UNIVERSITY OF EXETER EXETER BUSINESS SCHOOL INVESTMENT BANKS’ BUSINESS MODEL INNOVATION EVIDENCE FROM SAUDI ARABIA Submitted by AHMED ABDULAZIZ O BINSAIF to the University of Exeter as a thesis for the degree of Doctor of Philosophy In Management Studies November 2017 This thesis is available for Library use on the understanding that it is copyright material and that no quotation from the thesis may be published without proper acknowledgement. I certify that all material in this thesis which is not my own work has been identified and that no material has previously been submitted and approved for the award of a degree by this or any other University. (Signature) ……………………………………………………………………………… ABSTRACT ______________________________________________________________________ The Investment bank industry is considered to be an essential element of not only the financial system but also the whole economy. Understanding multiple business models employed by multi-services industry such Investment bank is a matter of great significance for Investment banks’ executives, regulators and analysts. In 2008 the business model that had been employed by investment banks for almost two decades vanished due to the global financial crisis. Investment banks were forced to change and innovate their traditional business models. This research intends to develop a conceptual framework which helps to realize and study investment banks’ business models with the core components and related activities. Multiple business models mapping for investment banks is developed to give seniors executives core and possible activities and alternatives to innovate and change various business models for different lines including asset management, brokerage, investment banking and custody services. In addition, the business model (innovation) drivers are investigated to empirically explore the most powerful drivers on investment banks’ multiple business models (innovation), potential changes and degree of alteration on its activities for each business line. For these aims, a systematic literature review was carried to synthesise the recent advancements in the business model literature and explore how firms approach business model innovation. As result, a conceptual framework for business model (innovation) was developed, which encompasses four components value proposition, operational value, human capital and financial value. This framework can be utilized by practitioners as a 'navigation map' to determine where and how to change their business models. By using the qualitative methodology through semi-structured interviews with 29 senior executives from 10 fully-licensed investment banks in Saudi Arabia and secondary data including financial statements, annual reports and pillar III disclosures, the empirical study mapped the investment banks’ multiple business models and identified a business model for each business line. Sixteen activities for each business line were determined to provide core and possible activities and alternatives. This research contributes to our understating of managing and innovating multiple business models in the industry when investment banks should run these multiple business models. The Investment banks’ business models are different in terms of business lines, core offerings, clients, key assets, key process, revenue streams and costs structure. Over and above, each line shows diverse business models applied by investment banks. Furthermore, unlike other studies, this research contributed by investigating drivers that force investment banks to change their existing business models, the degree of changes and which activities did investment banks consider when responding to particular drivers. This study found that clients, crisis and economic changes, rivalry, top management and regulations are the five drivers forcing investment banks to not only embark on change events, but also carry out business model changes in most investment banks’ business lines. I DEDICATION _____________________________________________________________________ This dissertation is dedicated to: My parent for the endless encouragement and inspiration they bring into my life. II ACKNOWLEDGMENT _____________________________________________________________________ Firstly, all praise and thanks are due to the Almighty Allah for giving me the ability and strength to undertake this thesis. The guidance was provided by my supervisor Dr. Ben Ramdani is fully appreciated. I am entirely thankful his assistance, patience and insightful reviews from the beginning to the end of this research. Special thanks are given to my parent for granting me support. Limitless appreciations are provided to them for the efforts they provided throughout my life to look after, educate and motivate. The heartfelt gratitude’s must go to my wife (Nouf) and my sons (Abdulaziz and Muhammad) for sitting with me in the difficult times. The support I got from them was very pivotal in overcoming obstacles. I would like also to send thanks to my brothers and sisters for their love and hopes to accomplish my thesis. This study would not have been possible without the involvement of participants from Saudi Arabian Investment banks. Their time, honesty and encouragement were vital to make this study viable, original and valuable. So my full appreciation should go to those participants who offered me the opportunity to make interviews. Finally, I would like to send my acknowledgments to all of my friends, colleagues and the University of Exeter Business School members for their helps during the time of the PhD journey. III TABLE OF CONTENTS 1 ABSTRACT ........................................................................................................................................... I DEDICATION ....................................................................................................................................... II ACKNOWLEDGMENT ......................................................................................................................... III TABLE OF CONTENTS ......................................................................................................................... IV LIST OF TABLES ................................................................................................................................ VIII LIST OF FIGURES ................................................................................................................................. X LIST OF ABBREVIATIONS .................................................................................................................... XI 1 CHAPTER 1: INTRODUCTION ....................................................................................................... 1 1.1 INTRODUCTION ........................................................................................................................... 1 1.2 BACKGROUND ............................................................................................................................. 3 1.3 RESEARCH GAPS .......................................................................................................................... 8 1.4 SIGNIFICANCE OF THIS RESEARCH ............................................................................................... 9 1.5 A STATEMENT OF QUESTIONS, AIMS AND OBJECTIVES ............................................................. 10 1.6 RESEARCH METHOD .................................................................................................................. 11 1.7 STRUCTURE OF THIS THESIS ...................................................................................................... 11 2 CHAPTER 2: INVESTMENT BANKS IN SAUDI ARABIA ................................................................... 14 2.1 INTRODUCTION ......................................................................................................................... 14 2.2 SAUDI ARABIA OVERVIEW ......................................................................................................... 14 2.2.1 GEOGRAPHY AND LEGAL FRAMEWORK ............................................................................... 14 2.2.2 SAUDI VISION 2030 ............................................................................................................... 15 2.2.3 ECONOMIC INDICATORS ....................................................................................................... 15 2.2.3.1 Economic Diversification .............................................................................................. 16 2.2.3.2 GDP Growth ................................................................................................................. 17 2.2.3.3 Inflation and Currency ................................................................................................. 18 2.2.4 SAUDI BUSINESS ENVIRONMENT ......................................................................................... 19 2.2.4.1 Competitive Policy ....................................................................................................... 19 2.2.4.2 Foreign Investment Policy ............................................................................................ 19 2.2.4.3 Tax Environment .......................................................................................................... 20 2.2.5 GLOBAL INDICATORS ...........................................................................................................