ARTICLE TABLE OF CONTENTS
This is about front office vs. middle office vs. back office.
Ever wonder about the differences between them?
- What a front office, middle office, and back office is
- The differences between each
- Lots more
So if you want to understand this essential of business fundamentals, then you’re in the right place.
Let’s dive right in!
Understand Front Office vs. Middle Office vs. Back Office
As you apply for jobs or are researching the infrastructure of an organization, especially in financial services, you might run into the terms: front office, middle office, and back office.
These areas of the company are different in their roles, but each function is vital to the business’s health and growth.
Each section of the company would not be able to survive without the support of the other two.
Learn each office classification’s critical tasks and goals, and how they each interact with each other.
The company’s different functions are different in their relationships with customers and their role in producing a profit.
But in the most successful organizations, each section of the company is consistent in living the core values and contributing to the firm’s mission and goals.
What is the Front Office?
So, what’s a front office, and what functions does it provide? The front office takes care of the customer-facing operations of the respective firm.
These teams are responsible for sales and business development, customer service, marketing, and public relationships.
If a company engaged with any expert advisory services, these people and companies would also be considered part of the front office.
The “front office” term originated in law reinforcement in the earlier 20th century.
The highest level of law enforcement, usually the primary police office or detective bureau, was often referred to as the front office.
By the late 1930s, the term had started to describe the essential staff in an organization, like executives and management.
So why are the front office staff and operations considered the most critical functions of the company?
These people usually have the most engagement with clients, vendors, and external business partners.
Their roles and responsibilities play a large part in developing the brand of the company.
For many companies, the front office is the reception and revenue generation arm of the business.
When it comes to financial services and other similar industries, front office team members are involved in providing personal client services like wealth management and consulting.
So how does the front office fit into the front office vs. middle office vs. back office landscape?
In almost all cases, the middle office and back office provide support to ensure that the front office operations run smoothly and effectively.
The middle office teams are responsible for ensuring the company is solvent and compliant with ethical business practices and other regulations.
When examining front office vs. middle office relationships, the front office personnel takes risks to generate new business and relationships.
In contrast, the middle office ensures that they are doing it ethically and compliantly.
When you focus on the front office vs. back office relationship, the back office makes sure life runs smoothly for the front office because of the administrative assistants.
The back office also includes human resources responsible for the hiring, firing, benefits, and composition of all employees, including the front office.
Examples of Front Office Functions
So, now that you learned the overall function and purpose of the front office, it is essential to provide key examples of each team and responsibility within the front office.
The following areas are the most critical contributors to the front office success.
Corporate is arguably the most critical part of the front office.
The firm’s executive management makes up the corporate arm.
This team makes the conceptual decision about the firm’s growth, including acquisitions, new market strategy, and other choices that impact the whole business.
The corporate team usually includes the Chief Executive Officer, Chief Financial Officer, Chief Marketing Officer, Chief Information Officer, and other key leaders who oversee the company’s main divisions.
The front office’s marketing function is the systematic process of developing products and services and then promoting them to potential and current customers.
This group defines the company’s core values and mission and then creates content to deliver value to people inside and outside the organization.
This group of the front office develops the marketing plan, identifies the ideal customer target group, and then promotes your brand in areas where people’s attention is the most prevalent.
They are responsible for converting the firm’s ideas, products, and services into healthy leads for the sales department.
Sales are the revenue generator of the company.
This critical front office group is responsible for providing solutions for current and future customers of the firm.
They are often on the “front lines” and create new relationships with potential customers.
Sales are critical because, without the revenue generated by this section of the front office, the business cannot cover its expenses or reinvest it into crucial resources for the company.
Companies must have a robust training system so that the salespeople are well-equipped to convert products and services into cash flow for the business.
The public relations arm of the front office is essential to keeping the reputation of the firm positive.
These teams nurture relationships with stakeholders like investors, media, and various regulators.
They prevent these parties up to date with important company announcements, changes, and statements.
Public relations focus on growing or maintaining a positive company image, whether following good or bad news about a company.
Although the CEO and other leadership are considered the face of the company, the public relationships group oversees the company’s critical face-to-face communications.
Although the sales group plays a role in developing relationships with current customers, the front office’s customer service section is the primary driver.
This group fields any incoming questions from customers.
These inquiries are usually questions about their product, service, or account with the firm.
The customer service section of the front office can sometimes be a challenge because of the “front-line responsibility.”
Many times, angry customers will call in to complain, and the customer service is the first representative of the company to address the concern.
This group is vital because it needs to be a resource to current customers, and a reliable problem solver when things go wrong.
What is the middle office?
You may be wondering: what’s a middle office? The middle office of a firm sits and does its work between the front office and back office.
It is in charge of managing and mitigating risk, calculating profits and losses, and ensuring the company is compliant and in good standing with regulators.
The information technology departments sit here too.
When it comes to revenue generation, the middle office does not contribute to this numerical figure.
But it is required for it to exist to manage the risk and confirm that transactions and other events by the front office are adequately executed.
Initially, the front office and back office were the only two sections that existed.
The front office personnel consisted of the salespeople and deal makers, who held the highest level of education.
The back office team members included the clerical workers that only needed a high school diploma.
So, what is the relationship between the middle office vs. back office?
Because technology and transactions evolved with time and things became more complex, the need for a middle office arose.
Functions that split away from the back office were consumed by the eventual roles in the middle office.
When it comes to risk management, the middle office is on top of analyzing potential threats to the firm.
It is usually in charge of nurturing and negotiating the firm’s insurance policy, and it plays a pivotal role in assisting the human resources department in employee benefits policies.
So, what is the relationship between the front office vs. middle office vs. back office?
Whenever the front office is engaging in deals, acquisitions, or other agreements, the middle office does a thorough job of tracking and processing these events.
The middle office personnel ensure that the deal negotiated by the front office is appropriately recorded, processed, and paid for.
Once the middle office is done completing their tasks, the reports and other data are sent to the back office for reconciliation.
Examples of the Middle Office
Now that you know what purpose the middle office serves and how it relates to the front office and back office, it is crucial to understand the groups’ specific tasks.
Below are some of the primary players and teams in the front office.
Risk management is a critical function of the middle office that identifies and manages potential losses and threats to the business.
This group heavily analyzes the risk and reward on specific projects, initiatives, and various real estate acquisitions.
Overall, the risk management group focuses on what could go wrong, and they evaluate the monetary impact on what this adverse event could have on the business.
They then outline a set of strategies that help to minimize, destroy, or transfer the risk. Some of the different types of risks that are analyzed include:
- Compliance risk—this includes making sure that the firm complies with pertinent regulations and laws
- Strategic risk—this type of risk is associated with the company’s business plan and analyzes the threat of new competitors and technological advancements
- Reputational risk—a damaged reputation can pose a chance in the form of lower profits, and this includes mitigating risk for lawsuits and negative criticism or publicity
Compliance is the process of conforming to regulations, rules, standards, specifications, and laws.
When it comes to corporate governance, compliance is crucial in managing reputational, financial, and regulatory risks.
The compliance team ensures that the company is in good standing and prepared for events like organizational changes, internal and external audits, and other implementations with technology.
In heavily regulated industries like medical, food, and banking, compliance represents a substantial investment by firms.
Information technology usually referred to as IT, are systems involving the collecting, processing, sensing, storing, exchanging, and communicating data.
With the rise in technology, big data, and cloud systems, information technology has evolved into one of today’s most critical functions.
IT plays a pivotal role in sections like entertainment, media, automation, decision support, controls, calculations, analysis, and transaction execution.
Many employees in larger corporate companies are provided a laptop or phone owned by the company.
IT oversees the onboarding, troubleshooting, and investments into these employee resources.
Some other functions of the information technology department include:
- Algorithms: designs that help solve challenging issues in less time
- Automation: the processing of automating workflows, problem-solving, and decision making
- Artificial intelligence: another improved technology that improves itself as it learns
- Business software: tools for managing business practices and processes
- Cloud computing: an enhanced technology class that delivers on-demand computing solutions and effective scaling
- Coding: implementing and designing various software
Financial controls include the policies, processes, and protocols used to manage the company’s finances.
This group plays a vital role in ensuring that the firm can achieve its financial goals and adhere to obligations of due diligence, corporate governance, and fiduciary duties.
These controls may be deployed with automation, responsibilities, or accountabilities. Some examples of financial controls include:
- Financial statements: the CEO and CFO are usually responsible for providing accurate and timely financial statements for the company, like balance sheets, income statements, and cash flow statements.
- Accounting standards: making sure the company reports its financials that are compliant with universally-accepted accounting standards
- Policies: includes managing the general ledger, reconciliations, chart of accounts, invoicing systems, inventory, asset management, and payment processing
- Segregation of duties: ensures that sales and revenue recognition exist separately and compliant with one another
What is the back office?
Now that you’ve learned in detail about the front and middle offices, it is time to answer the last critical question: what’s the back office?
The back office is the part of a company that includes the administration, support teams, and other team members and groups who are not client-facing.
Some of the back office’s primary responsibilities and roles include record maintenance, settlements, clearances, and regulatory compliance.
Depending on the company structure, accounting and IT services are grouped back here as well.
The back office is the engine behind the business operations, and they provide the supporting functions to make sure this runs smoothly.
Although it might seem that they are invisible because they are in the “back,” this section of the company is critical in the business’s health.
When it comes to the front office vs. back office relationship, the back office helps equip and enable the front office to succeed in their client-facing tasks.
Like the middle office, the back office is always involved in activities that do not directly produce revenue for the firm.
Examples of back office
So, what are some examples of the back office?
Built on a strong operations team, below are some of the critical functions of the back office.
The business operations team is responsible for executing the core business process of a firm.
These activities should be centered around productivity and efficiency.
If a company knows how to delegate its resources to minimize its costs, it can dedicate more of its sales to business growth opportunities.
Depending on the firm’s structure and goals, operations functions include logistics, information technology, manufacturing, sales and marketing operations, and customer service.
The accounting team is responsible for accurately recording the financial transactions that take place in a business.
This group specializes in analyzing, summarizing, and accurately reporting all these events to regulators, auditors, tax collection firms, and oversight agencies.
Accounting is one of the most critical functions of any type of business.
It tells a “financial story” about a business for a given month, quarter, or year. It correctly gives a snapshot or summary of the financial health of a company.
The main financial statements that the accounting team produces include:
- Balance sheet: an overview of the value of a company’s assets, liabilities, and stockholders’ equity
- Income statement: an overview of the company’s revenues, expenses, and total net income or loss
- Statement of cash flows: an overview of the company’s cash inflows and outflows, about investing activities, operating activities, and financial activities
Human resources is also a crucial function of the back office. Human resources management aims to maximize employee performance and control to fulfill the firm’s goals.
The back office helps the organization find and maintain human capital to deploy the company’s business plan and ensure smooth operations.
The human resources department’s other function includes financial management, labor relations, compensation, benefits, recruiting, performance management, and training.
The most important investment for any organization is in its people, and human resources help foster that.
Manufacturing and Logistics
Manufacturing and logistics is another critical task of the back office, especially for non-service businesses.
It involves converting raw materials and parts into final goods and services to be used by customers.
This group oversees, ensuring the company is as efficient as possible with its manufacturing process, managing quality assurance, and partnering with quality vendors.
For logistics, this involves maximizing your distribution channels and transport.
The business will be useless if it cannot obtain the raw materials to produce goods on time.
Customer relations will also suffer if the final products cannot be delivered to customers as promised.
Front Office & Middle Office & Back Office in Detail
Do you now exactly know what a front office, middle office, or a back office is? If not, there are most extensive articles about each type.
If you want to understand in-depth each office type and get it explained with examples, then take a look at the following articles:
Understand Back Office Outsourcing (+ How to)
Back office outsourcing trends have fluctuated in recent years, but over 50% of businesses use outsourcing to help cut costs.
If you want to start outsourcing, your back office is the perfect area of your company.
Your back office employees rarely, if ever, communicate with clients.
So by outsourcing those jobs, you can reserve your office space and resources for other work.
Learn here more about back office outsourcing and how to go about it: understand back office outsourcing.