Thursday, July 29th, 2010
I wanted to follow-up on my Chicago piece with another look at professional services. A question was raised as to the conflict between saying Chicago is a professional services hub, and that its global city rankings are too high when those rankings are based on professional services. A fair point. I think it depends on the nature of what type of professional services we are talking about.
Saskia Sassen reminded me that global cities compete much less than is currently believed because they specialize in different things. So I wonder if perhaps specialization is one axis upon which we could measure professional services. Another might be how tightly these services are tied to the particular needs of the global economy. That is, globalization created the need for new financial and producer services to help control and manage the resulting networks. So my question would be, is any particular service one whose demand was created by globalization, or some previously existing type of demand?
I plotted these two dimensions into another 2×2 matrix, which I’ll test out for your feedback today:
My resulting four quadrants are:
- Global City Function. These are what I think of when I think of globalization services. That is, they exist to serve the particular needs of our globalized economy, and they have some degree of specialization that makes them difficult to obtain just anywhere. Perhaps they depend on particular skills and expertise only available in particular places. One might think of something like services related to international steel trading here.
- Niche/Cluster. These are also specialized functions, but aren’t particularly related to globalization as such. I might use as an example the design of super-tall skyscrapers. This may be global in that they are all over the world, but this isn’t a service that was per se created by the needs of a global marketplace. These services were needed to design the Sears Tower, for example.
- Network Access. I’ll pick a geeky term for this. These functions are related to global markets, but less specialized. I can’t think of any slam dunk examples, but perhaps something like general international contract law might be one of them. I think of these as access points to the global economy or points of presence by various services firms. In a sense, these get you connected to some of the global economic circuits. They let you do basic things without going elsewhere. They might be driven by how important your city is as a place global services firms feel they have to plant their flag, for example.
- Routine. This I believe is the bulk of professional services. It is basic strategy, IT, outsourcing, accounting, etc. that would be done for various businesses regardless of globalization. Indeed, these have been done for decades. Installing corporate IT systems for instance. Or evaluating a corporate cost reduction program such as what McKinsey did for Conde Nast last year. These might require some domain knowledge, but it’s not like you can only get them in a single place. Hence I raise the question as to whether some of these are vulnerable become commoditized.
As you can see, this has some similarity to my previous Diversity-Tradeability Matrix, where the top half of the chart is non-tradeable services. That doesn’t mean services they can’t be provided to an export market, but rather they are ones for which there are few alternatives sources of supply or substitutes, which makes them difficult to offshore.
My belief re:Chicago is that while it probably plays in every quadrant, its bread and butter was routine services. This is why I believe the global city surveys overstated Chicago’s standing. They rely on counts of branch offices and such without sufficiently differentiating the types of services being provided.
The word routine doesn’t sound glamorous. But I actually like the space because of its potential for more broad based employment generation vs. hyper-specialization. And these are in fact high value services. Plus, it is where I spent most of my career, so obviously I can’t hate it too much! The challenge is that this is the sector that is getting battered the most by offshoring and new entrants, as well as macrotrends in business. That’s its particular challenge.
I wanted to ad some additional commentary on this point. My thinking on this is clearly work in progress, so feedback is welcome.