The growing importance of the ‘back office’

The fault lines within our administration – the workarounds, the failing systems, the thin capabilities, and the pervasive problems of data integrity and information sharing were all exposed. 

The Mandarin first published this essay.

In 1969 and 1970, one-sixth of the New York Stock Exchange (NYSE) firms disappeared through mergers or liquidations. Thousands lost their jobs in the first major economic shock since the Great Depression. The cause was not the ethical failings we often associate with such events but another common problem: business leaders’ failure to adapt to changing circumstances. 

The short story of the NYSE in the 1960s is that growing transaction volumes outstripped the capacity and capability of back office functions to keep pace with demand. This led to delays in processing and decision-making that rippled and cascaded throughout the system. Avoiding the problem was automation through computers (Electronic Data Processing). This was well-known at the time. 

Analysts have highlighted two factors that contributed to the disruption: first, automation and diversification require sophisticated leadership and management skills that many businesses did not have, and second, complacent leaders resisted adopting more efficient methods.

The third observation from this example is how quickly a back office corporate function that isn’t fit for purpose can lead to catastrophic business failure with system-wide effects. 

Today, we are in a time of rapid automation and diversification, with technology driving profound changes to the structure of work and organisations; maybe it’s time to take a closer look at how capable our corporate administration is in responding to that challenge.

Good administration, good culture

Good administration is central to the effective functioning of organisations and society. Very little is achieved without coordination and economy in the use of resources. Indeed, administration is so central to the functioning of all organisations that it is the determining principle at the heart of organisational culture. 

The Commonwealth Ombudsman provides ten principles for good administration that could apply to any organisation. Good administration protects and enables good operations, and it is the foundation of how work is done. It provides the ability to adapt and respond to change, and it is standard for what is valuable and what is not. It is also easily taken for granted. 

Our administrative shortfalls exposed

The pandemic exposed bureaucratic shortfalls in all organisations. It put the bureaucracy to the torch, exposing the poorly understood (or routinely walked past) deficiencies in corporate organisational functions. 

The challenges exposed by the pandemic were not new or unknown. Organisational and workforce trends that were already visible were accelerated. In response, many corporate functions were overwhelmed by increased demand as besieged functions struggled to respond and adapt. 

Good people worked to hold organisations together throughout the pandemic, but the cost was extraordinary and long-lasting. Workforce burnout in corporate functions is the new pandemic limiting the capacity of organisations to learn the lessons and bounce back in new forms. 

Learning the lessons

The fault lines within our administration – the workarounds, the failing systems, the thin capabilities, and the pervasive problems of data integrity and information sharing were all exposed. 

The importance of good administration as a core organisational capability was highlighted by unwieldy systems and practices built in a different era forced to grapple with a problem for which they were not designed. 

The main lesson of the pandemic was that leaders need to think harder about how organisations are organised. 

Our understanding of how work is organised and supported needs to be improved, and there is a need to find new ways to work together so that all the functions of organisational administration can be combined to deliver a better outcome in the turbulence that has always been with us but which the pandemic took to a new level.

There is a need to understand and value corporate functions as an important and often overlooked bureaucratic window into the character and functioning of an organisation. Our organisations and ways of working are changing rapidly. Our corporate functions are essential to imaginatively transitioning from where we are today to establishing new organisational forms and work practices.

What does corporate administration contribute to performance?

Positioning corporate functions as a brake on entrepreneurship and unresponsive friction to business-led performance are fashionable. However, this mindset leads to chronic underinvestment in administrative functions and a focus on the efficiency of those functions rather than the organisation’s efficiency. 

All corporate functions are dealing with more stakeholders, managing blurred boundaries, working in networked ecosystems, grappling with data that is everywhere, wrestling with an organisational purpose that is not exclusively economic, adapting to dynamic roles and relationships, contributing to constant transformation, responding to strained operational capabilities, administering a dispersed workforce, and searching for stability in increasingly complex organisational configurations that are more fragmented and more dispersed than ever before.

In this environment, executive leaders who do not articulate a strategic rationale for corporate functions or are unclear on the balance between autonomy and control in decision-making exacerbate the friction between administration and operations. The critical questions for all executive leaders are:

• What are the scope and limits of corporate administration?

• What does corporate administration add to the function and value of the organisation?

• How does corporate administration realise operational value?

• What is the appropriate role and size of the corporate for delivering effective business performance?

The barriers between corporate functions and between ‘back office’ and ‘front office’ functions are vanishing. Identifying the value of corporate administration will lead to better quality organisational design, improved and focused corporate capability, and more integrated delivery. 

Automation and technology are critical to finding greater efficiency; however, the effectiveness of corporate administration will be realised through constant executive leadership support tied to clear performance expectations. It seems an obvious statement, but in practice, it is rare to find. 

A beginning, not an end

We expect a lot from our corporate administration. We want a fast response, we want flexibility, and we want innovation. To enable a different future for corporate, executive leaders must step outside their usual ways of thinking about the function. This is not a time for the simplistic shortcuts that see effective administration as a cost to be controlled and reduced. It is a time for focus and investment. 

The need for organisational transformation and change will only continue to accelerate, and the need for more integrated and capable corporate functions will continue to be in high demand. 

Improved corporate administration is not required in one business or industry; it is needed everywhere.