A Proposal for a Standard With Innovation Management System

Claudia Gabriela Baicu, Olimpia State and Mariana Iatagan
Adams (2006) provides the definition of service innovation: “Service innovation is a combination of:
technological innovation; innovative business model; the social organizational innovation, and
innovation demand aiming at improving existing service systems [incremental innovation], or creating
a new value proposition [new types of offerings], or creating new service systems [radical innovation]“.
According to Drucker (1993), innovation should be seen and implemented as an opportunity to
materialize into a product or service different from the existing one. Moreover, innovation is an idea,
practice, process or product that transforms an idea proposed as a solution in an application that is
perceived as new by an individual.
Innovation can be classified into four main types: product innovation, process innovation,
organizational innovation and marketing innovation (OECD 2005 pp. 49-52).
To define the financial innovation, the specialty literature starts from the elements that make up the
financial system, namely institutions, markets, mechanisms, products, services and regulations that
provide the transfer of the funds from savers to borrowers. Starting from this premise, the financial
innovations refer to the novelties brought to the elements that are included in the financial system:
new financial institutions, markets, mechanisms, products and services. Like in other areas, financial
innovations do not necessarily mean new institutions, markets, mechanisms, products and services
but they are assimilated to the changes that are made to the already existent elements (incremental
innovation). Their purpose is to raise efficiency and improve services to customers The grounds for
the financial innovations are the permanent mutations happening in the economic and financial
environment. Therefore, the innovation process in the financial field is a permanent process (see for
example Negrus, 2008; Casu, Girardone and Molyneux, 2006; Frame and White, 2002).
Like in other areas, financial innovation could be categorised in radical innovation and incremental
innovation. The type of innovation – radical innovation or incremental innovation - in financial system,
strongly depends on the financial sector in which it happens. For example, as underlined in KPMG
LLP (2007), the retail banking innovation focuses mainly on new ways, modalities of doing business
rather than on radical new products. Generally, the new retail products are incremental developments
of the basic existent products such as loans or savings. In this context, on-line banking transactions, a
new customer delivery channel, are one of the most important process innovations of recent years.
One explanation of the fact that retail banks are poor in developing of radical new products is the
pressure from regulators’ part. On the other hand, other financial sectors, such as investment
banking, are characterised by “constant, creative product innovation” (p. 9) (for example, derivatives
and structured finance products in recent years).
Llewellyn (1992) underlines some points of commonality as well as some differences between
financial innovations and other kinds of innovations. The increase of efficiency and competitiveness is
identified as the reason of innovation both in the financial area, and other fields. Nevertheless, there
are three fundamental differences between the financial innovations and the innovations in other
sectors: (1) unlike many industries, the research costs for creating new products are relatively small in
the financial area; (2) since there is no invention patent, the financial innovations are easy to copy and
(3) the financial innovations are strongly influenced by regulations. Lerner and Tufano (2011) highlight
what is challenging (and different) about financial innovations. Apart from the complex and dynamic
role plaid by regulation in creating of new financial products and services, in the authors’ view
assessing the social consequences of financial innovations is one challenge of innovation in financial
sector. Besides, the above-cited work suggests that the consequences of financial innovations might
change over time.
Unlike firms operating in other areas, banks were traditionally subject to a strict control. The reasons
that justify this control are related to the fact that banks operate with funds of depositors who must be
protected against loss and failures of banks. Besides, the failure of a bank might destabilise the entire
banking sector, with negative impact on financial stability and real economy. Another reason
underlined by the specialty literature is the necessity to prevent monopolies in banking sector. From
historical perspective, an important moment in establishing the rules for banking activity was the
Great Depression. The dramatic consequences of the 1929-1933 crisis determined authorities of
those times to subject banks to a strict regulations. Moreover, in the Unites States and Italy a strict
separation between commercial banks and investment banks was realised. However, since the
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