What is a Middle Office?
The middle office is a term that is applied to business functions that focus on
monitoring and providing information about the outcome of efforts conducted by
the front office. The data that is received and structured by the middle office is
then passed on to the back office, which in turn completes the transactions
necessary to keep the business active. Often, this section of the business is part of
the operations division of the firm, and focuses its attention on such important
tasks as quality control, risk management, and loss prevention.
In many situations, the middle office functions as a support mechanism for the
front office. One example of this type of relationship can be seen in the sales
efforts of the business. As the sales force wins customers for the business, the
middle office handles the tasks necessary to handle the fulfillment process,
allowing the customer to receive the goods or services ordered. In the event that
the office, as part of the operations area of the business, is unable to deliver on
the promises made by the front office, the customer is usually lost. For this
reason, close communication between those who sell the products and those
who engage in product delivery is extremely important.
While the concept of a middle office can apply to any type of business, the term is
routinely used in businesses that focus on providing financial services. Here, this
section of the company operation often focuses on managing the flow of
transactions within the company, as well as maintaining detailed and accurate
records regarding those transactions. This makes it easier to maintain an accurate
accounting of the profit flows of the business, and plays a major role in the
settlement of accounts.
The middle office often has the responsibility of providing the back office with the
data necessary to complete the transaction process with the customer. Once a
customer order has been successfully prepared, the data is transmitted to the
back office, where delivery can be scheduled and the invoicing process can take
place. Without the middle office to supply essential details, the back office would
be unable to manage these functions, and the company would never generate
cash flow.
In just about any type of business, the middle office functions as the perfect link
from the open market functions of the company, and the successful completion
of the interaction with the customer. By helping to manage the flow of
information, managing the use of resources in the preparation of the product
delivery, and passing on essential data for the completion of transactions, the
middle office provides the framework that provides the company with an efficient
and logical operating structure. When some factor inhibits the ability of the office
to manage these important functions, every other area of the business finds it
much harder to efficiently operate.
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What is a Back Office?
The back office is a collective term that refers to the portion of a business
operation which is focused on handling the tasks necessary to keep a company
functioning. This designation comes about from the tradition of housing these
functions in the rear of a business facility, away from the general public. An
arrangement of this type was once very common with all types of businesses, and
still holds true for the layout of many different types of business operations such
as retail stores and other sites where customers are likely to visit the facilities.
The traditional arrangement for a place of business called for three distinct areas
in the general operations architecture. First, the front office provided an area
where customers could interact with sales staff and others. The middle office was
often the site of clerical and administrative functions, as well as the area where
company officers have office space. A back office housed functions that help to
keep the other two sections in perfect working order, making it essentially the
heart of the business process.
Today, a back office is likely to include space for the performance of three key
departments in the overall company structure. The accounting department is part
of this group, and is responsible for accurately recording the financial transactions
that take place as the ongoing operation of the business. Among the many
functions handled by this department, personnel working in this area will handle
such issues as making sure payrolls are prepared in a timely fashion, payments to
vendors are made on a regular basis, and that payments received from customers
are accurately posted to each customer’s account.
The human resources department of the company is also part of the back office
structure. This area is responsible for working with managers to secure employees
for open positions, develop and oversee the relationship between the company
and each employee, create hiring, disciplinary, and termination procedures, and
intervene when there is an issue between any two employees of the business.
The efforts of the human resources department have a direct impact on both the
middle and front office, and the personnel who staff those areas.
A more recent addition to the back office is the information technology
department. This area is often responsible for any type of electronic network that
operates within the company, as well as managing telecommunications functions
for the business. An IT department is also often involved in the selection and
installation of various types of communication equipment, including computers,
phone systems, and other equipment related to the communications process.
The designation of a back office does not mean the functions managed in this
area are of little importance to the well-being of the company. In fact, back office
functions make it possible for the remaining components of the business to
function properly. For this reason, many businesses consider the back office to
actually be the operational foundation of the company, and go to great lengths to
make sure it is functioning at maximum efficiency.
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