A study found that banks in Liechtenstein need one thing in particular to digitize successfully: Entrepreneurial Orientation. What that means and why it’s so important.
How is digitalization going to happen? Everyone speaks about the need to digitize; everyone understands it. Nobody says we don’t need digital tools. But then how is it going to happen, and who is going to drive it.
The government undoubtedly plays a key role, but it can only create the framework for private businesses to come up with digital initiatives. In itself, governments won’t be the driver of digitalization; they have a support function. And some play that role better than others. Liechtenstein’s government has demonstrated quite some determination with new laws like the Blockchain Act and the establishment of Fintech think tanks and knowledge hubs. In the end, however, innovation will have to come out of the private sector.
Big businesses and startups
There are primarily two kinds of businesses that are currently driving digital innovations: Big corporations and startups. Big corporations have many advantages: They have big budgets, a vast armada of experts, and they are connected to top scientists and other businesses. But they also have a disadvantage: Usually, they are slower and less agile, as new projects need to go through many instances before they get approvals. Startups are the opposite: They are faster and more agile, but they usually have fewer funds, and they are not as well connected.
No matter if big or small business, one aspect is crucial: entrepreneurial orientation and risk-taking. That resulted from a study by Prof. Dr. Dr. Sascha Kraus and Dr. Thomas Niemand from the Institute for Entrepreneurship at the University of Liechtenstein combined with scientists from Innsbruck and Utrecht. The scientists looked at what is needed the most to successfully drive digital projects in banks in Liechtenstein and the larger German-speaking area.
Entrepreneurial Orientation and risk-taking
Entrepreneurial Orientation (“EO”) describes an entrepreneurial concept whereby individuals are driven by proactive actions and a strong will to innovate, and a willingness to take risks. More than 100 banks took part in the study. The results showed that the higher the EO in an organization, the more likely digitization projects would be successful.
The scientists write, “If the strategic vision harmonizes with the entrepreneurial skills of a bank to activate new services, banks can be successful in the long run. That means, the key success factor for banks to gain a competitive advantage through new digital opportunities is their entrepreneurial orientation.”
That also explains why startups are often more likely to succeed in digital innovation despite their lack of budgets and connections. Startups usually have a strong entrepreneurial orientation. That said, the way forward for big business would thus be to strengthen the EO in their organizations, to invective staff to come up with their own ideas, and to create a culture in which innovative and entrepreneurial thinking is rewarded.