Banking technology, technological learning and competition: comparative case studies in Thai banking.

SUMMARY

This paper focuses on the five major commercial banks in Thailand (Bangkok Bank, Siam Commercial Bank, Thai Farmers Bank (Kasikorn Bank), Krung Thai Bank and Bank of Ayudhya) with regard to strategies in competition in the banking industry. The paper analyses strategy and the adoption of technology against progress of the banking economy. Over the past few decades, the Thai banking structure has changed from mass automation towards smart automation. Improvements in information and communications technology enable the banking community to launch new types of financial services like electronic banking services and mobile banking services. The study explores the ways the banks improve their technological capabilities (their technological learning process to improve the technological capabilities) and the use of technology strategy in the banking sector. The results show that technological innovation in the banking sector of Thailand is not revolutionary but evolutionary.

KEYWORDS

technological learning; technological change; evolutionary changes; mass automation; smart automation; banking case studies; Thailand banking

1. INTRODUCTION

Changes in technology have expanded the scope of operation, competition and the use of strategy in the competitive marketplace. Thai banking has been increasingly challenged by a high degree of IT adoption since IT plays an important role in improving the performance of the banking business. This paper is focused on studying the technological capabilities of Thai banking and the learning process to accumulate technological capabilities. The study will use the case of Thai banking to test the concepts of technological learning and the technological regime of Buzzacchi et al. (1993). (The definition of 'technological regimes' according to Buzzacchi et al. is in Section 2.3.) As most studies of technological change have been concerned with the manufacturing sector, and few with service organisations, this study's focus on the banking sector would address a gap in the services area.

The study uses a case study methodology to examine the technological capabilities of Thai banking. The case studies of Thai banks (banking in a developing country) are used to test the model of Buzzacchi et al., arguing that there is a weak evolutionary link between the mass automation and smart automation regimes causing the stock of knowledge and skills used in the first to be unusable in the subsequent regime. Following the introductory section, Section 2 reviews the concepts of learning and technological change including a critical examination of Buzzacchi et al.'s model. The theoretical framework on technological accumulation leading to capabilities provides a basis for the analysis and evaluation in Section 4. Section 3 provides an overview of Thai banking as a background for understanding the process of creating technological capabilities in Thai banks. Section 4 presents the analysis of findings of 5 major commercial banks--the Bangkok Bank (BBL), the Krung Thai Bank (KTB), the Thai Farmers Bank (Kasikorn Bank--TFB), the Siam Commercial Bank (SCB) and the Bank of Ayudhya (BAY). The conclusion section draws together the theoretical issues and empirical findings on learning for technological capabilities. Possible avenues for further research on innovation management are suggested.

2. THEORETICAL FRAMEWORK

2.1 Conceptualising technological learning process

In the literature concerned with the concepts of technological learning, Cohen and Levinthal (1990); Amsden and Hikino (1993) view learning as the acquisition of knowledge from outside sources. Adler and Clark (1991) and Bessant and Buckingham (1993) view learning as any activity leading to incremental improvement (learning curve improvement). According to Rosenberg (1982), Malerba (1992) and Von Hippel and Tyre (1995), the concept of learning is defined as an integrated process of knowledge acquisition which ultimately enhances the stock of knowledge. However, the concept of learning argued by Dosi and Freeman (1994) is broad since it covers any type of technical change plus the acquisition of any type of knowledge. In this study, the third concept will be used since it shows how the learning process enhances the stock of knowledge.

Bell and Scott-Kemmis (1985) argue that the process of technological learning concerns the mechanisms and processes which bring about changes in the innovation system. The concept of learning put forward by Lall (1982) comprises the elementary, intermediate, and advanced forms. Elementary learning includes basic learning like learning by doing (Arrow 1962; Von Hippel and Tyre 1995). Intermediate learning includes processes undertaken to achieve incremental adaptations and improvements, like learning by training. Lall refers to advanced learning as the skills and know-how required for carrying out major technological adaptations in both product and process technology, like learning by searching (Nelson and Winter 1982; Bell 1984; Dosi 1988). Nevertheless, there are problems in classifying the degree of increased improvement which some scholars, like Freeman and Perez (1988), have tried to do (a taxonomy of innovations).

The learning mechanisms lead on to the progress of technological improvement. Bell (1984), Malerba (1992) and Hobday (1995) develop an argument that learning requires resources and is thus a rather costly process. At the level of low resource allocation, the learning mechanism includes the neoclassical notion of learning by doing (Arrow 1962)--a problem-solving process usually plugged into a production function. Lall (1994), Von Hippel and Tyre (1995) and Von Tunzelmann (1995) also view this type of learning as a process of trial and error and problem-solving. This is in accordance with Rosenberg's view of learning by using, which seems to be a series of minor improvements (Rosenberg 1982). Bell argues that improvement in productivity--as represented by learning curve improvement--may have nothing to do with an increase in skill and knowledge. Nevertheless, this type of learning has involved some element of tacit knowledge since it is tied to the usage or activation of codified knowledge. Tacit knowledge is a key feature of technological accumulation since a large part of technology is embodied in people and institutions and such knowledge is not easily transferred (Bell and Pavitt 1993; Howells 1996; Mansel and Wehn 1998).

Taking into account the level of greater resource allocation, learning mechanisms include system learning, learning by training, learning by searching and learning by hiring (Bell 1984). They are channels calling for intellectual engagement, rather than repetition like doing-based learning. Underlying the technological progress are firms' strategies in problem-solving improvements. However, the capacity to absorb knowledge together with the ability to recognise, assimilate and use external competencies with a view to incorporating them into internal development seems to be more difficult, particularly in the sense of how to internalise knowledge (absorptive capacity) under certain market conditions. The development of new competencies cannot be assured through learning mechanisms because learning channels are difficult to incorporate and technologies are product-specific (Von Tunzelmann 1995).

2.2 Learning mechanisms and accumulation of technological capabilities

Teece and Pisano (1994)'s account of the capabilities emphasises the key of strategic management in adapting, integrating, and re-configurating internal and external organisational skills and resources in a changing environment. Technological capability is defined differently in the literature review. For example, Dahlman and Westphal (1982) define it as having the technical knowledge necessary to carry out production engineering projects, and create new technology. Lall (1987) defines it as the general ability to undertake a broad range of tasks in the setting up, operating, improving and expanding of production facilities. A wider notion is held by Bell and Pavitt (1993), the resources needed to generate and manage technical change, including the skills, knowledge and experience, institutional structures and linkages.

The level of firm's technological capabilities is classified into 3 parts: investment capabilities, production capabilities and linkages capabilities (Lall 1994). Lall argues that the basic core of functions in each major category has to be internalized by the firm to ensure successful commercial operation. This is in accordance with Bell and Scott-Kemmis's (1985) view that certain core technological capabilities should be built within and by firms, i.e. they should have the ability to make the necessary adaptations to induce a new generation of technology. Clearly, technological capabilities have their roots in various processes set up by the firm's own efforts and are conditioned by the firm's learning approach.