Market Power is defined as the capacity of an organisation to increase its
prices without losing all its Clients. In banks, as in other business organisations,
Market Power can take two forms: differentiation of products and services, or
ease of search. There is a trade-off between differentiation and loss of legitimacy
which is optimised at a strategic balance point. Likewise, there is a trade-off
between ease of search and security that must be taken into account.
This theory categorises ICT investments into Market-Power driven initiatives,
and non-Market-Power driven ones. Prominent among the non-Market-Power
ICT investments are the efficiency-driven initiatives. A corollary of this theory is
that banks that adopt a customer intimacy or a product leadership value discipline
will not convert efficiency-driven ICT investments into shareholder value.
This theory categorises banks according to the value discipline they adopt.
Another corollary of this theory is that only banks that adopt an operational
excellence value discipline have a chance of converting efficiency-driven ICT
investments into shareholder value.
Finally, it is important to understand the value building chain that underpins this
theory. As an illustration, I shall take, for example, the case of a customer
intimacy bank in relation to its corporate Clients. The bank uses ICT investments
to build market power through differentiation or ease of search. This allows it to
add value to its Clients that its competitors cannot imitate. This enables the bank
to position itself as its Clients’ primary bank (i.e., its Clients will work with other
banks, as do most businesses, but the bank of our example will support the
Clients’ critical processes and take the largest share-of-wallet). Becoming its
Clients’ primary bank enables the bank to increase profitability per Client, which
in turn leads to increasing profitability per share,...