The Impact Of Design Thinking On Innovation In The Banking Sector

The Need for Innovation in the Banking Sector

Discuss about the Impact of adopting design thinking on four chosen Australian banks.

The banking sector is becoming increasingly competitive for banks. In the face of this competition, the current trends in the industry are directed towards innovations that are focused on enhancing the customer experience. This is the reason why design thinking is becoming increasingly popular in other sectors of business and lately in the banking sector as well.  Design thinking is a framework for innovation which employs tools that are customer centered (Nunziata 2016). Design thinking gives priority to highly modulated consumer needs. Sometimes these consumer needs are tacit and appear to be over ambitious; nevertheless design thinking is a powerful tool for evaluating the feasibility with regard to technological opportunities available to the business. It helps to assess critical components; is the product or service it doable and how big will the commercial market for the said product or service be (viability). Contrary to what many industry players think, design thinking is not about walking into presentations with notes followed by unending moments of brainstorming with no defined objectives that almost have no application in business; it is a consumer centered approach to the innovation of products and services (Rouse, 2011). Legacy banks such as JP Morgan, Citibank have responded to this trend in the banking sector by setting up innovation labs. These are the points where their teams are developing new products and services using the design thinking approach. Design thinking is also geared towards attracting new talents such as artists and other professions that are traditionally not linked to the banking sector (Nunziata 2016). The trend is also seen in the pattern of hiring in place by these leading banks.

In the modern day economies, financial institutions are faced with increasing competition. Owing to technological advancements in the financial services provision, the sources of competition have expanded beyond banks to include other nonbank financial institution such as mobile money transfer services and mobile banking service providers (Nunziata 2016). Customers today want financial services that are convenient to their needs. Much of this interaction today is entails the utilization of internet applications and the use of mobile devices. This means that there needs to be a change in the manner in which banks relate with their customers. Unfortunately not a lot of progress has been made to this effect in the banking sector as most banks have not appreciated the role of design thinking and the potential it has in the innovation of financial products and services. The consequence is that many banking institutions are designing products and services that are not user oriented. These sometimes end up not being used by anyone. Financial products and services whose innovation is not user centered is likely not to find a good acceptability among clients (Rouse et al., 2011). An instrument such as design thinking provides the banks with a means to developing financial products and services whose suitability to users is relevant and delivers desirable user experience.   

Design Thinking and its Application in the Banking Sector

Primary Objective

The general aim of this research is to determine competitive advantages if any that accrue to banks that employ the design thinking approach in the innovation of their financial products and services.

Secondary objectives

To assess the difference in performance of banks that use differing degrees of the design thinking approach judging from profitability.

To identify the benefits that accrues to a bank that uses the design thinking approach in innovation of products and services,

To identify the challenges that needs to be overcome in the application of design thinking in the innovation of products and services.

Hypothesis

Banks that invest more in design thinking in the development of their products and services realize higher profitability.

Justification of the Project

Design thinking is a relatively new business tool and especially in the banking sector it has not gained serious momentum. The researcher notes that the uptake of the said approach in the banking sector has been slow partly owing to the limited knowledge of its practicability. This is because there is little existing scholarly work that has been conducted in this specific area of study. In doing this study, the researcher hopes to fill in this existing gap in the body of knowledge and contribute to the existing pool of information available on design thinking.

The researcher anticipates that the results of this study will demonstrate to players in the banking industry and investors the potential that design thinking has in the success of product and service innovation in the current market structure. This, the study hopes will help banks to restructure their operations and position themselves for better competitive advantage against competing banks and nonbank financial institutions.

Research Output

Upon the completion of the study, it is the researcher’s intention to publish the work so that it is available for the benefit of scholars, students and business people in the banking sector. The researcher expects this to be furtherance to the scholarly literature already done in the same field of study.

Decongestion in Banking Halls

The Australian banks have struggled with congestion of their customers in the banking halls for a long time (Leonidou, Christodoulides, Kyrgidou, & Palihawadana, 2017). The banking system was initially designed that customers had to do all bank related activities inside the bank premises ranging from making enquiries, account opening, request of bank account statements, applying for loans, to repay of loans. The banks used to operate on the basis that the entire system had to work the banks’ way, and the customer had to follow the set rules and regulations; in real sense the banks believed they were important to customers than how the customers were to them.

The Impact of Design Thinking on the Profitability of Banks

This situation led to heavy crowding in the bank premises by customers who had issues that could be solved without visiting the banking halls (Neuman & Gavinha, 2015). The Australian banks such as The Commonwealth Bank of Australia, Westpac Banking Corporation, and The National Australia Bank, faced a lot of challenges from the crowding. There were security issues as it became difficult monitoring a crowded small area, health issues to do with ventilation and inadequate air circulation and the long standing hours in the queue in the crowded banking halls.

The adoption of design thinking enabled banks consider customers’ affairs when making banking policies (Leonidou et al., 2017). The banks managements realized that their customers did not deserve the long queues to request small services like just making an enquiry about some types of accounts. Design Thinking enabled the banks adjust their strategies and activated some services online like making enquiries, opening bank accounts, and requesting for statements that are nowadays emailed to customer. With these improvements through Design Thinking, the banking halls are presentable as there are no customer crowding. The reduced congestion has enable banks to improve the quality of their services as they have enough time to attend to the few customers who visit the banking halls with serious issues (Read & Sanderford, 2018). The banks have been even able to reduce the space occupied by banking hall, a fact that has reduced operation costs and increase income to banks that rent out the excess space to other firms.

Improved Loan Application Process

Before the adoption of Design Thinking in banking industry, most banks in Australia would design bank loans on the basis of how much they would earn as interests and other charges without taking the loanee into account (Beung & Snell, 2017). The loan term and interest calculations were mostly meant to favor the financial institution, the loan applicant had to adjust his or her plan if it did coincide with the financier’s set policies, terms and conditions. Loan application procedures used to be complex, confusing clients in the process making them end up signing terms that they did not fully understand.

The strict loan policies caused a lot of inconvenience too many customers who sometimes had to surrender their applications hence forfeiting their dream projects (Kaur Sahi, Sehgal, & Sharma, 2017). Signing of loan terms without fully understanding caused many challenges during loan repayment phase, leading to auctioning of their hard earned properties. Many potential loan applicants ended up shying of from taking such risks as they believed the end product would be losing their belongings through bank auction. 

Challenges and Benefits of Using Design Thinking in the Banking Sector

When Australian banks started embracing the idea of design thinking when coming up with their loan policies, the loan managers at Westpac Banking Corporation realized that most of the potential loan applicants did not really need loans covering more than some period of time. The players in Australian banking system have also realized that very complex processes of loan applications scared away potential customers therefore reducing the revenue they could earn from loans.

The banks have since come up with considerably simpler loan application processes, favorable loan terms and they nowadays give room for customers to bargain the interest rates (Carr, Drennan, & Andrews, 2016). The four main Australia banks, The Commonwealth Bank of Australia (CBA), Westpac Banking Corporation (Westpac), Australia and New Zealand Banking Group (ANZ), and The National Australia Bank (NAB), have even created online services that enable online loan application platforms.

Mobile Phone enabled Bank Applications

Design thinking has been surrounding developing policies and strategies that best serve the ever dynamic customer needs and expectations (Bhattacharya, Sharma, Dubey, Bhasin, Bhattacharya, Mulukutla, Mulukutla, & Aysola, 2015). Upon realizing that most customers prefer conducting their business and bank services such as depositing and withdrawals at the comfort of their sofa sets, the major banks in Australia have embraced mobile phone technology. The banks have gone a notch higher to introduce mobile phone enabled applications that the customers use whenever they are. The mobile phone bank applications have proved very convenient as they have the capabilities of offering most services a customer would go for in a bank branch.

The desire to meet customer needs, as the main idea behind Design Thinking, has been the motivating factor in many banking industries in the world. In some parts of the world where a considerable fraction of the population still cannot afford smart phones, there have been introduction of local bank agents who are readily available in estates where people live. These bank agents are mostly business people contracted by the banks on commission basis to represent the banks. Most of the agents operate till odd hours and holidays when banks are closed.

Design thinking technique has led to a lot of improvements in the Australian banking industry (Neuman & Gavinha, 2015). A part from the above mentioned developments, there are some other minor adjustments banks like Australia and New Zealand Banking Group (ANZ) and Westpac Banking Corporation (Westpac) have made aiming to improve customer experience. For instance, the banks have decided to extend the closing time of some of their branches in areas perceived to be busy at odd hours. Behind this adjustment, the banks’ managements realized that there are some group of customers held up in their workplaces during normal working hours, and would therefore need banking services at odd hours.

Conclusion

To serve such group of customers, the banks have extended their working hours to give them ample time to complete their daily routines and access banking halls later (Garvey, Meloy, & Shiv, 2017). Under the usual banking systems where I was the customers’ duty to adjust, such categories of clients would be disadvantaged and thereby miss out on their banking quests. Through this, the idea of thinking and adjusting while making strategies, as described in Design Thinking technique, has enabled banks acquire a big number of customers who would otherwise consider themselves victims of their work timetable.

Another great achievement of this customer satisfaction based strategy development is the simplified banking processes (Neuman & Gavinha, 2015). Before adoption of this customer friendly, Design Thinking strategy development process, most banks have complicated processes that required too much unnecessary questions. The banks realized that the many questions were a bother to most customers who would sometimes opt to discontinue the whole process. An example was the procedure of opening a bank account online or loan application over the internet. Many researchers who studied this area found out that most of online applications of bank services were not done correctly or abandoned due to the many unnecessary tiring questions asked.

After the analysis of such studies, banks noticed that a large amount of revenue would be tapped if they made the online processes simpler (Neuman & Gavinha, 2015). They reacted by removing some of the self-explanatory questions that were considered rhetoric. The study of impacts of Design thinking in banking industry in Australia is such a wide are of study that requires more research to ascertain the full extent of the adoption. This thirst to know more about the field is what leads to the research question below

Research Methodology

There are two research methods applicable in carrying out studies; qualitative research and quantitative research. This method of study is applied in the quantification of a problem by means of coming up with numbers, or data that can be manipulated and used for statistical purposes. Quantitative research measures opinions, attitudes, behavior and any other variables that are defined. The sample population in a quantitative study is generally large (Rutberg & Bouikidis, 2018). Quantitative research makes use of quantifiable data to generate patterns and formulate facts in the study. Many times quantitative research follows after a qualitative study.

Qualitative Research

Qualitative research is largely an exploratory or expository study. It is instrumental in gathering vital information regarding underpinning reasons, motivations and opinions in social sciences. It provides a precursor and gives direction in the formulation of possible hypotheses and gives insight into the research problem (Malterud, Hamberg, & Reventlow, 2017). Qualitative research is applied to discover patterns in opinions and thought. The sample size in a qualitative study tends to be typically small. Qualitative studies lay the foundation for a possible quantitative study

This research will majorly employ the use of the quantitative research in solving the research question. This is because the study intends to compare the impacts that the use of design thinking has had on the profitability of four selected Australian banks. The paper will then compare the competitive advantages of the 4 banks in determining the level of success of design thinking in each firm.

Data Collection

The study shall make use of quantitative data collection methods.  Quantitative data deals with quantities, for example how much money was spent on innovation of products and services by a bank. It is given in numerical form as values, quantities or numbers making it quantifiable and measurable (Rutberg & Bouikidis, 2018). For instance when determining the differences in profitability margin that accrued to different banks owing to implementation of design thinking, the variable to be measured is profits which is quantified in terms of money (currency).  The study will engage closed ended questionnaires as the major quantitative method of data collection. Finance managers will fill these, and other mangers involved.

The questionnaires will seek the opinions of the business executive on the application and success of the design thinking approaches that were used in their respective firms. The questionnaires shall also seek to determine the challenges that the banks experienced in implementing the approach to and to what extent. The questionnaires shall make provision for the said persons to provide figures representative of their profit margins and competitive advantage over the financial year of implementing design thinking as compared to the preceding financial year to help the study to quantity the results.

Data Analysis

The analysis of quantitative data is interesting in the sense that it provides quantifiable and objective results that are easy to interpret. Following a quantitative analysis it is possible to then come up with generalizations that can be applied across the larger population giving the research results the characteristic of reproducibility (Goertzen 2017). The researcher anticipates that the study will analyze the data collected on the profit margins realized by the four selected companies. The researcher will use percentages to express the performance of the banks (in terms of profit margins) realized before and in the financial years immediately after the implementation of the design thinking approach. The paper shall determine the percentage changes (increase or decrease) and then calculate the obtaining profit margins for every bank.

The maximum and the minimum values (in terms of profits) registered by each bank will be recorded. After that, the researcher will determine the average (mean) increase in profitability of the 4 banks that used the design thinking approach. This figure can be extrapolated on the general banking sector and will be adopted as the potential change in profitability margin that banks could achieve by using the design thinking approach (Lee & Cherney (2018).

Using correlation analysis a relationship will be established between the two variables; the profitability of banks and the design thinking approaches. The correlation if found shall be used to indicate the relationship which can then be quantified as weak to strong or negative to positive (Goertzen, 2017). This will also help to predict the statistical significance of the two variables. The research will also apply the regression analysis in order to determine if one variable (design thinking) is a predictor of the other variable (profitability). A regression analysis is similar to correlation in the sense that in both methods of analysis, causation cannot be inferred. (Lee & Cherney, 2018).

Organization of the Study

This research paper has brought a very core issue to the fore. Banks and business organizations in general must respond to the consumer needs. Times have moved beyond the days when financial institutions consulted within themselves when coming up with products and services for their markets. In this day and age, banks must begin to think and see things though the perspective of their clients. Design thinking provides a roadmap for that. This far, design thinking has aided banks in Australia to deal with decongestion in banking halls, initiate faster loan applications and processing and innovate mobile banking services. The researcher opines that design thinking still portends a lot more for the Australian banks and warns industry players who are not yet on board with its implementation that they run the risk of being overtaken by progress.

Research Budget and Budget Justification

Gantt chart

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