Middle Office: Not New, But Its Time Is Now

Middle Office

Middle Office: Not New, But Its Time Is Now

A fundamental change to how an organisation is structured and where strategic intent is applied has arrived. If you are an owner or manager in a smaller services organisation, such as a recruitment agency or a consulting organisation, this change has gently crept up on you. When you look, the signs are clear and present.

Middle Office History

The term middle office evolved in the 1860’s (!) as foreign exchange and investment banking developed – it was used to refer to those who calculated profits and losses realised after trading.

Today organisations in financial services are most often divided into three sections – the front, the middle and the back office.

  • The front office is composed of customer-facing employees such as sales personnel. That sounds familiar.
  • The middle office is made up of the risk managers and the information technology managers who manage risk and maintain the information resources.
  • The back office is composed of HR, office management and other functions that provide support, administrative, general ledger, debtors, banking and payment services.

But I am not working in financial services?

We contend that Middle Office has arrived for a broad range of organisations that are dealing with these three issues:

  • Performance. Needs to be measured and reported. Too many organisations are struggling with margins but do not have the systems and discipline in place to clearly understand margins and give the organisation (especially front office) the information required to implement improvements.
  • Complexity: we are all dealing with increased complexity when undertaking our core functions. Deep specialisation combined with clear process and systems thinking is needed to reduce complexity.
  • Compliance: nobody needs to be reminded that compliance gets to be more onerous for all organisations each year. It is not negotiable to comply – one mistake can lead to heavy penalties for owners and managers, as well as reputation damage. Just consider the wage underpayment stories in the media.

We are not dismissing the issues and challenges of front office which needs to perform in a changing, noisy and complex market, or back office that has hundreds of recurring tasks that nobody else in the organisation knows about or understands.

What we are suggesting is the skill and experience required to successfully handle the performance, complexity and compliance of a modern organisation does not exist, or is conflicted, in many organisations. The middle office function is fundamentally different to the functions required in a front office and back office. Mixing them creates conflict, priority, performance and stress issues for those involved.

Middle office for the post COVID organisation

Depending upon your point of view, 2020 has made a bad situation worse or has become an opportunity.

On the positive side, many organisations have spent time clearly understanding the fundamentals of their business: efficient processes, clarity of performance characteristics, detailed margin analysis, the need for variable costs for fluctuating functions like pay and bill processes, an organisation structure that is clear, focussed and flexible, and renewed rigour on quality and compliance.

In some ways organisations have become more complex as long-held attitudes have been unshackled. Working from home has its challenges for those not prepared, but for many it has resulted in better systems and process, better communication and leadership, and engendered greater trust between people in the organisation.

We are not the only ones to comment that 2020 is not a year to be wasted – making the changes needed to prepare the organisation for its next phase needs to be a goal for owners and managers. Implementing the structure and systems for an efficient middle office function should be on that list.

Recruitment Agencies and Temp/Contract Services

In the recruitment industry, middle office has been recognised as a legitimate function in the recruitment agency’s technology platform. Staffing Industry Analysts produced a foundation document “The Staffing Company Tech Stack” in January 2020 to respond to the rapid escalation of complexity and compliance for organisations globally. A middle office strategy for recruitment agency IT systems allows clear and appropriate focus on all functions required of a modern recruitment agency.

SIA Tech Stack

What Now?

Focussing attention on your middle office may do more than improve the productivity and performance of your business. It might save you the embarrassment of failure.

Our company, Middle Office Pty Ltd, provides:

  • Contract payroll services for recruitment agencies.
  • Payroll services for professional services and consulting firms, and
  • Consulting services to review and modernise the support functions for services organisations.

Our consulting team have years of experience working with organisations to improve systems and processes, especially focussing on support functions such as operational reporting, pay and bill, HR and back office.

Talk to us. If we are not the right people to help you with your challenge, we’ll probably know who you should call.

Photo by Tim Mossholder on Unsplash

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