Bridging the Divide

By Thomas P. Johnson Jr.

Competing in e-commerce requires traditional financial services companies to adopt new structures–but how far should they go?

Financial services strategists increasingly acknowledge the need to transform their organizations to compete in e-commerce, but they are grappling with the specifics of how to pull this off. High levels of agility and creativity are required in the online marketplace, and it is difficult to nurture these attributes within a traditional bureaucracy.

The severity of this conflict is clearly outlined by Harvard's Clayton Christensen. In his interview with Banking Strategies, the author of The Innovator's Dilemma points out that the very organizational patterns that help maximize current profitability can stifle the creativity needed to build new business models and win new generations of customers.

Christensen's answer is to form autonomous business units dedicated solely to new pursuits. Only by approaching things at a grass-roots level can competitors master the tricky dynamics of nascent markets, he says.

Some institutions are adopting this approach with vigor, as evidenced by the recent emergence of WingspanBank.com, e-Citi and chase.com. Wide variances among these units, however, underscore the uncertainties about how to pursue entrepreneurial ventures within the larger organization.

William B. Harrison Jr., for example, is attempting to capture the best of both worlds. As detailed in this issue's cover story, the chairman and chief executive of Chase Manhattan Corp. has established chase.com as a separate unit focused exclusively on Internet-related activities. His stated intent is to "immunize" the unit's employees against the bureaucratic culture of the parent company, yet the unit still operates within the bank's traditional chain of command.

Some experts see this as an uneasy compromise. From one perspective, chase.com doesn't seem to go as far as WingspanBank in challenging the parent company's business model, raising questions about the seriousness of its intent. Conversely, it might not facilitate the company-wide use of Web technology as well as the distributed approach taken by Wells Fargo & Co., raising questions about integration.

This issue by no means is exclusive to Chase, and it obviously will not be resolved anytime soon. But managers can't back down from thorny questions such as this. Christensen points out that companies in mature industries typically wind up forfeiting their leadership positions because they fall out of touch with emerging technologies and markets. Many types of established financial services companies face this hazard.

Renewal begins with a changed state of mind on the part of the senior executives guiding traditional financial intermediaries. The certainty with which they approach familiar activities must be supplanted by a sense of urgency and exploration, tempered by a humility that acknowledges the enormity of the challenge.

Copyright © 2003 by Banking Strategies, published by BAI.

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