Pursuing Radical Innovation in the Financial Sector: Case Study of Six Established Financial Organisations
Pesonen, Riiko (2025)
2025
Tuotantotalouden DI-ohjelma - Master's Programme in Industrial Engineering and Management
Johtamisen ja talouden tiedekunta - Faculty of Management and Business
Hyväksymispäivämäärä
2025-05-12
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tuni-202505095170
https://urn.fi/URN:NBN:fi:tuni-202505095170
Tiivistelmä
Over the past two decades, the financial sector has become increasingly dynamic and competitive as a result of new legislation and the emergence of new players. Together with digitalisation and changing customer expectations, this change has created a situation in which it is increasingly difficult for traditional banks to remain competitive. To meet the challenges of this change, many traditional financial institutions have embraced organisational ambidexterity by setting up dedicated innovation units to undertake more exploratory initiatives and prepare the organisation for disruptive change. Despite their popularity, very little research has been done on innovation units and the challenges of innovation in the financial sector.
In order to address this research gap, this thesis examines the role of innovation units in the pursuit of radical innovation in the financial sector, with a particular focus on the barriers to innovation, the organisational structures chosen, and the factors that influence the scaling and integration of innovations. The research was conducted as a multi-case study, with six traditional banks from different countries as case organisations.
The study reveals that the pursuit of radical innovation in the financial sector is hampered by regulatory constraints, risk aversion, inertia caused by legacy IT systems, a lack of sense of urgency and the adoption of a fast-follower strategy. The study also shows that, despite the organisational structure chosen, there is very little variation in the activities included in the innovation units and that the innovation units are used to support the innovation activities of the organisation rather than to conceive purely new and radical business models and products. This supporting role of the innovation units means that the parent organisation is involved in the development of new projects at a very early stage, which in turn reduces the radicality of the innovations developed. This is partly due to the protectionist behaviour of the parent organisation towards the existing business and the lack of resources in the innovation units, which in turn reduces the unit's ability to develop these initiatives independently.
These findings contribute to the limited literature on innovation management in the financial sector by introducing the lack of urgency and the fast-follower strategy as new barriers to innovation, and by suggesting that a degree of duality regarding exploration and exploitation exists even in structurally separated innovation units. Tight coupling and co-development practices between units prioritise exploitation and the pursuit of incremental innovation, such as efficiency gains, over exploration.
In order to address this research gap, this thesis examines the role of innovation units in the pursuit of radical innovation in the financial sector, with a particular focus on the barriers to innovation, the organisational structures chosen, and the factors that influence the scaling and integration of innovations. The research was conducted as a multi-case study, with six traditional banks from different countries as case organisations.
The study reveals that the pursuit of radical innovation in the financial sector is hampered by regulatory constraints, risk aversion, inertia caused by legacy IT systems, a lack of sense of urgency and the adoption of a fast-follower strategy. The study also shows that, despite the organisational structure chosen, there is very little variation in the activities included in the innovation units and that the innovation units are used to support the innovation activities of the organisation rather than to conceive purely new and radical business models and products. This supporting role of the innovation units means that the parent organisation is involved in the development of new projects at a very early stage, which in turn reduces the radicality of the innovations developed. This is partly due to the protectionist behaviour of the parent organisation towards the existing business and the lack of resources in the innovation units, which in turn reduces the unit's ability to develop these initiatives independently.
These findings contribute to the limited literature on innovation management in the financial sector by introducing the lack of urgency and the fast-follower strategy as new barriers to innovation, and by suggesting that a degree of duality regarding exploration and exploitation exists even in structurally separated innovation units. Tight coupling and co-development practices between units prioritise exploitation and the pursuit of incremental innovation, such as efficiency gains, over exploration.