Just when you thought the financial industry was done with cutting staff, these two headlines hit the tape Thursday:
Investment Technology Group Restructures US Business to Address Market Conditions;
SWIFT's Restructuring in North America Includes Layoffs.
True, those aren't bankers being laid off. But that's just my point. While investment banks large and small started re-hiring traders and dealmakers some months ago and are poised to take on still more front-office heads after the New Year, professionals in IT and other support roles face an entirely different reality. Ironically, one of the major factors weighing down demand for information technology professionals (in finance as in other industries) is the march of technology itself.
I've been predicting front-office hiring, already well up from six months ago, will rise further early in 2010. Back-office hiring is a different story.
A study of 4,000 large global companies in North America and Europe released this month by the Hackett Group concludes a cyclical economic recovery won't halt a decade-long shrinkage in the number of back-office jobs. Companies eliminated 200,000 general and administrative jobs on average each year from 2000 through 2007, then tripled the pace to slash more than 630,000 G&A jobs in 2009. "This dramatic spike is likely to lead to an extended jobless recovery in IT, Finance, Procurement, HR, and other G&A areas," Hackett concludes.
The Usual Suspects: Automation and Offshoring
Alongside obvious job-killing forces tied to the cyclical downturn that's now ending, it cites three factors that appear more durable: improvements in productivity and automation, and expanding use of offshore labor. The consultant urges companies to embrace those trends to keep a lid on operating expenses as economic conditions improve. "For most companies, if and when they do start to restaff in IT, finance, and other functions coming out of this recession, the large majority of the jobs they create will be in India and other low-cost labor markets," says Michel Janssen, Hackett's chief research officer. "Companies need to understand this, and adapt their strategies accordingly."
While Hackett's study examined a broad range of industries, its conclusions seem especially applicable to financial institutions. As early adopters of various digital technologies and offshoring, banks and investment firms will continue going all-out to squeeze costs out of their operations. To be sure, if transaction volumes and front-office headcounts really soar, headquarters might need a few more administrative and client support people, notwithstanding productivity gains. But even in that best-case scenario, back-office job growth looks to lag well behind growth in revenue-producing jobs.
Hosted Software Limits IT Headcounts
One illustration of the forces at work is the explosion over the past two years in financial firms' use of SaaS, which stands for "software as a service." (It's also known as "hosted software," or by an older term, "application service provider model.") First embraced by the buy side but now gaining ground among sell-side firms led by Morgan Stanley, the technology "changes the game for internal IT departments," Wall Street & Technology says in its Capital Markets Outlook 2010 report. "The upside of SaaS is that IT staff should be able to spend less time supporting these platforms; on the other hand, they represent one more reason to keep IT spending and staffing levels low."
Even the retail mortgage business is being reshaped by SaaS. The technology "will reach critical mass" among residential lenders next year, according to Dorado Corp., which predicts more than 30 percent of all originations in North America will occur "in the cloud."
Another signpost is SWIFT's global commitment to raise its efficiency by 30 percent and slash $132 million from annual operating expense. As part of a streamlining plan designed by McKinsey & Co., the provider of secure global financial messaging services is cutting an undisclosed number of jobs in North America and has had a hiring freeze since the beginning of this year.
Meanwhile, Investment Technology Group (ITG), a leading agency broker and financial technology firm serving asset managers, says Thursday it's setting aside $24 - 27 million for severance and other costs to restructure its U.S. operations. ITG says its decision stems from a persistent decline in U.S. institutional equity fund flows. "We are realigning resources and investment spending with an enhanced focus on key clients who partner with ITG and are willing to compensate us appropriately for our content and services," says Chief Executive Bob Gasser. ITG didn't say how many jobs it's eliminating.