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Turn expense into profit

After 10 years in the back office performing roles in trade validation, preparation of financial statements, and most recently five years of policy writing and business partnering, one of the main challenges that I see is how businesses view the back office. There are those in the business units who feel that the back office is simply a piece of expenditure with no added value, whereas others see a real need for a control environment. This can sometimes cause rifts between those who are trying to provide a service against those who are trying to manage a business.


Back office professionals in operations, finance, and human resources should be profit making.


Wasting money

For a business to be successful, the supporting functions and expenditure need to provide maximum value for money. Managers will first look to cut their costs and increase their profit. The trouble is that back offices are a different skill set than most business leaders are have developed; therefore, they don't always see the added value of having them.


Many business leaders view their back offices as a place for reports to be filled, accounts to be prepared, or a a place to dump the work that the business isn't interested in doing. A good back office does not just do this work. Good back offices are business partners. They advise their businesses the outcomes of their decisions, ensure that they are working with reliable data, and keep the regulators happy.


Rethinking the back office model

Why does the back office have to be the back office? Business operations tend to involve few external clients, and this creates the impression that the back office does not generate revenue. Managers in large companies find that the weight of the back office sometimes causes significant delays in delivery or in changes to the business model. How can this be improved? Make the back office revenue generating.


The back office needs to think like a front office and generate income to support itself:

  • Customer services - The customer in most cases in the business. Do they feel that by "purchasing" the back office services they have been made better off, or do they feel that this is just another step in a process. What keeps the business coming back instead of doing the work themselves?

  • Price - Does the back office charge the right rate for its services? Back offices are sometimes in different legal entities, and does the price it charges for services match the market rate? Is the legal entity able to make a profit. (In practice, this probably isn't the best way to manage cash, but the prices should be bench marked.)

  • Cost/Benefit - Do back office leadership think about the impact of their work? Are they provide the best services at the lowest cost? Are improvements in line with their customer requirements?

The other big consideration is culture. What type of culture does the in-house back office have? Do they feel as if they are part of the product offer or are they made to feel as an expense. Back office staff need to be a part of the full business offer, otherwise why do you employ them?


Outsourcing

Many companies choose to outsource their back office work. This is a good idea for companies because it actually turns expenditure into profit. Profit for whom? Profit for someone who is supplying the services. When a company outsources their back office, the perspective changes from one which is an expenditure to one of supplier. A supplier who does not deliver good services at a good price will lose the business.


The decision to keep back offices in-house is also a good option, but the business needs to implement processes which make it clear that the back office is providing a certain type of service, and plays a certain type of role, and that other members of staff understand how their roles have changed. When the back office loses its vision and focus, the problems arise because the business does not feel as a customer yet is "paying" for these services.


What's the best option?

The best options are individual to company operations, risk levels, and cost. There area few areas which need to be considered before determining whether it makes sense to keep the back office in-house or to outsource:


  • What are the costs? - The most common cost is salary and benefits, but businesses must consider the costs of office space, training and staff development, and supplies.

  • Management effort? - When keeping back offices in-house, it will require additional management effort. With an outsourced back office, someone else will be responsible for managing.

  • How do my staff feel? - Do your staff feel that they need the support, and how will they feel about sending it somewhere else?

Chayim Messer Consulting can help your business determine whether it should keep its back office in-house or outsource it. Contact us today for a free consultation, wherever you are in the world.




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