Actors get many of the accolades for their memorable movies, but their films would never have made it to the big screen without a large, dedicated film crew working behind the scenes. The same can be said of successful businesses: Customer-visible roles, such as sales and customer service, may get most of the recognition, but without a strong back-office “crew” handling many critical operational functions — such as accounting, human resources and IT — a business could fall flat.
What Is the Back Office?
A business’s back office is composed of administrative and support teams that are responsible for operations but don’t directly interact with customers or generate revenue. While it has some historical basis, the term "back office" is simply a conceptual framework used to distinguish various admin or support functions from other operational processes. In other words, "back office” and “front office" don't necessarily describe a business's organizational structure.
They perform the activities that enable their client-facing colleagues to attract new business, better serve existing customers and reap revenue. Equally as important, though, back-office employees equip businesses with the strategic forecasting, planning, monitoring and measurement data needed to track performance and inform decision-making. Like the engine of a car, the back office keeps the business running.
The functional areas of the back office may include:
- Financial management, including accounts payable and receivable, payroll, revenue management, reporting, taxes, governance and compliance.
- Advanced forecasting, with predictive analytics, reporting and risk management.
- Administrative functions, in support of various departments within the company.
- Back office is made up of personnel who support the operations of a company but do not directly interact with customers.
- Back-office activities include managing inventory, processing sales orders and onboarding new employees.
- Businesses often automate their back-office processes to increase operational efficiencies, thereby lowering costs and boosting profitability.
Back Office Explained
Working invisibly in the background of every thriving business is a back office that manages its core operational areas and supports the “front office,” meaning the customer-facing part of a company. Without the back office, orders for products and services wouldn’t be processed, employees wouldn’t be recruited, transactions wouldn’t be recorded, legal disputes wouldn’t be resolved, computers wouldn’t be fixed and data wouldn’t be analyzed, to name just a few business-critical back-office tasks.
The more efficiently and intelligently the back office runs, the more effective it will be at supporting the business. Employees in the may also pinpoint potential issues, such as an impending inventory stockout that could hurt sales. This requires seamless communication between.
How the Back Office Works
Employees in the front office, such as a salesperson, have the most interaction with customers. Employees in the middle office, mainly found in financial organizations, manage business risk. Employees in the back office perform all of the administrative and support functions that keep the business operating smoothly.
Back-office roles span the many different departments within a business. These jobs can range from data-entry clerks to specialized research practitioners. Example areas include:
- Finance and accounting: Back-office staff includes staff accountants, financial analysts, bookkeepers and other professionals responsible for bookkeeping and financial close tasks, tax preparation, managing a company’s investments, developing financial strategies and analyzing financial performance.
- Information technology: Back-office roles are responsible for managing and maintaining a company’s technology infrastructure, platforms and applications. Jobs can include technical support, network administrators, database managers, programmers and security engineers.
- Legal: Staff in the back office prepare and review contracts and other legal documents, conduct research, manage case files and advise the company on legal disputes.
- HR: Back-office employees lay the groundwork for employee recruitment, hiring and development. They also manage benefits, maintain personnel files and more.
- Procurement: Back-office responsibilities include researching prices for materials, products and services; evaluating suppliers; preparing purchase orders; and monitoring order and contract status.
Traditional vs. Modern Back Office
Thriving in today’s fast-paced business world requires automating time-consuming back-office processes or workflows with software. At the opposite end of the spectrum is the traditional back office, replete with labor-intensive, error-prone manual tasks, such as creating journal entries, updating employee time sheets, physically picking orders from a warehouse and compiling financial data from different areas of the business.
Back-office functions vary, depending on the industry and the products or services a company delivers. Common back-office functions include:
- Data processing tasks, such as data entry, analysis and management.
- Human resources roles, such as hiring and training employees and outlining benefits.
- Accounting and finance duties, such as managing records, reporting financial information and complying with regulations.
- Legal responsibilities, including developing company policies to comply with various laws and guarding the company against legal risks.
The Importance of the Back Office
In addition to greater efficiency and higher levels of productivity, a well-oiled back office allows a company to focus on its core competencies and . For example, with the accounting team in the back office adept at processing invoices and tracking expenses, the front office can focus on sales and other customer interactions, rather than on problem-resolution.
The back office also plays a crucial role in strategic planning. With streamlined, integrated systems and accurate data, business leaders have access to a wealth of up-to-date information that drives strategy and accelerates the time to market for new products and services.
Companies that improve or modernize their back-office operations dramatically outperform their more traditional peers, garnering more than twice as much customer satisfaction and 11 times the amount of employee productivity annually, according to Aberdeen Group (opens in a new tab) research. In addition, a well-functioning back office allows employees to focus on delivering insights and innovation, rather than crunching numbers and compiling reports, leading to greater job satisfaction and higher talent retention.
Many of the back-office challenges organizations face stem from relying on disparate platforms, multiple data sources and siloed software, which slows down workflows and requires additional labor to maintain and troubleshoot issues. Common back-office challenges include:
- Change management: Companies transitioning to modern back-office systems need to let go of “the way things always worked,” even when the new ways promise greater efficiencies and productivity. In addition, when companies attempt to update business processes without first reassessing and refining those processes, they may perpetuate certain inefficiencies. And when leaders lack performance data, they can’t begin to grasp the hidden potential of their employees.
- Lack of operational visibility: Low visibility into back-office tasks, processes and data can lead to poor customer outcomes. Semi-regular, manually produced reports fail to disclose many of the issues that often plague back-office processes. Without easy access to data, managers can’t easily drill down into key areas of the business, or a single process, to gain insight into problems and make improvements.
- Need for real-time supply chain data: Managing customer and partner expectations in the face of supply chain shortages, rising costs and shifting buyer behavior is nearly impossible without access to real-time data. Recent global supply chain issues have driven home the need for businesses to more tightly couple their supply chains and inventory management systems with their ERP and customer relationship management (CRM) platforms.
The back office plays a crucial role in the smooth operation of companies in many industries.
For example, a key responsibility of a bank’s back office is to maintain accurate
all transactions, including deposits, withdrawals and transfers, and any associated fees
that accounts may incur. In addition to monitoring transactions, a bank’s back office
manages the bank’s financial accounts and handles its risk-management and compliance
Meanwhile, a retailer’s back office is typically responsible for supporting customer-facing functions, with tasks like record-keeping, order-processing and reconciling transactions. Another core back-office function is inventory management, including monitoring stock levels, reordering supplies and forecasting demand.
Thanks to technology, many back-office functions are now handled by employees working remotely or outsourced to a third party.
Industries With Back-Office Operations
While almost all companies have back-office systems, some industries tend to have larger back-office operations than others. For example:
- Service industries with large customer-support operations and customer-processing functions, such as telecom, cable and power companies, benefit from a large back-office operation that often handles customer accounts with different pricing, regulations and tax structures based on different geographies.
- Financial services organizations, such as banking, wealth management and insurance companies, require meticulous record-keeping. The governance, risk and compliance requirements place a premium on consistent process flow and security — responsibilities that back-office personnel manage.
- Government agencies often require large back offices to support a variety of service functions. Many agencies are funding a variety of modernization projects, from small grassroots upgrades at local levels to major agency overhauls, to improve efficiencies and productivity.
- Retailers, especially online retailers, require an extensive back-office system that benefits from a common platform when integrating legacy systems with cloud-based ecommerce platforms.
Although these industries have historically had people-intensive support functions, thanks to technologies like document scanning, workflow systems, data management and process automation, most of the back-office work is automated today.
Upgrade Your Back Office to Modern Systems With NetSuite
Achieving a unified view of all back-office operations requires a central data source and tight integration of software used by back-office personnel. NetSuite ERP is an all-in-one cloud business management solution with a single integrated suite of applications for managing accounting, order processing, inventory, production, supply chain and warehouse operations. NetSuite ERP streamlines and automates many critical business processes, ensuring accuracy and data integrity. Companywide visibility is another important benefit. Managers can access financial, operational and transactional data from across the organization and customize their dashboards, reports and analytics to keep tabs on all aspects of back-office activities.
The back office plays an essential role in a company’s success, providing administrative support for a company’s front-line interactions with customers. Modernizing back-office systems around a unified platform is instrumental to transforming the back office from a cost center to a value center, allowing all departments, including the customer-facing front office, to improve efficiencies and provide an enhanced customer experience.
Back Office FAQs
What does a back office do?
The back office comprises the operational areas of a company that support the front office, which is the customer-facing part of a company. It includes administrative functions, such as finance and accounting, procurement, HR and legal, as well as customer-support functions, such as order fulfillment, transaction processing, document preparation and dispute resolution.
What are the objectives of back-office operations?
The main objective of the back office is to support all functions of a business with processes and technologies that drive efficiency, cost savings and customer satisfaction. The back office processes transactions and maintains accurate financial records. It identifies and mitigates potential risks and ensures organizational compliance with relevant laws and regulations. The back office plays a crucial role in supporting decision-making with timely and accurate data.
What are the differences in back office vs. middle office vs. front office?
The back office is the portion of a company made up of administrative and operations personnel who support the rest of the business, including the front office. The front office includes sales, marketing and customer service functions that directly interact with customers. The front office is often considered the revenue-generating part of a business, whereas the back office is described as a cost center.
With the complexity of modern financial transactions, some service companies may implement a “middle office” that tracks and processes transactions made by the front office in an effort to manage risk and compliance and calculate profits and losses before the transactions are reconciled in the back office. The middle office is responsible for ensuring that deals negotiated by the front office are accurately booked, processed and paid for and that all required compliance standards have been followed. At some companies, specialized legal support teams are included as part of the middle office.
What are back-office skills?
Back-office workers must have strong communication and organizational skills. Each role in the back office requires proficiency in their specific domain. For instance, a data analyst may need experience in computer science, while an HR assistant will need to be familiar with employment laws and regulations.