Elsevier

Long Range Planning

Volume 34, Issue 2, April 2001, Pages 231-247
Long Range Planning

Clicks vs. Bricks in the Emerging Online Financial Services Industry

https://doi.org/10.1016/S0024-6301(01)00030-9Get rights and content

Abstract

The emergence of electronic commerce raises important questions about the building and leveraging of legitimacy for both practitioners and scholars of strategy. New entrants' click-and-mortar or click-and-click business models are challenging the legitimacy of large and mature brick-and-mortar incumbents. The implications of this challenge for the financial services industry—as for many other industries—are only starting to become clear. This article contributes to these initial understandings by developing a conceptual framework that considers which e-strategies ‘bricks’ (incumbent organisations such as ABN AMRO bank and Prudential Banking) and ‘clicks’ (new entrants such as KPN and First-e) adopt to improve their competitiveness. Four relevant organisational types in the emerging online financial services industry are identified, and ties to legitimacy-providing organisations are assessed for their potential both as buffers against environmental turbulence and bridges towards changing stakeholder perspectives.

Introduction

The convergence of e-commerce technologies based on Internet standards is causing a fundamental shift in the way businesses operate. New markets are being created, industry boundaries blurred and product meanings redefined. Established incumbents—‘bricks and mortar’ companies—are finding themselves confronted with new business opportunities in a virtual marketspace of dynamically developing information interactions, as opposed to a marketplace of physical resources and institutionalised interactions.1 New e-commerce industries are emerging in which bricks-and-mortar incumbents compete with new entrants using new business models—be they ‘clicks and mortar’ or ‘clicks and clicks’ companies.

To be successful in an emerging e-commerce industry, ‘bricks’ (incumbents in the marketplace) and ‘clicks’ (entrants in the Internet marketspace) have to clear some liabilities that hold them back. As organisational age is often associated with the inability to change, bricks suffer from the liability of age (oldness), tending to develop only to the limit of their adaptive competence. Clicks, on the on the other hand, suffer from the liability of youth (newness), where, as in the natural world, any developing life form is at its weakest at the point of birth. Which liability will lay the heaviest burden, offering bricks or clicks the ability to gain the upper hand? Can either outperform the other? Or will cooperation between both parties be the key to success? This article addresses these questions by developing a simple conceptual framework describing how new entrants and incumbents in the financial services industry influence each other and can evolve reciprocally—co-evolve—to create the future online financial services industry.

The strategic interactions between Amazon.com and Barnes and Noble Inc. in the book selling industry provide a vivid illustration of the co-evolutionary perspective2 on the entrant-incumbent dynamic. In 1995 Amazon.com's customer-centric click strategy allowed it to develop a customer base that now exceeds 25 million people, taking bricks-and-mortar Barnes and Noble by surprise. Responding to Amazon.com's disruptive strategy, Barnes and Noble spun off a click subsidiary (Bn.com), and formed a partnership with the Internet portal Yahoo Inc. to be its featured book seller. This strategic move enabled Barnes and Noble to reap the fruits of bricks and clicks synergies, returning pressure on Amazon.com, which now not only faces the challenge of reasserting its customer-centric lead as a click, but also of yielding profits on the scale of its brick counterparts.

Section snippets

The emerging online financial services industry

There are several reasons for focusing on the emergence of an online financial services industry. Banking and insurance are mature industries, long subject to strong institutional control, and traditionally protected by high entry barriers.3 However, they now find themselves facing increasing environmental turbulence.

  • Deregulation and the increasing importance of ICT (information and communication technology) are removing entry barriers.4

  • Regulatory approval is speedier and more certain, and the

A conceptual framework

Figure 1 depicts a conceptual framework of basic legitimacy building and leveraging13 strategies employed by bricks and clicks in the emerging online financial services industry. ‘Bricks’ in this framework are defined as large and mature players in the traditional financial services industry, such as ABN AMRO Bank and Prudential.

Three generic types of clicks are identified:

  • Complementary clicks are existing players in industries external to financial services who form partnerships, alliances or

Co-evolutionary perspectives

For most of their history, banks have been trustworthy parties, with a ‘taken for granted’ legitimacy.16 As incumbent organisations, they have been considered structurally legitimate, with structures and procedures that serve as easily monitored proxies for less visible evaluation targets such as strategies, goals and outcomes.17 The status of big banks as ‘too big to fail’ (with, in some cases, weak incentives to be aggressive) has resulted in the largest banks exerting a unique influence on

Buffering and bridging: levers of a dynamic strategy

As individuals who span the boundaries of organisations, managers serve two roles:30 to buffer, or protect, a firm from the external environment, and to bridge, or link the firm with its key stakeholders. Essentially, buffering strategies enable an organisation to temporarily seal off its core rationale from environmental turbulence, allowing it to maintain certain norms of rationality while developing bridging strategies.31 Bridging strategies aim to ensure the success of the entire

Clicks: overcoming the liability of youth

A viable entry strategy is likely to be directed towards revolutionary, disruptive change of the industry environment. This is especially true for brand new entrant clicks (type 4), but also for autonomous clicks (type 3), as demonstrated by the start up Egg, which offers an unprecedented customer-centric focus combined with cut-throat interest rates on savings accounts.15 However, in embarking on a new line of activity, particularly one with few precedents, entrants face the daunting task of

Bricks: overcoming the liability of age

One of the first and most widely adopted steps of incumbents in the marketspace has been the comprehensive installation of automated teller machine (ATM) networks. However, this was not a strategically aligned step, as the CEO of Wells Fargo admits: “over the past decades banking technology has preceded a change in customer habits, in many cases solutions preceding demand, like ATMs installed before widespread consumer acceptance. And over time banking technology has actually disconnected the

Insights from a co-evolutionary perspective on emerging e-commerce industries

A simplistic interpretation of the current developments in the emerging online financial services industry as cut-throat competition between incumbent bricks and new entrant clicks is not helpful for an understanding of how to leverage brick legitimacy and build click legitimacy. Many incumbents may think that the industry in which they are operating has become their exclusive property. Likewise, many new entrants may think that they will ultimately prevail for the simple reason that incumbents

Acknowledgements

We are grateful to Charles Galunic, the editor and the referees of LRP for their valuable comments on earlier versions of this article. We also wish to thank Jonathon Morgan for his stylistic advice. This research was funded by the Erasmus Research Institute of Management (ERIM).

Manuel Hensmans is a Ph.D. student at the Rotterdam School of Management, Erasmus University Rotterdam. He previosuly worked as a commercial analyst at Caterpillar Belgium and as an e-commerce consultant at the Free University of Brussels. Erasmus University Rotterdam, Rotterdam School of Management, PO Box 1738, 3000 DR Rotterdam, The Netherlands. E-mail: [email protected]

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  • Cited by (0)

    Manuel Hensmans is a Ph.D. student at the Rotterdam School of Management, Erasmus University Rotterdam. He previosuly worked as a commercial analyst at Caterpillar Belgium and as an e-commerce consultant at the Free University of Brussels. Erasmus University Rotterdam, Rotterdam School of Management, PO Box 1738, 3000 DR Rotterdam, The Netherlands. E-mail: [email protected]

    Frans A. J. van den Bosch is Professor of Management at the Rotterdam School of Management, Erasmus University Rotterdam. He is a co-director of the Erasmus Strategic Renewal Centre at Erasmus University.

    Henk W. Volberda is Professor of Strategic Management and Business Policy at the Rotterdam School of Management, Erasmus University Rotterdam. He is co-director of the Erasmus Strategic Renewal Centre at Erasmus University.

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