The effect of risk management on new product development - a case study of the retail banking environment.

Abstract

The financial services industry in South Africa is considered to be mature, and the relative monopoly that the big five local banks have makes it difficult for new entrants to gain access to Retail Banking operations. Despite this, the existing banks have adopted aggressive customer acquisition drives which are supported by competitive pricing strategies and innovative product offerings to influence and steer customer choice in selecting their primary bank. Introducing new products to the market provides Retail Banks with a sustainable competitive advantage and solid growths, but when these new products fail to launch successfully or provide the required return-on-investment, financial losses and revenue leakage occur and this exposes the organisation to reputational risk. International competition, macro-factors, rapidly changing technology as well as macro factors and increased customer expectations have further added to the complexity of New Product Development (NPD). This Retail Banking environment is also subject to strict governance and regulatory requirements that drive the need for effective risk management practices across all activities. For purposes of this study, 101 participants from FNB Consumer (which is the Retail Banking arm of First National Bank, a division of the FirstRand Group Limited) were selected in order to understand the effect risk management has on New Product Development in a Retail Banking environment. The study concludes that a relationship does exist between NPD and risk management, and that risk management ultimately supports the achievement of NPD objectives. The study raises concerns around the time and effort spent on NPD, the flexibility of risk management practices, as well as the differences in perceptions the respondents have on NPD - based on their roles as part of the NPD process. These concerns have a direct impact on the effect risk management has on NPD and, as such, recommendations have been made.