A Service Science Perspective on Strategic Choice, IT, and Performance in U.S. Banking

With the move to an information-based economy, financial services has become a key contributor to the U.S. gross domestic product. Even as consolidation reduces the number of banks, small banks with under $100 million in assets continue to report higher profit margins than large banks with over $100 million in assets. Lacking scale, small banks employ a service-oriented business strategy (customer intimacy), whereas large banks focus on productivity and throughput (operational excellence). Information technology (IT) plays a key role in applying each strategy, but as banks move toward customer intimacy in general, the challenge is to grow without undermining service quality. Using a balanced panel data set from 43 U.S. banks, this paper finds that banking strategies are becoming more customer focused. Yet for large banks in particular, IT remains resolutely operations focused. This misalignment could restrict future banking performance. In this way, this paper contributes to the service science literature by using size to dissect banking strategies and performance.