Middle Earth, midlife crisis and the middle office…

First published in Law and More.

Nathan Hayes; September 16, 2010.

Defining the structure of a business and where the various aspects that make up an organisation fit within the structure has for some time been seen in terms of two areas – customer facing and non customer facing.

On that basis, in the world of business we are all now used to talking about the roles and functions of the Front Office and Back Office. The definitions associated with the Front Office and Back Office are somewhat rigid, defining customer-facing activities at the front, and administrative internal functions and processes at the back.

However, when we look at outsourcing elements of a business to an external provider, or indeed adding new capabilities to the business process from an external contractor or provider, the conventional Front Office/Back Office separation of business activity is not always appropriate.

We have already seen in the financial services sector the emergence of a three level business structure, comprising the Front Office, the Middle Office and the Back Office, in order to more effectively define the centre ground that can remain critical to the internal workings of the customer facing and non-customer facing parts of the business, but which does not necessarily need to remain as an in-house part of the business in question.

The Middle Office, which includes traditional Back Office functions, comprises the entirety of the departments that support the business, such as Human Resources, Finance and Accounting, IT and Learning & Development. These are staff that do not necessarily interact directly with end clients but are involved in giving strategic guidance and making business decisions for the firm as a whole. These are also departments that do not generate revenue directly, but without which the business could not function effectively. An essential cost base for any business, these are business critical parts of the organisation that can and often do benefit from the efficiencies that outsourcing can offer.

Although these are whole departments, rather than individual services, that can be moved to an outsourced provider, the departments and the staff that work within them still play an integral part in the overall business, making key decisions that affect the whole organisation, not just the part that is outsourced.

But why outsource a whole department, and why will law firms benefit from this in such a significant way?For a law firm, outsourcing Middle Office departments and capabilities can deliver significant cost savings, as well as improving productivity and freeing up personnel to work on higher value activities. Few local or international law firms can effectively scale to the level whereby large economies of scale can be unlocked through operational size and consumption of resources. Even following consolidation and acquisition, many law firms are unable to achieve material savings from these departments. With increasing pressure being placed on law firms by clients to deliver lower costs, added value and faster turnaround on workload, outsourcing the Middle Office is increasingly being seen as a solution to lower the cost of non-revenue generating services without compromising the efficiency of the business.

Aspects of the business such as IT, Finance & Accounting and Facilities are prime candidates to outsource to a proven external provider that can tap into the expertise and economies of scale normally associated with much larger organisations, using shared resources to lower the cost of providing these functions and departments to a business. Also, outsourcing these entire departments rather than individual services helps ensure that productivity is not compromised by adding to the complexity of switching workflow in and out of the Middle Office of the business. Front Line staff can continue to deal with clients,  while the Middle Office focuses on lowering the cost of operations while ensuring that the business remains agile and competitive.