The Smart Cube Financial Services Survey : Implications of The Credit Crunch

June 3, 2008 7:30 am : Comments 000

Listen or read any news site or publication over the last several months and talk of the economy is never far behind. Recession or no recession, individuals and corporations alike are clearly acting as if we are in one. Housing figures are flat to declining; oil is at an all time high; food prices are going through the roof; and the financial markets are reflecting this turmoil and volatility.

So what does all of this mean for the job market – and, in particular, the financial services job market?

At The Smart Cube, we’ve just put the wraps on a survey that assessed the financial services employment market – interestingly, from the perspective of the financial services (FS) recruiter. Why the FS recruiter? Because our intent was to check the pulse of the market – and who better to speak with than the very individuals whose daily bread, if you will, is dependent on this important market.

The findings of our study were very interesting:

• Recruiters are in virtually unanimous agreement that compensation for new Wall Street hires will decline – potentially by as much as 20 percent
• Wall Street job candidates, particularly at the more senior level, have significantly scaled back their compensation demands
• Employees with secure jobs are considerably less receptive to accepting new positions elsewhere.
• Recruiters are almost evenly divided as to how the collapse of Bear Stearns will affect Wall Street. While many believe there will invariably be a “trickle down effect,” there also is a widespread belief that the circumstances leading to Bear’s collapse were the result of “their (individual) financial health and situation”
• Most recruiters say the Wall Street job market was more adversely impacted by the collapse of the dot.com bubble than the current sub-prime mortgage crisis

The Smart Cube US Press Release.

The Smart Cube UK Press Release.

To receive a copy of our survey findings, go here.

Posted in : Knowledge Process Outsourcing

Tags : analytics, business leadership, research, Wall Street outsourcing

Offshoring – Taking its place within the Management Toolkit

7:23 am : Comments 000

One of the most intriguing findings from our recent Financial Services survey related to the impact of offshoring (and outsourcing*) on the financial job market – both in recent years as well as today. All in all, 70% of recruiters surveyed felt that offshoring has, indeed, impacted the job market in recent years and this was very consistent across both the US and the UK. However, these recruiters also indicated that the offshoring that has happened has been independent of the current financial crisis. 40% of all recruiters (and 60% of those in the US) felt that it would have no effect on the current market. (Only a small proportion – 11% – felt that off-shoring would contribute to future job cuts in the current crisis.)

While it is true that the current market situation is the result of a different set of problems, one would normally expect cautious employer markets (which is what we have today) to quickly adopt as many cost reduction tools as possible. And offshoring has been one of the more pronounced cost reduction tools available in recent years. However, this is not the case, according to the recruiters we interviewed, and is borne out by further discussions with our financial services clients. The underlying commentary has been that off-shoring has now ‘graduated’ to become “a strategic option available to businesses…independent of the current financial crisis.”

In other words, offshoring has taken its place within the strategy toolkit - from management fad to management fact. There are three key reasons why this has happened.

Teething. First, the initial infatuation (and subsequent ‘rush to market’) with the new offshoring idea is over. Several years ago, organizations rushed to offshore whatever they could – some successfully, other less so. But by doing so, organizations learnt many important lessons – that offshoring works; that you need to be thoughtful about what you send offshore; that you need to carefully manage who does it; and that it is about more than the absolute dollar cost. As a management group, we know better now, and the only way we could have figured it out in those early years, was by doing.

Value. As they worked through the teething, organizations also came to realize that offshoring was about more than cost reduction. There was actually a greater set of talents that could be accessed – higher value capabilities such as analytics, insightful research and more, that could deliver greater value at still compelling economics. But this talent still needed to be managed carefully and as a core competence – not as a sidebar to the existing business, but one where due attention is paid to people and process.

Furthermore, engaging in an offshore strategy has allowed managers to examine their processes as a whole and introduce longer term, transformative, changes. For example, if you look at today’s investment banking operations, in most cases it is not the 22 year-old junior analyst cranking out pitch books until they either (1) burn out, or (2) leave for another firm. Investment banks are grooming their top talent much more efficiently now that much of the junior-analyst work is done in offshore locations.

Professionalization. Coupling the lessons from the teething process and the recognition of higher value skillsets offshore, was the progressive development of strong provider markets in the space. The last few years has seen the emergence of a host of professional markets, such as the offshore research market in India, which is what we operate in. This allows client organizations to tap into these markets quickly and effectively to gain leverage and improve profitability. They still need to be thoughtful about what they do, but they aren’t marching through uncharted territory – there are a host of organizations that are ready to work with them in this pursuit.

Taken together, these three factors have driven the shift in thinking around offshoring. It’s a far cry from the nascent, politically tinged tactic of 2003. We have clearly graduated to a new age of offshoring, one that has taken its rightful place amongst the pantheon of management tools and techniques.

*While Offshoring and Outsourcing are distinct topics, they are related in many respects and, for the purposes of this article, will be treated somewhat interchangeably.

Posted in : Knowledge Process Outsourcing

Tags : analytics, business leadership, research, Wall Street outsourcing

Is Corporate America Outsourcing Itself Out of Opportunities to Cultivate Future Leaders?

January 16, 2008 7:30 am : Comments 000

These days, companies aren’t questioning whether to outsource as much as they are pondering how best to go about it. Although still the proverbial hot potato fraught with workforce insecurities, political quagmires, and public relations sensitivities, outsourcing moved from “emerging trend” to “new reality” quite some time ago. And it isn’t just the traditional areas – manufacturing and more recently, IT. From global corporations looking for strategy and supply chain intelligence to investment banks and private equity firms seeking commercial due diligence support, the concept of outsourcing knowledge-based services, including market and investment research, has gained tremendous acceptance in recent years.

At the same time, there is a persistent stream of thought in some quarters that one downside of the outsourcing trend is its detrimental impact on an organization’s ability to cultivate its future leadership. The premise: By shifting work offshore, career opportunities for junior and mid-level employees that would otherwise serve as fertile training grounds for acquiring organizational management skills and leadership qualities are unduly sacrificed – thereby creating an inextricable management void down the road.

Having spent a decade in the professional services world and the last half decade in the outsourcing world, this got me to thinking – does outsourcing truly undermine an organization’s ability to breed future leaders?

It is certainly fair to say that, until relatively recently, clients of the big investment banks and consulting firms essentially paid for the critical on-the-job training of the recently graduated, recently hired MBAs assigned to their engagement or deal team. In many cases, these individuals had little or no direct work experience in the specific areas they were operating in. But clients were fine with this because of the Bigger Picture – the otherwise unattainable value the firms provided in the way of data gathering and analysis, scenario planning, and other advisory services. Simply put, there were few effective alternatives for the total value that such firms delivered.

Ten years later, the landscape has changed considerably. It no longer takes an expensive Wall Street firm or management consulting firm to amass mission critical data. Indeed, thanks to the Internet, reams of previously hard-to-compile information is available to financial professionals and business strategists alike. And in terms of the cost of brain power, the labor market has matured to where graduate-level analytical work can be retained for hundreds of dollars per day rather than thousands. Furthermore, technological advancements have made geographic boundaries largely obsolete from both a workforce and project management perspective. Organizations that provide knowledge outsourcing services have essentially tapped into these new realities to effectively deliver services that are comparable to the high-quality standards one would expect from their domestic professional services counterparts, but at a fraction of the cost. To quote Thomas Friedman, the world is, indeed, flat.

As a result, there’s been a paradigm shift, a forced de-coupling of the traditional value chain between research and advisory services. Clients are still willing to pay top dollar, but only for true high-end advisory work. It is no longer “Tell me what is happening within a market or industry”, but rather “Tell me what I should do about it”.

With clients now demanding greater value for their limited advisory budgets, many professional services firms are partnering with specialized providers, including The Smart Cube, to deliver much of the work once reserved for analysts, associates, and in a number of cases, even managers. For financial services clients, this work includes equity research support, initiating coverage reports and commercial due diligence research for live deals; for consulting firms, it is ‘plug and play’ research solutions to client engagements, helping to improve not only resource leverage but also project profitability.

Under this new model, the role of the junior resource (broadly defined) at a professional service firm has not become obsolete; but it has changed. No longer should they be chained to a desk working solely on basic market analysis work or fundamental company research. They will learn this aspect of their trade through their formal education as well as on the job training by working closely with their outsourced provider counterparts. But they will also see an acceleration of their total responsibilities. When outsource companies are leveraged for knowledge-based work, junior staff resources are freed to spend more of their time on client facilitation and management – the very high-end advisory services that are ultimately their firms’ core business.

The Smart Cube often works as partners to other professional service firms, operating much like extended team members. From our experience, the overall quality of the junior resources’ education improves under the outsourcing approach, particularly when they are sent to work side-by-side – physically – with the outsource company, as is often the case with our clients. Companies like ours that are dedicated researchers and data analysts can offer a quality level that is beyond that which any single company would invest in or be exposed to across its service industry. As a result, the clients’ junior staffers learn the obvious and obscure differences between good analyses and great analyses.

The fundamental question here is no different that that the old line manufacturing companies had to ask with the advent of low cost manufacturing in the 50’s and 60s. What am I best at? Put another way, does Nike have to physically make the shoes themselves to be a great shoe company?

In professional services, there is only one truism – the client is king. And today, the client is demanding better value. The most successful firms are those that recognize this and change their operating model with the times. Far from leading to a loss of critical training and leadership building opportunities, knowledge-based outsourcing will, in fact, unleash a new breed of advisor that is more attuned to the client’s issues and better able to deliver value in its most intrinsic form – by helping client’s creatively and cost effectively solve their most pressing problems.

And that is one paradigm shift I think we can all appreciate.

Posted in : Knowledge Process Outsourcing

Tags : analytics, business leadership, research, Wall Street outsourcing