The typical back-office of most organizations spends 75-80% of their time “keeping the lights on.” This means transactional processing and non-value added activities. This dynamic leaves only 20-25% of your capacity for business growth activities such as strategic planning, customer insights, and analytics.
Market forces such as digital transformation, globalization, and changing customer demands are pushing executives to disrupt this outdated model more than ever before. To stay relevant and compete, organizations need to move away from traditional back office models to a “Modern Back Office Model.”
Organizations with a Modern Back Office Model will be better able to compete because they will focus on the future rather than the past, be more strategically oriented, make decisions based on advanced analytical insights, have a bias to move fast, and be structured to implement operational changes quicker and more effectively than traditional organizations.
In a nutshell, the key attributes of a modern back office are:
- Strategically oriented – not transactional
- Future versus historically focused
- Superior analytical insights
- Agile – implements operational changes quicker and more effectively than traditional organizations
- Scalable – better able to adjust as the business evolves
- Performs transactional tasks at the lowest possible cost while maintaining high levels of customer service
The change to a Modern Back Office Model will not be easy but must happen. For most organizations, this will be a transformational change, not incremental. This journey will require a clear definition of what truly is the organization’s core competencies.
Though understanding your “core” seems to be a pretty logic and basic element of any business strategy, too many organizations are still trying to do too much, thereby losing focus on the core value and differentiation they can provide to customers through their products and services. This mistake has watered down their operational effectiveness, flexibility, and more importantly, their strategic focus.
"Organizations need to clearly define what their core competencies truly are."
The reality is that the great majority of activities performed in most companies do not truly add value to the business. These “non-core” activities must be done and must be done well, but they are not competitive differentiators and therefore should not meet the threshold of a core competency. Unfortunately, they also take away focus, time and resources from the activities that are true value drivers. They can be a major distraction!
The journey to a modern back office model should begin with a clear and disciplined assessment of your core business strategy and value proposition, and your customer-oriented differentiators required for success. This will dictate the identification of your core competencies which are the areas where the organization needs to increase its focus, resources, and capabilities. Everything else outside these core competencies needs to be performed in a manner which delivers the required level of service while maximizing efficiency, cost effectiveness, and minimizing management focus.
Adopting a Shared Services Model, or Outsourcing, are some of the strategies organizations are taking towards achieving a modern back office. What executives need to understand is that these type of initiatives should be meant to go beyond obtaining cost savings or productivity efficiencies. It’s about transforming the mindset of your entire organization on what adds value to the business (and what doesn’t), and be able to cascade that mentality down to start “modernizing” the different departments within the organization.
You can start with the obvious back office functions such as Finance, HR, and IT, but all functions, even customer-facing ones, can be modernized by applying this judgment.
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