Think twice

before you centralise work in a back office


December 2019


Many service organisations, financial institutions, governments etc. have local offices spread across the country they operate in or across the entire world. Talking to these organisations, we often meet a common theme: the desire to build a back-office hub where the organisation can have the “standardised” work performed efficiently and thus, in positive terms, can free up the front office to interact with the customers. There are, however, some important factors to consider before realising the idea of a centralised back-office hub.

Your choice depends on your processes

The idea of compiling standardised work in a hub originates from a Tayloristic mindset. Here, the underlying assumption is that mass production will make the production more efficient, resolve quality issues and lower employee costs (especially if you offshore the back office). However, looking at organisations we have worked with, we do not, in all cases, see overwhelming evidence of the conclusion being right.

Rather than looking at creating a back-office hub from a Tayloristic perspective, we can also take a Lean mindset towards the subject. From the Lean perspective, you can see that the concept of performing mass service to a great extent resembles the concept of doing batch production manufacturing as opposed to working with a single-piece flow.

If you want to create more efficient processes, both batch production manufacturing and single-piece flow can be the optimal choice. However, the choice entirely depends on the work processes you want to perform more efficiently. Thus, we argue that you do not just create a back-office hub per default, but rather thoroughly analyse and evaluate your processes before deciding on whether to create a centralised back-office hub.

Below, we consider three factors influencing the decision of centralisation vs local presence.

Three factors influencing the decision of centralisation vs local presence

Factor one

You may still need local presence – and work to be done locally.

When you consider whether to move employees to a centralised back-office hub, you must simultaneously assess whether you still need a local office or a branch and, in that assessment, also consider the minimum size you need to sustain a local office.

If you for example have a local office with four employees and move 20% of the work to a centralised back office, you will most likely not increase efficiency – more likely the opposite as you increase your vulnerability to vacations, sickness etc. Even for an office with eight employees, this will still be the case.
If you continue to have a need for local offices, you need to ensure that they have value-adding work to do and that the work is done efficiently. Using operational management (though it is more challenging to implement across multiple local offices), standardised processes with adequate documentation and extensive use of automation, you significantly lower the potential efficiency loss of keeping the work in the branches.

Factor two

End-to-end responsibility drives motivation and reduces costs.

Considering creating a central back office, you must also evaluate the number of handovers between front office and back office in your processes. In most processes, there are generally more than a few handovers, and when you move part of a process to a central back office, it will increase the number of handovers.

Each handover between back office and front office comes at a cost in terms of time spent on reopening the case, increased delivery time towards the customer etc. Working with centralised service centres and sales support functions, we have often experienced that the “blame game” becomes the standard when the handovers are not working as smoothly as envisioned. If the back office is managed in a Tayloristic fashion, this may further drive silo thinking into the organisation, which only intensifies the situation.

Mitigating these challenges requires extra resources to track performance, develop standards etc. between front office and back office, and it calls for added management attention to deal with individual cases for key customers. All in all, this may drive up the cost beyond what was initially saved and demotivate the employees both in front office and back office.

Factor three

Customer experience is important.

In your evaluation of whether to centralise back office assignments in a hub, you must consider the effect such an organisation may have on the customer experience.

As a customer, the organisation of tasks in a front office and back office does not always promote the best customer experience. When you i.e. call your bank, you will meet a service-minded agent who skilfully will be able to help you fill in a standard form, but if your question was of a more complex character, the agent will lack the deeper understanding. Similarly, calling a government institution for clarification, you will often meet the standard reply, “Please send an email and then someone (i.e. back office) will get back to you”, when all you really needed was a 30-second explanation.

It comes at a cost if you do not meet your customers’ expectations because their case derails between front office and back office, or because the overall lead time has increased due to the organisation. The exact cost is hard to assess and is often either ignored or forgotten when we consider moving tasks to a back office.

So, should you create a back-office hub?

There are numerous factors to consider when you decide whether you should create a centralised back-office hub. And we are not advocating for never moving tasks to a back office, as it can certainly be relevant when the time spent on the individual case is substantial, when the interface towards the front office can be standardised, when a very high degree of specialisation is required etc.

But we are advocating that you do a thorough evaluation of your processes before you decide on creating a back-office hub and that you do not just use centralisation as the default answer.