Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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The strategic importance of mid-office processes

by Mark P. McDonald  |  June 19, 2011  |  2 Comments

The term mid-office refers the collection of semi-structured activities, processes and decisions that exist between your formal front and back office processes.  These are the processes and activities that shape your value proposition, operating efficiency and business effectiveness.  While mid-office processes can be difficult to name and define, that does not mean that they are not strategic to the enterprise.

Strategic importance rests of a few well-defined principles based on work by Porter, Barney, Teece and others.  Simply put a strategic resource is something that is:

  • Valued by customers and markets
  • Unique to your organization
  • Cannot be readily copied by others
  • Cannot be replaced by other resources (e.g. substitution)
  • Limited availability of substitutes or alternatives
  • Provides a basis for differentiating your organization in the market

These criteria form the basis for designating something a strategic – as a basis for competitive or comparative advantage.

The issue is that many organizations front and back office processes no longer meet these criteria.   The drive for greater efficiency, increasing globalization, creating ‘ecosystems of companies, advances in communications and technology, and the adoption of global process standards (ISO etc.) have caused a convergence in both the back office and front office as these activities become very similar if not the same.

Increasing similarities across organizations in the front and back office do not mean that these processes are not longer important.  No they are operationally critical.  But they are no longer as strategic as they once were when they were unique to the organization, not easily copied or replaced, etc.

Executives need to find new sources of strategic advantage based on resources that cannot be readily copied, hired in via a sourcing relationship and the like. Those resources can be found in the space between their front and back office operations – the mid office.

Mid office processes are well positioned to create strategic advantage.  These processes are the ones that make decisions concerning the structure, operation, and future of the front and back office.  Mid office processes include:  product development, strategy formulation, corporate development, pricing, marketing, resource and budgeting, etc.  These processes form the dynamic capabilities that change the nature of what happens in the front and back office.

Mid office activities have several characteristics that make them difficult to standardize and therefore difficult to substitute, copy or replace across companies, creating a basis for strategic advantage.  They do this by putting people at the center and levering their skills, experiences, knowledge and interests to drive performance.

These characteristics revolve around the role of individuals and their skills relative to their contribution to success of mid office processes.

  • Outcomes that are based on individual and group decisions that emerge from how they view the situation rather than applying predefined or automated rules.   This makes it difficult to standardize the work in the mid office and therefore difficult to copy.
  • Decisions resting on judgment and understanding which places their performance in the hands of the knowledge, skills and abilities of people rather than processes, technology or other systems.   These processes are only as effective as the skills of the people involved.  Skilled knowledge workers now become a source of strategic advantage.
  • Behavioral in their execution as success requires deploying these decisions in the market, among customers and across the company by changing their behavior making change management more than communications and compliance.
  • Adaptive due to their semi-structured nature giving mid-office activities a degree of fluidity that can handle changes in market and organizational conditions.  Mid office processes have just enough structure to create credible decisions without being so structured to be incapable of evolving to meet new challenges.

Contrast these characteristics with the role of people, knowledge, information and insight in front and back office processes that have undergone major automation and standardization transformations.

Most are familiar with the continued automation, standardization and sourcing of back office processes which have translated unique capabilities into commodity services.  Predictability, process and scale are critical factors in the back office based on people performing as a resource input in the process.

A similar transformation is underway at the front of the company. Sales force effectiveness, online stores, channel rationalization and the like have brought stability and similarity to the front office.  Call center standardization, sales compliance programs and brand compliance at any cost are symptoms of the operationalization of the front office.

Recognizing the mid-office recognizes a new source of strategic advantage based on the most unique resource in the world – your people, their experience and their knowledge.  While people may be standardized through process and compliance at the front and back of your company, they find their strategic role in determining how the organization changes and faces the future.   The work found in the mid office.

Related Posts:

Start improving performance by naming your mid office processes.

Time for a new concept: the middle office an  article in the FT

It is time to start thinking about the middle office

2 Comments »

Category: Innovation Management mid-office Strategic planning Strategy     Tags: , , , , , ,

2 responses so far ↓

  • 1 Mohammed   August 27, 2011 at 1:23 pm

    Great post! I think it helps in knowing the criteria behind defining the scope and boundary of front, back and mid office process. Does it change from one Industry to another?

    Could you also help me in understanding your comment in the post regarding creating ecosystem of companies?

  • 2 Mark P. McDonald   August 28, 2011 at 5:24 am

    Mohammed

    Thanks for your comments and question. The reference to ecosystem is in recognition that companies have ‘sourced’ their front and more often back office processes through alliances with other companies — creating an ecosystem. When they do that, they limit the strategic potential of those processes as they are by definition available in the marketplace to others.

    The mid office becomes more strategically important when you create an ecosystem as how you manage, lead and make decisions about how you use the ecosystem take on greater strategic relevance.

    Think of the Virgin group, which has several ecosystems in financial systems, entertainment, etc. Since others are doing the front and back office work the only thing that they have, the only way they create strategic value is via the mid office.

    Hope this helps. Thanks for reading the blog

    Mark