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01:15 PM
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Wed, 16 Apr 2008 19:51:06 -0500

While Wall Street lives by the quarterly earnings call, executives are starving for a long-term vision, according to the soon-to-be-released "Financial Markets 2015" report (available April 1) from the IBM Institute for Business Value. Daniel Latimore, executive director, and Suzanne Dence, a senior consultant at the institute, share some of the report's findings with WS&T.

Q: Why did IBM develop a study that projects all the way out to 2015?

A: Latimore: We have gotten an enormous amount of interest from our clients, who do not really have the time to rise above the execution roles of their day-to-day job. While 2015 does seem like a long way out, we are very interested in finding out what firms need to do to start preparing themselves for the future.

A: Dence: When we set out, we asked about both internal and external challenges that clients will face over the next 10 years. What came up, ... both as an external and internal challenge, ... is a lack of a long-term planning horizon. [Our clients] believe that they need a longer-term perspective when it comes to trends in the industry.

Q: With the industry's focus on quarterly results, it doesn't seem that it is built for a long-term view. How will executives change that?

A: Latimore: I think of it as the politician's dilemma -- there isn't much incentive to go beyond the next election cycle, but the politicians still have to take a longer-term view. The same applies to chief executives. One of the things that sparked so much interest from our interview set is they [picture] themselves ... as the CXO 10 years down the road.

Q: What are some of the study's key findings?

A: Latimore: If we had to sum it up into one key area, that would be risk and a redefinition of firms' attitudes toward risk. Firms are really going to have to determine how they want to approach risk. ... What firms are going to have to do is either become a principal -- either put up their own money or money they have raised on the behalf of others -- or become a financial adviser and align their interests much more closely with those of their clients.

Q: What are some of the drivers that are causing firms to focus on risk?

A: Dence: We narrowed it down to two main drivers -- transparency and speed. ... As transparency increases the levels of sophistication on behalf of both the clients and the regulators, firms are becoming smarter [and are] using TCA [transaction cost analysis] tools and are doing more themselves with [sophisticated technology] ... in order to essentially trade by themselves.

Q: Is there anything that surprises you in the results from this report?

A: Latimore: Well, when we asked what types of firms are most likely to succeed in the next 10 years, universal banks were the overwhelming [response]. That surprised me. While they do have an advantage in terms of scale, ... that same advantage is a hindrance because ... they have so much infrastructure built up, and it sometimes gets in the way.

A: Dence: Yes, we were really asking about winners and losers, ... and firms picked universal banks [as winners] and boutique firms [as losers]. Now, the next question we asked was about what executives thought their competitive advantage would be, ... and, surprisingly, they did not rank scale as a competitive advantage, which is one of the reasons why many respondents chose universal banks as a winner. That surprised us.

To hear this interview in its entirety, go to:www.wallstreetandtech.com/podcast Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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