfully and completely as much as possible. At the beginning of each interview, we tell the interviewee the purpose of this research and the process of this interview to allow the interviewee to have a thorough understanding and calm down.
The interviews are conducted via WeChat voice call. It’s similar to telephone interviewing, which can reduce cost and is especially suitable for hard-to-reach groups and asking sensitive questions (Bryman & Bell, 2011). Since interviewees are all located in China and interviewers are in Sweden, face-to-face data collection is incredibly difficult. Also, the topic of digital transformation can involve an institution’s critical and confidential information, thus through WeChat call interviewees may be less distressed to talk freely.
The interviews are semi-structured and a conceptual framework of questions is designed to initiate and guide the interview process (see Appendix). Being semi-structured indicates that specified questions can be presented in a conversational form but not necessarily in the exact order that they appear in the guide (Hamilton & Finley, 2020). With a theme focused on digital transformation measures (including internal aspects such as office management systems, and external digital products or services), value of digital transformation, and external pressures on institutions (from governments, competitors and expert institutions), our interview questions are clearly stated, practical and open-ended. In the interview process, we show curiosity and try to stick to specifics rather than general views while interviewees are
16 encouraged to think deeper and speak freely. We make time for notes meanwhile record sounds for later collation.
3.3 Data Analysis
A coding system is used for identifying and classifying the components or symptoms of a particular problem or disease. Coding in this research follows the general guideline for coding in qualitative research. It categorizes events and adjusts them in a workable way after trying the themes on raw data (Van de Ven, 2007).
Inductive reasoning is implemented through open coding of the gathered material which identifies all parts of the data relevant for this research topic (Yin, 2011). Then axial coding is carried out, we try to cluster various coded pieces of material together into higher-order themes by building connections between categories, finally, these themes are aggregated into several overall dimensions (Bryman & Bell, 2011).
Data is coded according to the question guideline and participants’ answers. It’s done by one of us and another conducts further analysis. Except for the two themes covered by the research question, we add the contents and value of digital transformation as themes, considering the emphasis on value creation in the definition of digital transformation. Thus the themes are digital transformation and its value, sources of external pressures, and strategic responses of institutions. And specific codes are listed as subsets in the framework of themes.
3.4 Validity and Reliability
We access 8 institutions, essentially, 8 employees. First, for each institution we only interview one person, who may not be representative enough of the whole institution. Then, interviewees are from different departments though they have similar positions. The fact is that some solutions are only held by technical divisions or occur at the head office or top executive level, making interviewees unable to access detailed information related to some of the questions. Besides, given the limited number of interviewed institutions and their particularity, we have to be careful when generalizing results to the entire financial industry.
17 An obvious problem we encounter is that a few interviewees are reluctant to answer or refuse to be recorded. Worried about being punished for information disclosure, they may be unwilling to communicate or give generic answers that are useless for the research. So there are two types of interviews in this study, recorded and not recorded.
As for those recorded, as mentioned in 3.2.3, we assured participants that they would be anonymous and their answers would be kept confidential and for use only in this thesis writing. This can raise reliability to some extent. Also, we had an interview that wasn’t recorded. Because one interviewee’s firm demand for no recording was respected. So we two interviewers made full preparations, concentrated more on listening and taking notes in the whole intense process, and compared notes in detail after the interview.
4. Findings and Analysis
This chapter introduces the data we collected by interviewing eight participants.
4.1 Digital Transformation
4.1.1 Office management information systems
As for the application of office management systems, Office Automation (OA) is the most commonly used (6 institutions), followed by DingTalk (3 institutions), Customer Relationship Management (CRM) system (2 institutions), and Message institution platform software (1 institution). All of the interviewed institutions choose either OA or CRM as the main system. In addition, they may also use other systems or apps as auxiliaries, such as DingTalk and Message.
Office management systems have been in use for almost more than 5 years. Regarding the interviewees’ introduction, the use of the OA system and CRM system is between 15 and 5 years but institutions constantly update it according to the needs of markets and digital transformation. As an interviewee said, “this kind of systems has been used for a long time, it should have been equipped when the bank was set up”. The use of office management systems seems related to the establishment and development process of a bank. However, the use of auxiliary office systems and apps started in the past 2 years. For example, N Bank
18 began to promote the wide use of a platform app in employees in 2018. H Bank started using Message in 2018 and DingTalk “due to its sudden epidemic in 2020”.
There is partial duplication in the mentioned functions of these office management systems. Specifically, attendance management, reporting, and online meeting are the shared functions of OA, CRM, and DingTalk. Both OA and CRM have the capability of information sharing. And both OA and Message play a liaison role.
The operating systems are constantly improved following actual demand. New columns and projects are added into existing systems to allow functional optimization. For example, the function of the OA app has expanded from attendance to online meetings and work reporting. CRM has been improved in terms of customer classification, through forming the data about each customer’s basic information into customer portraits.
4.1.2 Value of office management information systems
As a part of digital transformation, the improvement of functions of management information systems mainly brings value to the institution from five aspects: 1) expanding market share, 2) cost reduction, 3) improving efficiency, 4) risk reduction, 5) access to external resources.
For expanding the market, there are two views. Some interviewees believe that the new internal office management system (function) can help institutions expand their market share. They think the impact of this new system on expanding market share is mainly reflected in: 1) it can improve office efficiency, reduce waiting time of customers, so as to attract them, especially customers who continue to loan; 2) the office management systems of some financial institutions have the function of customer data division to help the institutions carry out targeted advertising; 3) it can act as a sales assistant to help the customer manager in customer analysis and completing sales tasks; 4) the system has a real-time function, providing market dynamics, customer deposit demand and other information in time to help the institution seize customer opportunities; 5) it increases internal efficiency so that more employees will have more time spent on sales. However, one interviewee believes that the new office management system (function) doesn’t help to expand market share, “this is just an internal system, which makes no contribution to market share”.
19 All interviewees agree that the new office management system (function) allows institutions to reduce costs, which is mainly reflected in reducing office costs by going paperless, reducing labor costs through optimizing talent structure, and reducing transportation costs through remote access. In this way, the time costs of employees can also be reduced.
The new office management system (function) has also played a great role in promoting efficiency. The word most frequently mentioned by interviewees is “improved approval efficiency”, that is, managers can make mobile phone approval anytime and anywhere which can help to reduce the waiting time of employees; it optimizes the business process and shortens the processing cycle, so office efficiency is improved; communication efficiency between employees in different departments can also be increased.
Meanwhile, all respondents subscribe that the new office management system (function) enables the institution to reduce risk. Specifically, it can enhance information confidentiality and reduce the risk of information leaking out through clear scope of employee authority; reduce the manual operation to lower the probability of risk caused by human error; increase information symmetry to reduce credit risk by using big data; reduce the risk of compensation in case of disputes with customers by information reserves; reduce the risk of employees’ misconduct and slack through strict supervision.
When it comes to external resource acquisition, only Interviewee 5 said that the new office management system helps the institution attract government investment, while seven interviewees think it has no impact. As for other value, some interviewees think it can “promote the loan assistance of national strategy to SMEs” and “demonstrate the advance of their institution and make a contribution to the financial industry”.
4.1.3 Digital products and services
Digital products and services are particularly diversified. Mobile apps, which have gone through over 5 years of development, are comparatively prevalent among institutions. And the existing apps are constantly updated with optimized functions. In addition to the official app that is named after the institution and covers the most comprehensive functions, some institutions have developed special apps for specific goals. For example, Interviewee 5 described two apps of his bank. One is a wealth management product that enables the whole
20 process of online self-help loan service for individual customers. Similarly, many banks possess proprietary loan products. Another is a B2B e-commerce financial service platform which is built in cooperation with the government. It aims not only at helping poor areas promote special agricultural product brands, but also at providing customers with a full range of services.
With the widespread use of WeChat a few years ago, utilizing the WeChat channel is another significant phenomenon among financial institutions. All the interviewed institutions have set up a WeChat official account which mainly serves as a marketing platform. Products are launched through WeChat mall to increase customer stickiness and loyalty. After offline deal service, bank customers are allowed to collect and accumulate points in their account which can be used to redeem attractive bonus gifts.
There is the rise of fintech ecosystems which generates synergistic effects remarkably. It is revealed by institutions’ establishing cross-industry collaboration networks with non- traditional partners. For example, points within personal accounts of J Bank can be used for extension products in the e-commerce websites, Jingdong and Taobao.
Other products or services are such as HCI equipment in place of most counter operations or even totally smart branches without tellers and bankers, robots, cloud platforms, and centralized operation platforms. Also, quite a few interviewees point out the trend of launching blockchain systems, which serve as a real-time response to risk assessment and customer tracking.
All digital products and services are in continuous improvement, based on incorporating the market demand, users’ online evaluation as well as employees’ feedback after use.
4.1.4 Value of digital products and services
According to the answers from interviewees, digital products and services, as a part of digital transformation, mainly bring the following value to the institution: 1) expanding market share, 2) cost reduction, 3) improving efficiency, 4) risk reduction.
From the perspective of expanding market share, developing digital products and services can liberate more employees from repetitive daily work and turn the tellers into marketing, so as
21 to obtain more customers (Interviewee 3). Some interviewees said that through blockchain, digital marketing and advertising can help them notice customer needs and carry out effective marketing (Interviewee 2 & 5). After acquiring new customers, these digital products and services can bring higher benefits and experience effects to customers through on-demand customization, so as to enhance customer satisfaction and loyalty (Interviewee 2 & 4).
In terms of cost reduction, two respondents said that the cost of digital R&D is large. “We invest 10% of our profits in R&D every year” (Interviewee 1 & 3), and “we invest a lot of money... but not much compared to our annual revenue” (Interviewee 1). And Interviewee 2 think that digital products won’t reduce costs for the institution, but most interviewees hold the opposite opinion. They believe that by transferring customers online, the demand for tellers is reduced which helps to cut labor costs; also, automation of business processes contributes to reducing the institution’s operating and maintenance costs.
According to the interviewees, digital products and services mainly improve operational efficiency by providing customer self-service and remote services. And even two interviewees (Interviewee 1 & 4) unanimously said that “almost all the businesses can be operated online except cash businesses”. Interviewee 2 who is from a securities institution said that the professionals would make general investment suggestions, which could be directly used by managers to reduce the time spent on research.
Through the interviews, we find that digital products and services help to lower risk effectively from three aspects: 1) improve risk assessment through blockchain technology; 2) reduce risk through firewall function; 3) lower the risk of being claimed due to customers’ operation error on the third-party platform or app; 4) reduce risk caused by information asymmetry or information leakage; 5) lower the risk of employee violations due to non- standard business processes.
4.2 External Pressures
4.2.1 Coercive pressure
Coercive isomorphism involves pressure on an organization from other organizations, in which they are dependent on cultural expectations from society. It results from political influence and legitimacy issues (DiMaggio & Powell, 1983). 22 When asked “what causes your institution to use this new office management system (function), and what external pressures does your institution face”, Interviewee 3 believes that the banking system faces increasingly tight regulation, and the office management system (function) can supervise employees more strictly than before to reduce employees’ slack and illegal behaviors. Interviewee 4 said that due to the outbreak of Covid-19 in 2020, the governments asked people to stay at home, which indirectly led to the institution’s use of DingTalk and other office software to work remotely. The new office management system may also be adapted to “interface with the national tax system”. However, Interviewee 1 said that “the digital transformation advocated by the government is actually external rather than internal, that is, it’s customer-oriented, so we should think how to make customers switch to more convenient online operations to meet the advocacy”, so the new office management system has not been in use for policy reasons. In addition to the government’s perspective, “the popularity of financial technology makes mobile office the mainstream of the times”, Interviewee 8 said.
When asked “what causes your institution to launch these new digital products and services and what external pressures does your institution face”, all interviewees mentioned a word, “trend”. All of them thought it was the trend of the times in line with the demands of customers: “at present, financial technology prevails... young people have strong receptivity to mobile banking”; “the market has this demand”. The opinions of interviewees are very consistent: “if the bank wants to achieve development, it must improve its technology” (Interviewee 1, 7 & 8); “the digital economy is currently advocated by China and the rest of the world, and we must keep pace with the times” (Interviewee 3, 4, 5 & 6). It can be seen that a consensus has been reached on digital transformation in the financial industry. Policy requirements are also mentioned. “We add this function to our system and software according to the policy requirements” (Interviewee 2). “In line with the requirements of the Belt and Road Initiative, government departments will send specialists to the meeting to ask institutions to develop systems and improve processes” (Interviewee 8).
4.2.2 Mimetic pressure
Through interviews, we find that all institutions have new digital systems (functions), but these systems are not totally the same, with different levels of competitive power. When it
23 comes to the new office management systems (functions) used by competitors in the process of digital transformation, there are two opinions. The first is that the new systems (functions) among financial institutions don’t have a lot of differences (Interviewee 2 & 5). Interviewee 2 who works in securities business said that no institution in the industry is absolutely ahead of others, and the system updates are generally synchronous between different institutions; also, the banker Interviewee 5 said that the four banks, Industrial & Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), China Construction Bank (CCB), and Bank of China (BOC), have strong convergence and often learn from each other.
The second opinion is that there are significant differences in the new systems (functions) among financial institutions, which lead to different competitiveness and promote imitation among these institutions (Interviewee 1, 3, 7 & 8). The differences are reflected in three aspects: 1) state-owned financial institutions have more resources and technologies, and local financial institutions usually imitate state-owned ones or use their eliminated systems; 2) joint-stock banks are more efficient and flexible than state-owned ones; 3) industry leaders often play a leading role in the digital transformation, and other financial institutions will imitate them.
According to the majority of respondents, there are imitation behaviors of industry leaders in the banking, securities, and insurance sectors. In the banking industry, three respondents mentioned that CCB’s technology is more advanced than others (Interviewee 1, 2 & 5). “CCB has always been at the forefront of innovation”. Interviewee 2 from the securities business said, “some small institutions do not have such a reserve force to do this, so they directly imitate us”; “generally, we will adjust and change with the large investment and evaluation institutions, and sometimes they will imitate us”. Interviewee 7 from the insurance industry said, “the best risk manager is probably Ping An of China”, and “the technology of Ping An is really good”.
4.2.3 Normative pressure
Through interviews, we find that financial institutions are not under strong pressure from professional institutions. Few interviewees (e.g. Interviewee 8) said they worked with consulting institutions such as McKinsey to promote the digital transformation of their businesses. Both Interviewee 1 & 2 said that their institutions outsource the R&D and regular 24 maintenance of systems and software to third parties: “our institution’s requirements for designing software are arranged to outsourcing institutions so that they can design the software according to these requirements”. Some interviewees said that their institutions have own IT department and risk control department to formulate the digital transformation strategy.
4.3 Response to External Pressures
As for response speed, Interviewee 1 of a joint-stock bank provided an example. He compared the mobile app of his institution with that of ABC’s, and said, “the product of ABC didn’t run smoothly, and when I reported the problem to the technology department of its head office, I found the employees there working in a perfunctory manner. Comparatively, my institution was much more efficient”.
4.3.1 Imitation
After having a detailed understanding of the functions of the office management systems and digital products/services adopted by these eight institutions, we find some similarities. For example, as is mentioned in 4.1.1, institutions adopt either OA or CRM systems, and both of the systems have the functions of information sharing, attendance management, online meeting, and reporting. “We have references (of other banks’ systems)... there are some same functions”.
For digital products and services, there are imitative behaviors in mobile apps, WeChat products, and cross-industry collaborative networks between different institutions, with certain similarities in functions, such as real-time loaning, exchanging accumulated points for gifts, risk assessment, etc. As Interviewee 4 said, “at that time, some banks have launched them (the digital products), which is quite popular, so everyone will do the same”. In addition, in terms of AI and blockchain technology, the institutions are also imitating the industry leader. Interviewee 5 said, “CCB pushed it out first, and other banks followed it…”. Some local banks will also imitate the state-owned banks. “… N Bank (a local bank) has been imitating the big four banks. The mobile banking apps of the big four banks are almost the same”. 25 4.3.2 Translation
While using the same system and developing similar digital products/services, different institutions translate and innovate according to their own situations. From the perspective of office management systems, the functions of office management systems among different institutions are not totally the same. Some institutions’ office management systems focus on risk control, while others’ systems focus on improving efficiency, reducing labor costs, and converting staff to marketing. While using the main office system, institutions will choose other systems to assist the office, and the use of these auxiliary office systems mainly depends on the institution’s own situation. “Every bank will have such a system for submitting business approval, but its order will be adjusted which depends on their risk department... the system is similar”.
There are also some translation and innovation of digital products and services. Although all institutions have launched mobile apps, their functions are different. For example, in terms of loans, different institutions have different requirements for risk levels, so they take various risk assessment measures. Interviewee 4 said that “risk assessment is conducted by the system”, while Interviewee 1 said that “the last step of online approval still needs to be conducted by the professionals”. Secondly, though all institutions have WeChat platforms, functions of the platforms are different and they are dependent on the competitive advantage of their own institution. Although all institutions have the service of exchanging points for gifts, the exchange standards depend on specific situations, such as their financial condition, strategies, and partners. More than half of the respondents said that the institution has its own cross-industry cooperation network, but they cooperate with different platforms, mainly including JD, Taobao, Baidu, Microsoft, etc. What’s more, based on own resource advantages and in cooperation with the government, J Bank has built an e-platform for poverty alleviation and agricultural assistance.
5. Discussion
5.1 Digital Transformation and Value
In a digital context, “the business model defines the ‘architecture of the revenue’ while addressing the processes of value creation involving the value network around the institution” 26 (Nylen & Holmstrom, 2015, p. 62). From the study, we can recognize strong network ties between a financial institution and its customers, and moderate network ties between the institution and suppliers as well as third parties.
Digital transformation leads to a new business model that enhances the institution’s competitive advantage (Liu et al., 2011). Competitive advantage comes from cost reduction and differentiation. Improvement in both office management systems and products and services enables the institution to be organized for value capture.
Office management information systems and digital products and services make joint contributions to market share, cost reduction, efficiency, and risk reduction. 1) Market share is developed by shifting the focus to precision marketing and optimizing customer experience. Though systems belong to an institution’s internal context, they can enlarge market share by relating internal efficiency to outward client business expansion. 2) Meanwhile, costs of time, office, labor, transportation, operation, and maintenance are saved while investment in digital R&D largely increases. But we believe that revenue structure is redefined, as is mentioned by a respondent that R&D cost is relatively trivial. 3) Efficiency is achieved by increased flexibility for employees and customers, as well as simplified operational processes. 4) Digital channels present new types of risk such as greater exposure of digital assets (Catlin et al., 2017). But financial institutions have paid close attention to risk reduction by incorporating the function of risk management into its office systems, products, and services.
Value to society is created through practicing corporate social responsibility, specifically, the promotion of inclusive financial services. For instance, some financial institutions especially state-owned institutions collaborate with governments for poverty alleviation for farmers and to support the development of SMEs.
5.2 External Pressures
Institutional theorists believe that organizations are under three kinds of pressure: coercive pressure, mimetic pressure, and normative pressure (DiMaggio & Powell, 1983).
The external pressures on office management systems are less than those on digital new products and services, which may be because the office management systems are internal and employee-oriented, while the digital products and services are external and customer-oriented. 27 In essence, digital transformation is to attract more external consumers, so digital products and services are under more external pressures of digital transformation.
5.2.1 Coercive pressure
Coercive pressure mainly comes from two aspects. One is the pressure exerted by other organizations, which is often because these organizations, such as governments, have the resources needed for the survival of the organization (DiMaggio & Powell, 1983); the other is the social and cultural expectations and common ideas of the organization. According to interviewees, we find that the first type of pressure has little effect on the digital transformation of financial institutions. Except for two interviewees who said that the functions of digital products were modified according to the requirements of government policies, other interviewees said that there was no special mandatory rule in the digital transformation, and most of the policies were just as advocacy.
A possible explanation is that, although the government strictly regulates financial institutions, it is not reflected in the digital transformation, but in other aspects of the institutional business. Another reason is that the bank itself has abundant resources, which can attract a lot of talents. The ability to attract technical talents weakens the need for government technical support. It is consistent with what Neesha Hathi, chief digital officer at Schwab, has said, “I was actually a little surprised by how relatively easy it’s been to get the talent we want, even in this highly competitive market. I think it’s because our culture and our entrepreneurial approach in the Digital Accelerator is the kind of place where people want to work” (Seitz, 2019, p. 4). As we can see, financial institutions are attractive places and don’t need to obtain a lot of resources from the government, indicating that the pressure from policies becomes relatively small.
Compared with the first type of pressure, financial institutions face significant pressure from social expectations when they carry out digital transformation. All interviewees agree that digital transformation is the trend of the times. Accelerating the promotion of digital transformation has become a consensus within this industry. Interviewees believe that whether the digital transformation can be completed is closely related to the sustainable development of financial institutions, which is consistent with theory. As the interviewees mentioned, digital transformation can help institutions adapt to the changes of the times, improve market competitiveness, and accelerate their access to the global market. 28 5.2.2 Mimetic pressure
Mimetic pressure is from the uncertainty of the external environment and the fuzziness of goals or means. When organizations are in face of uncertainty, imitating the digital transformation mode of a successful organization can help them reduce the “search cost” and speed up the decision-making process (DiMaggio & Powell, 1983). Through interviews, we find that these interviewees have no specific definition of digital transformation. Most of them just choose some words such as “big data”, “blockchain”, and “AI” to describe and represent digital transformation without sensing clear boundaries of them. It can be seen that “digital transformation” is still a fuzzy concept, and the uncertainty of this concept leads to the ambiguity of the means to realize the goals of digital transformation, which serves as strong pressure to motivate financial institutions to transform digitally by imitating others.
Some small institutions will imitate the success models of their industry. China Construction Bank and Ping An of China did very well in digital transformation, and their products and technologies were imitated by other financial institutions. However, the exemplary organization may not want to be copied (DiMaggio & Powell, 1983). Some institutions which have achieved great success in digital transformation are reluctant to have their model adopted by others. The new business models are acknowledged to contain business secrets or other confidential information, so it’s hard for an institution to get a clear and full picture of what its competitors are doing, only that most of them are going digital.
5.2.3 Normative pressure
Normative pressure comes from specialization. Due to similar educational backgrounds, professionals have the same world outlook and cognitive basis, which promotes the spread of shared ideas during the interaction of organizations, thus promotes the convergence of organizational structure and behavior (DiMaggio & Powell, 1983). These professionals can be consultants, experts, scholars, etc. The result is not consistent with our speculation that consulting institutions will perform a significant role of disseminators in the process of digital transformation of financial institutions. It doesn’t seem common for financial institutions to cooperate with consulting institutions on digital transformation. We suggest that it might be because departments of risk control, strategic planning or other functions within financial institutions are sufficient to formulate digital transformation strategies, but it doesn’t exclude 29 the limitations of interviewees’ positions, their limited understanding of the institution’s strategic level, or their unwillingness to disclose business secrets.
Meanwhile, professional institutions such as technology institutions don’t have noticeable impact on the process of digital transformation of financial institutions either, which is because many financial institutions are able to attract and retain technical talents and have own strong R&D teams. These can be enough for the institutions to update office management systems and develop digital products. In general, we don’t see strong normative pressure on financial institutions in the process of digital transformation.
5.3 Response to External Pressures
As for response speed, in the process of conducting imitation and translation, the working status of employees in state-owned and joint-stock financial institutions is likely to be different. Joint-stock institutions tend to be more efficient, have a higher speed in reaction, and handle problems more timely.
5.3.1 Imitation
When organizational technology is difficult to be understood or organizational environment is dynamic, it is possible for organizations to imitate the patterns of other organizations (DiMaggio & Powell 1983). Institutions engaged in digital transformation meet this condition of technological and environmental complexity. And the respondents didn’t present clear definitions of digital transformation in the empirical context. In face of this still vague concept and increasing pressure, the convenient way is to imitate successful models of other institutions. The vast majority of respondents in this study admitted their institution’s imitation of advanced practice. Some of them were able to cite relevant instances of specific competitors. A few illustrated the trend of digital transformation in banking and mentioned that they were emulating western banks.
Organizations tend to imitate those who are related and identified with them, and the process of imitation includes self-identity and recognition of what they want to become (Wedlin & Sahlin, 2017). Successful, prestigious, and influential organizations are most likely to be
30 imitated (Wedlin & Sahlin, 2017). This has also been verified in our interviews. The institutions involved all hold a general understanding, which we believe serves as a basis, of related competitors’ digital transformation, and like to compare with each other. According to respondents, some local financial institutions will imitate national financial institutions, while SMEs learn from industry leaders. And there is mutual emulation among neck-and-neck institutions. For example, the big four banks have relatively strong convergence and tend to conduct mutual learning and imitation.
Although organizations explore diversity while imitating, the variables available are relatively small (DiMaggio & Powell, 1983). Imitative behavior is reflected in the main measures of digital transformation under the framework of continuously improving the functions of office management systems and launching new digital products and services. As is shown in the results, there is some overlap among responsive solutions of different institutions. Commonly, two or more institutions have adopted at least one similar digital transformation measure in terms of office management systems or products and services. Every bank probably owns its office management systems, but they may refer to the response of other banks, which leads to similarities. Also, the R&D of new digital products is similar especially regarding mobile apps and products on WeChat. The products of every bank are basically the same.
There are also ritualistic aspects of imitation, and organizations will adopt these “innovations” to enhance their legitimacy and to show that they are at least trying to improve working conditions (DiMaggio & Powell, 1983). Although quite a few respondents expressed their lack of deep understanding of relevant policies or pointed out that digital transformation was not obviously affected by hard rules, they recognized that the institutions were improving in response to and to comply with policy advocacy.
5.3.2 Translation
Organizations will imitate the model of other organizations as well as make changes and innovation at the same time. Changing and innovating according to one’s own situation is translation, and it is not the transfer of thought or practice itself from one environment to another, but the narration and concretization of the thought or practice (Wedlin & Sahlin, 2017). For example, some weaker institutions in this study appreciate the approaches of
31 leading competitors but still value the consideration of their own organizational identity and environment.
Each kind of translation is embedded in a specific time, structure, and cultural background, which is composed of the process and actors involved in translation. The key point of translation is to translate the management ideas and techniques applied by organization members (Wedlin & Sahlin, 2017). Financial institutions follow the idea of internal pursuit of resource saving and external focus on market demand and customer experience. As for specific points, many of them attach importance to risk control and counter transformation. And it’s without doubt that the results of digital transformation is applied institution-wide and are improving based on feedback from actors, namely, customers and main employees in each branch.
6. Conclusion
At the beginning of this thesis, we put forward two questions: 1) What external pressures do Chinese financial institutions face to begin digital transformation? 2) How do Chinese financial institutions respond to external pressures on digital transformation? Through literature research, we have learned that digital transformation belongs to an organizational change (Kotter, 1995). Organizations are often subject to three types of pressure when they have to change: coercive pressure, mimetic pressure, and normative pressure (DiMaggio & Powell, 1983). When organizations are under external pressures to make changes, they will use imitation and translation methods (Wedlin & Sahlin, 2017).
Then, we designed interview questions according to the content of literature research and interviewed eight employees from financial institutions. Through interviews, we found that financial institutions are subjected to these three kinds of pressure in the process of digital transformation, but the power of the pressure varies. Among them, coercive pressure and mimetic pressure are relatively stronger, while normative pressure doesn’t have a great influence. In the process of digital transformation, imitation and translation have been used to cope with external pressures, which is consistent with theory. Through imitation and translation, financial institutions innovate the functions of their office management systems and develop new digital products and services to maintain their competitiveness and creating more value. 32 Pressure seems to be a negative word to people in general, which makes them feel worried and anxious, but its positive side can’t be ignored. The policy pressure provides guidance for the digital transformation of institutions and makes their processes more standardized; the pressure from competitors enables institutions to keep the sense of crisis all the time and continuously carry out technological innovation. It is because of the pressure from the external environment that financial institutions are constantly motivated to imitate and translate digital transformation modes of successful organizations, which brings more value to the institution. Through interviews, we find that digital transformation of institutions to cope with external environment pressure has brought a lot of value to them, which includes expanding market share, reducing costs, improving efficiency, reducing risks, etc.
With more and more institutions joining the digital transformation group, how to effectively leverage external pressures for digital transformation and create more value for the institution is a problem worthy of discussion. In the course of digital transformation, institutions need to correctly identify the source of external pressures and its impact on institutions themselves. External pressures often come from external stakeholders like competitors, governments, customers, etc. Only by identifying these stakeholders’ interests and their influential power on institutions, can institutions take different ways to respond. While imitating the digital transformation model of successful institutions, institutions should also translate according to their specific condition and competitive advantage to localize the general model. What’s more, in the process of implementing digital transformation, support from employees is significant since they are the actors to carry out specific digital transformation work. It’s vital to make employees understand the strategic decisions of the institution and avoid hindering the process of digital transformation due to their resistance. For managers, the findings help them better understand digital transformation and perceive the relevant external environment of the institution, as well as offer guidance in diagnosing and coping with external pressures to facilitate the institution’s performance in digital transformation.
7. Limitation and Future Research
Fundamentally, this thesis is anchored in the financial industry in China. Situations can vary in different industries as well as in different countries, so digital transformation in other industries or other countries can be studied in the future.
33 Besides, our research sample is financial institutions from Zhejiang and Shanghai, so this study tends to understand a particular phenomenon rather than generalize its findings to the whole population. Considering the selection of the target group, future studies can uncover financial institutions in underdeveloped areas.
Though the findings offer insights into three types of external pressures and their influential mechanism on institutions’ digital transformation, some interviewees are not technical staff, head office employees, or senior leaders thus they may not know deeply about certain aspects, which makes some institution-related data missing. Meanwhile, we only interview one person for each institution, and if possible, a group of people can be interviewed in the future, so that results can be more detailed and in-depth. Therefore, seeking more accurate interviewees to obtain more comprehensive data and incorporating adverse external causes, could allow for additional analysis and discussion.
Internal causal factors including goals and values, resources and capabilities, structure and systems that lead to digital transformation are not included in this study. Also, there exist negative internal pressures such as employees’ resistance that results in the absence of or prevents digital transformation. Future research is needed to improve the understanding of internal characteristics.
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37 Appendix
Table 3. Detailed Interview Questions
1. Internal - office Which new office management system does your institution use in the management past five years? systems What is the function of this new office management system? (e.g. information sharing, attendance, work report, online meeting, liaison)
When did your institution consider to use the new office management system?
What causes your institution to use it, and what external pressures does your institution face?
How is the new office management system implemented, and how has it been adjusted and improved gradually?
How does this new office management system affect your institution in the following aspects: -What is the impact on expanding market share? -What is the impact on cost reduction? -What is the impact on efficiency? -What is the impact on risk reduction? -What is the impact on access to external resources such as investment, government support, and talents? -What is the competitiveness compared with competitors? -Is there any other value to the institution?
2. External - digital Which new digital products and services (e.g. digital ecosystem) has products and your institution launched in the past five years? services What is the function of this new digital product and service? (e.g. real- time loaning, risk assessment, fund management, digital marketing)
When did your institution think of using this new digital product and service?
What causes your institution to launch it, and what external pressures does your institution face?
How is this new digital product and service launched, and how has it been adjusted and improved gradually?
How does this new digital product and service affect your institution in the following aspects: -What is the impact on expanding market share? -What is the impact on cost reduction?
38 -What is the impact on efficiency? -What is the impact on risk reduction? -What is the impact on access to external resources such as investment, government support, and talents? -What is the competitiveness compared with competitors? -Is there any other value to the institution?
3. Other digital Which new digital systems or products and services has your institution transformation adopted in the past five years? measures What is its function? (e.g. real-time loaning, risk assessment, fund management, digital marketing)
When did your institution think of using it?
What causes your institution to use it, what external pressures does your institution face?
How is it implemented, and how has it been adjusted and improved gradually?
What impact does it have on your institution: -What is the impact on expanding market share? -What is the impact on cost reduction? -What is the impact on efficiency? -What is the impact on risk reduction? -What is the impact on access to external resources such as investment, government support, and talents? -What is the competitiveness compared with competitors? -Is there any other value to the institution?
4. Professional In the past five years, has your institution asked for help from institutions professional organizations on how to introduce new digital systems or products and services, and what advice or help have you received?
5. Governments In the past five years, has your institution introduced new digital systems or products and services in response to government policies, and what are the policies?
6. Competitors In the past five years, has your institution introduced new digital systems or products and services in response to competitors, and what have competitors done?
Table 4. Detailed Interview Questions (Chinese Version)
1.内部办公管理系 这五年内，你们机构使用什么新的办公管理系统？ 统 这个新的办公管理系统有什么功能作用？（如：在信息共享、考
39 勤、工作汇报、线上会议、联络方面）
你们机构从什么时候想到要使用这个新的办公管理系统？
你们机构怎么会想到要使用这个新的办公管理系统，有没有受到 什么影响力，是哪些方面的影响力？
这个新的办公管理系统是怎么被实施的？怎么逐渐调整改进的？
这个新的办公管理系统对你们机构在以下方面有什么影响： -在扩大市场份额方面有哪些影响？ -在降低成本方面有哪些影响？ -在提高效率方面有哪些影响？ -在减少风险方面有哪些影响？ -在获取外部资源如投资政府支持和人才等方面有哪些影响？ -与竞争对手相比有哪些竞争力？ -还有没有给机构带来其他方面的价值？
2.对外产品和服务 这五年内，你们机构推出了哪些新的数字化产品和服务（如：数 字生态系统）？
这个新的数字化产品和服务有什么功能作用？（如：实时贷款， 风险评估，资金管理，数字营销）
你们机构从什么时候以想到要推出这个新的数字化产品和服务？
你们机构怎么会想到要推出这个新的数字化产品和服务，有没有 受到什么影响力，是哪些方面的影响力？
这个新的数字化产品和服务是怎么被实施的？怎么逐渐调整改进 的？
这个新的数字化产品和服务对你们机构在以下方面有什么影响： -在扩大市场份额方面有哪些影响？ -在降低成本方面有哪些影响？ -在提高效率方面有哪些影响？ -在减少风险方面有哪些影响？ -在获取外部资源如投资政府支持和人才等方面有哪些影响？ -与竞争对手相比有哪些竞争力？ -还有没有给机构带来其他方面的价值？
3.其他数字化转型 这五年内，你们机构还采用了哪些新的数字化系统或是产品和服 措施 务？
40 它有什么功能作用？（如：实时贷款，风险评估，资金管理，数 字营销）
你们机构从什么时候以想到要使用它？
你们机构怎么会想到要使用它，有没有受到什么影响力，是哪些 方面的影响力？
它是怎么被实施的？怎么逐渐调整改进的？
它对你们机构在以下方面有什么影响： -在扩大市场份额方面有哪些影响？ -在降低成本方面有哪些影响？ -在提高效率方面有哪些影响？ -在减少风险方面有哪些影响？ -在获取外部资源如投资政府支持和人才等方面有哪些影响？ -与竞争对手相比有哪些竞争力？ -还有没有给机构带来其他方面的价值？
4.专业机构 这五年内，你们机构是否向专业机构求助如何引入新的数字化系 统或是产品和服务，得到了什么建议或帮助？
5.政府 这五年内，你们机构是否因应政府政策的规定而引入新的数字化 系统或是产品和服务，是哪些规定？
6.竞争对手 这五年内，你们机构是否因应竞争对手而引入新的数字化系统或 是产品和服务，竞争对手做了什么？
41