In my previous post, I discussed four expected structural changes on the investment banking landscape as a result of the industry challenges presented by the current financial crisis. Today, I continue with another paradigm shift that might spoil your day, if you work on Wall Street.
Knowledge Process Outsourcing (KPO)
In volumetric terms, the gradual shift of financial power away from Wall Street back to London, which was the traditional center of merchant banking in the 18th century, has actually been underway for quite some time, as I have noted in one of my 2007 posts.
In functional terms, however, the shift is towards Asia, where the costs of doing business are much less than that in New York or London. We probably hardly noticed it, but outsourcing has crept up the food chain from the backroom to the middle office--investment research, statistical analysis, industry analysis, and even the ubiquitous pitch book.
It's not far-fetched to expect that the legendary long, grueling hours spent preparing pitch books and other presentation materials, which is the rite of passage of newly-minted ibankers from business schools, may soon become a thing of the past in a typical hollowed out investment bank of the future.
According to Heather Timmons, this shift towards “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing” will affect even bulge bracket banks like Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank. The single-minded drive of investment banks to cut costs, wherever they can, makes it compelling to just outsource the "grunt work" of Ivy League M.B.A.s paid in the low to mid six figures to cheaper locales like India and the Philippines, where a highly skilled talent pool exists.
Will the outsourcing wave end at the middle office? Unlikely. Here's what Heather Timmons foresees:
After research, the next wave may include more sophisticated jobs like the creation of derivative products, quantitative trading models and even sales jobs from the trading floors.
Proponents of the change say Wall Street’s wary embrace of the activity may signal the beginning of a profound shift in the way investment banks are structured, with everyone but the top deal makers, client representatives and the bank management permanently relocated to cheaper locales like India, the Philippines and Eastern Europe.
In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close.
That's good news to us in the Philippines. Actually, the consulting group which my partners and I organized recently was meant to ride on this KPO trend.
(Photo credit: www.sxc.hu)
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