Front, Middle and Back Offices

A company’s business processes can be divided into “front office,” “middle office” and “back office” to describe the relationship of such processes to the ultimate customer or consumer of the company’s goods or services. In a vertically integrated organization, all processes are conducted internally, with no outsourcing. With the advent of the service-based global economy, no vertically integrated organizations exist. Even governmental security apparatus requires access to commercial goods, services and technology.

This distinction is useful to identify where, in an enterprise’s supply chain, a business process might be improved by electing to insource or outsource it. (Business process transformation is another subject. Here, we assume that the process is already optimized for efficiency.)

OEM Services (the “Front Office”)
“OEM” services derives from the concept of “original equipment manufacturing,” where a manufacturer produces an article for sale under the brand of its enterprise customer. OEM manufacturing has been popular since the invention of trademarking and the willingness of manufacturers to sell products not bearing their own trademark.

In the service sector, “OEM Services” defines a service model where the ultimate customer or consumer of the services is not familiar with the actual service provider. The term “OEM Services” refers to situations involving direct customer contacts by an outsourcing service provider on a non-disclosed basis. The services are provided by “ghosts” of the outsourcer, not personnel of the company doing business with the end-user or ultimate customer. The personnel (sometimes called “agents”) are employed by the service provider to engage in direct relationships with the ultimate customer or consumer.

Middle Office Services
In the “middle office,” someone needs to contact a supplier or other third party who is essential to the business’s operations. But the “middle office” personnel do not contact the customers. Such personnel control the process of getting and distributing goods and services to customers for eventual delivery by a “front office” person.

“Back Office” Services
The term “OEM Services” is distinguished from “back office” outsourcing, where the end-user or ultimate customer never had any contact with the personnel in a seller’s “support” functions, such as information technology, accounting and finance, legal, product development, research, development, HR department or administration.

Risk Management
As with any outsourcing, reputational risks arise. In situations where an enterprise customer has hired an outsourcer to provide services directly to the enterprise’s customer’s clients, a failure of service will impair the enterprise customer’s reputation. For this reason, “front office” or “OEM Services, while prevalent, require careful planning for business continuity and brand management.