Technological change and the productivity paradox: The management of new technologies in UK retail banks

Abstract

Successful implementation of new technologies is necessary for survival in today's increasingly competitive banking environment. The banking sector is now the UK's largest investor in new technology. As a result of de-regulation and new technological opportunities, the dominant market position of the traditional banks is under threat from new market entrants. Such organisations are harnessing the latest technology to develop their services, and are not constrained by the costs of running national branch networks and integrating a diverse historical legacy of incompatible computer systems.

This thesis addresses the question of why the massive investment by UK retail banks in information technology is not being translated into significant productivity gains. The issue is referred to in the literature as the IT productivity paradox. It will be argued that the importance of the banks to the economy as a whole, and the position of the industry as the UK's largest investor in new technology, make it a particularly suitable arena in which to study this phenomenon.

Six empirical case studies of recent new technology projects are analysed by the development of grounded theory. The findings indicate that dysfunctional organisational structures and cultures, together with poor management of expertise, combine to sabotage change and constrain the potential of new technology projects. Most significantly, a lack of organisational learning is contributing to the paradox. Even successful projects had limited impact because the lessons learned were not disseminated throughout the organisation. The study concludes that the full potential offered by information technology will continue to elude the banks until their apparently complacent attitude towards organisational change is addressed.