Random Thoughts on The City, Wall St & Capitalism

Mckinsey has a lot to answer for, especially its trade rag - The McKinsey Quarterly. Read any good articles on outsourcing lately. No. It looks like the chaps at JP have. JPM Chase or what ever its called these days.JM Walmart-Chase-Duane Reade has decided to hire 4,500 new graduates in India over the next couple of years. The ultimate goal is that by 2007 30% of its back office work should be located off-shore.Apart from the management consultants who dream up off-shoring, near-shoring and whatever next euphemism for 'job exporting' who wins from this in the short term.The shareholders-not really.The employees-Nope.The Senior management-Yep. How did you guess?. Why is it necessary?Well It's an easy way to increase your margin-all other things being equal it's the logical corrollary of reducing your cost base. Financial companies by their very nature are constantly in search of the better margins,less cost,more economies, scalable business models etc. The accepted wisdom used to be that only basic back office functions could be reliably outsourced,reconciliations,data input. So this never worried white collar employees. Guess what, that's changing. As good employees you all have to be model change agents. Just have a look at some of the outsourcing work in the pipeline at Wipro, Infosys or Tata. The projects are large,complex and sophisticated. It's the turn of the white collar so called Knowledge workers to be outrsourced and things don't look pretty. Where better to start than the finance industry. The retail banks have been doing it for years,just look at HSBC or Lloyds. After the technology melt-down a few years ago the investment banks finally learned some basic principles of financial discipline.Like their real world counterparts in manufacturing,healthcare and autos they began to treat concepts such as recturn on equity,pre-tax margin,compensation/revenue ratios as serious metrics against which to measure their businesses by.These lessons won't be forgotten in a hurry. Who remembers John Mack's arrival at CSFB and the re-negotiation of guaranteed bonuses,or the invite from Merrill HR globally inviting its employees to consider "voluntary separation". The question back and middle office employees at the investment banks should be asking themselves is - who's next. My money is on Goldman.
If you're a Goldman employee think back many moons ago back to 2003,remember Henry Paulson's little gaff.


I don't want to sound heartless," but then proceeded perhaps to do just that.
"I'm going to tell you the facts," he said. "In almost every one of our businesses, there are 15% to 20% of the people who add 80% of the value in terms of their efforts and experience. .......
I think you can cut a fair amount and not cut into the muscle, and be well-positioned for a recovery."


That was in Feb 2003. Bear in mind it's people business, as long as the people are cheap and in another jurisdiction. If you're in Goldman back/middle office remember your its greatest asset.


RB


See full article at Goldman's CEO Apologizes To Staff for Layoff Remarks