Even today people continue to talk about the difference between strategy and housekeeping in business. I catch myself doing it sometimes and grimace.
Bankers used to talk about “Flossy” in the branches; “would Flossy understand this?”
This next bit might seem a bit boring but please hang in for a few paragraphs (promise).
Banks started to change when the US Glass-Steagall Act of 1933 (separating commercial and investment banking) was repealed in 1999. Investment banking had faster, and more complex transactions, than the, less risky, old fashioned trading banks. It also bought increasing compliance responsibility. The rise of computers was happening at the same time so banks adopted the middle office structure of investment (merchant) banks (the term middle office dates back to 19th century currency trading).
You used to only need a hight school qualification to work in the “back office” of a bank. You also had to be neat and tidy. When computers made faster processing possible it became more difficult to measure performance, manage complexity and satisfy external (and internal) compliance demands.
The old practice of leaving boring administrative work to the back office, to housekeeping, was changing fast. At the same time, not just women but anyone that had found it difficult in the past, had better access to tertiary education. Better trained people helped fill the void.
Middle office became the place where highly skilled people did 3 things:
1) measured performance – and we all know that if you want something to improve you have to measure it
2) dealt with the increasing complexity – especially computer systems that were causing huge growing pains (like CS90 at Westpac).
3) increased compliance – demands by government, as well as self regulation to manage risk, and cooperative industry regulation (I used to work for a banking industry body charged with reforming and regulating payments).
A middle office is probably the solution for your business too
I have seen many businesses where the main goal was to shunt to back office, as quickly as possible, anything that contained words they couldn’t eat. Especially if it contained traces of numbers (I get it that numbers are very difficult to digest raw for most front line people).
But right now:
Every business is having problems with performance measurement, especially with Covid-19 and people working from home. Margins are under stress and business models are changing direction at warp speed.
In fact, every business is facing complexity accelerating so quickly it gives everyone motion sickness (apparently you need more numbers to settle your stomach).
Every business right now is facing increasing swell sets of compliance changes. Expect we all know that usually not much actually changes, invariably new, usually more confusing, sometimes contradictory, requirements are added on top of the old. They call that tweaking.
Now I am all for compliance, it’s important to be a good corporate citizen, and you should leverage off it as much as you can. A lot of compliance is for perfectly sensible reasons. Properly managed you can gain strategic advantage from compliance requirements, as well as avoiding reputational and severe financial damage caused by errors, laziness or deliberatly turning a blind eye (for example underpayment of wages or sexual harassment).
Back office is freed up to focus on transaction processing and reconciliation, internal control (which is different to risk management), and the preparation of P&L and balance sheets. Middle office measures perfomance every day, back office reconciles it and summarises it once a month (periodic review).
Take the middle path to enlightenment in your business
1) consciousness – measure, manage and improve performance
2) simplicity – take the opposite approach to a trench war on complexity. Step back, see what is important more clearly, be a student of change, not a victim. Implement, or strategically partner, in a considered way.
3) comply – like Judo, use the weight of compliance against your competitors. Change your mindset to see compliance as necessary constraints. Embrace them as design restraints, that encourage innovation, and let that help you prosper in a just world. At the same time support your industry association to help lobby for sensible policies.
Economists talk about barriers to entry, and regulatory market power etc… pivot, make intelligence and clarity your super powers: embrace performance improvement, embrace simplicity and willingly comply.
Or as my mate Tom always said “don’t fight city hall”. It just makes you unhappy.
Photo by Museums Victoria on Unsplash