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4.1.2 Levers of the Digital Age

The fundamental paradigmatic change from the industrial to the digital age (Koye 2005, S. 5 ff.) has placed great long-term pressure on the successful position of many industries, including banks, and at the same time, while at the same time presenting opportunities to develop new potential.

The transformation process began at the beginning of the 1990s—with the attainment of the critical mass of users of the internet (Koye 2005, p. 13 ff.)—

Fig. 4.1 Kondratieff cycles (Source Koye 2005, p. 24)

and has now reached the concepts of Web 2.0 and Web 3.0.[1] The internet has not only made it possible to present comprehensive information to a wide audience simultaneously, but also to link users to each other with their respective communication needs. During the industrial age it was possible only to reach a broad public with one general message—for example through television advertising—or else only to reach a limited public with deeper information—such as in a telephone conversation, a letter or a meeting. The internet suspends the previous limits on information and at the same time enables all connected users to have access to the same comprehensive information at the same time, to communicate, and furthermore to follow new paths in analysing digital user behaviour (digital footprint). The information advantage held by previous information intermediaries—such as banks—is being eroded (Evans and Wurster 1998, p. 52).

In the digital age the competitive advantage gained through technological advances erodes within months. On the other hand, customers expect their providers to adopt current technological innovations immediately.

Therefore, technology-based competitive differentiation is hardly possible anymore. This dynamic enables the customer step-by-step to achieve access to and feedback from information about the entire spectrum of offers in real time. The consequences, respectively challenges, are expectations of better service, greater price transparency and lower prices. The benefit, from the customer's point of view,

Fig. 4.2 Company structures in the industrial and information society (Source Nefiodow 1999,p. 2)

decides the success rate of each individual bank. Forms of management and cooperation are becoming more vertical; speed and prototyping are increasingly decisive success factors. Figure 4.2 shows a comparison of the most important aspects of the industrial and information society with regard to organisations:

In the industrial age, the most prevalent form of organisation was a hierarchical division of labour with little interlinking. The distribution of power and influence, as well as the work processes, were clearly regulated. In the digital age, the previous hierarchy is being replaced by networked forms of organisation in which the individual members complete their partial processes for the most part independently, and contribute these to the network—thus enabling more efficient price/ performance configurations. Increasingly, knowledge and ability are decisive when it comes to influence and power. Previous positions of success are being replaced to the same degree as the previous structures for providing the price/performance configuration.

While it remains the case in the digital age that effective delivery is absolutely necessary, the entire value chain for information-based products can be processed electronically. Furthermore, customers inform themselves thoroughly online and question the price/performance configurations of providers very closely. The possibilities provided by information technology mean that customers are exerting an ever more active influence and pay only for those services that can give them an added value that they cannot themselves provide. A veritable “collapse in time and distance” is taking place (Geiger 1999, p. 1). Information technology is the cause of this collapse—it has become the key design factor for business models.

Thus network systems are replacing top-down hierarchies. They are referred to as critical mass systems, because they prevail in the market only when they have attained a certain number of users (Weiber 1992, p. 19). Three effects are connected to the critical mass systems (Koye 2005, p. 35):

1. Benefit of the installed basis: the number of persons connected to the network is known as the installed basis. The benefit to each participant and the willingness to adapt on the part of customers grows in line with the size of the installed basis. Examples include Facebook or Twitter as social media applications, which become more interesting for each individual user, the more users there are overall.

2. Juncture of diffusion development: if the installed basis is too small, the system is threatened with failure due to lack of interaction. If a minimum number is reached, however, it is likely that the system will continue to be used, thus securing long-term market success. Attaining the critical mass becomes the so-called juncture of diffusion development. Until the critical mass is achieved the system goes through an unstable phase, with the danger of an absence of market success. Once critical mass has been reached, on the other hand, the installed basis has a diffusion-promoting influence, leading to a phase of stability with probable market success. This influence is also known as positive feedback (Shapiro and Varian 1999).

3. Positive and negative feedback: Critical mass systems are shaped additionally by the expectations of the users, which lead to feedback. The more positive the expectation of a potential customer with regard to the willingness of other potential customers to participate in the installed basis, the more likely it is that he or she will also be willing to join. Thus the installed basis plays an important role in his or her decision. At the beginning of the diffusion, therefore, more negative feedback is to be expected, becoming more exponentially positive with progressive development. After reaching the critical mass, this inherent self-reinforcing process eases a chain reaction with very likely market success (Weiber 1992).

Sooner or later all sectors—thus also banking—must address these developments as the basis of future-viable business models.

  • [1] The term Web 2.0 describes the altered use of the internet and emerged with the strong growth of community sites at the middle of the last decade. Web 2.0 offers not only the mere dissemination of information or product sales, but also enables the participation of the user, which leads to the generation of additional benefits (Gabler Wirtschaftslexikon 2013). Web 3.0 is based on the semantic web. The information on the internet can be ascribed with clear meanings, which allows the mechanical processing of the information gathered on the internet, leading to more efficient search engines and the generation of new web services (Wikipedia 2013; Swisscom 2013)
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