Incumbent response strategies to disruptive innovation in the South African banking industry

Abstract

In the South African banking industry, five major banks have collectively maintained a 90% market share across retail and wholesale banking; however, new entrants are emerging with disruptive innovations that threaten the incumbents’ dominance. The purpose of this study is to explore how these established firms perceive the threat of disruption and respond with their own strategies. It also aims to discover what factors influence these strategies, to understand why one strategy may take priority over another. The study investigates the problem statement posed by disruptive innovation theory, which is the potential failure of incumbent firms to respond appropriately to disruptive innovation. Findings have been assessed against a framework combining two theories and their extensions: disruptive innovation theory and response strategy theory. From the population of incumbent banks in South Africa, the top five in terms of assets held were included in the sample. To ensure informed insights, purposive sampling was used to identify four participants from each firm who could comment authoritatively on the topics under consideration. The study employed a qualitative methodology, leveraging semi-structured interviews to gather primary data from participants. Supplementary secondary data was used to support findings where required. Findings of this research include that disruption is occurring within this industry and to a high enough degree that incumbents have acknowledged disruptors and the threat of disruption. It is specifically found to be in the middle stage of the process of disruption, whereby the disruptive innovations are no longer insignificant, and are growing in performance and in presence across the industry; however, they are not considered to have penetrated incumbents’ mainstream market yet. In response to this, incumbents have prioritised at least one, and a maximum of two, response strategies out of a possible five that are dominant in this industry. The research also identified 16 factors that fall into two categories, motivation and ability to respond, which influence the prioritisation of response strategies. These insights may be used to inform theory around incumbent responses to disruptive innovation, with extensions towards the banking industry. It also has the potential to support incumbents in understanding and modifying their strategies to maximise their response to disruption