The original title "How should the middle and back-office functional departments assess? 》, the title map comes from: vision china
In "Middle-platform construction: not only IT tools, but also organizational layout. Middle-platform construction: not only IT tools, but also organizational layout.In the article, I mentioned that the main positioning of Taiwan in business is to provide "ammunition" to support front-end operations.
But only the traditional functional departments(such as research and development, production, procurement, etc.)Renaming the business center and emphasizing the above positioning will not change the traditional pyramid organization. In order to make the middle office of the business play a corresponding role, we should work hard on the assessment, and only through the assessment can their position and mode of action be changed.
This leads to a question-"how should the Taiwan department assess the business?" Looking further, this question can be extended to "How should the middle and back-office functional departments that do not directly fight for grain be assessed?"
If you don’t assess the effectiveness in the middle and backstage, you are playing hooligans.
In general, the departments that do not directly harvest grain are collectively called functional departments. Among them, the cost centers such as supply chain, production and procurement departments are generally regarded as the middle platform, while the cost centers such as manpower, finance and legal affairs are generally regarded as the background. Because the functional departments don’t fight for food, how to assess them has become an eternal problem.
In the minds of all bosses, the most ideal state is definitely to assess the business value of the middle and back-office departments. To put it bluntly, it is to assess how much these departments have contributed to grain production. Some enterprises even push the middle and back office departments to the front desk to fight for this, but this is obviously unreasonable. Therefore, enterprises can only find a substitute index, split the business objectives into strategic objectives, and sink the strategic objectives to each middle and back-office department.
However, this has formed the effect of "managing each section", which has led to a great decline in the support of the middle and back-office departments for the front-office departments, and even led to a bureaucracy of "keeping an eye on KPI and management across the board". Moreover, no matter how scientific the decomposition of strategic objectives is, it is really unconvincing not to hang up the KPI of the front-office operating results, which is more like the self-talk of these departments.
Therefore, we can determine the first principle that should be followed to assess the middle and back office relatively accurately:
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Principle 1-There should be a clear mathematical linkage relationship with the front-office operating results, not a logical linkage relationship.(traditional strategic decomposition method).
The two major functions of the business center and even the backstage are "landing rules" and "transporting resources", and the two are blended with each other to become "ammunition" to support the front-end operations. Traditional backstage likes to emphasize that their main function is the "landing rule", because this positioning is not easy to assess and there is huge free space.
In order for the middle and back office to provide ammunition, the assessment should be reversed, from the main assessment of "landing rules" to the main assessment of "transporting resources". Only in this way, the powerful business department in Taiwan will consider how to flexibly adapt the rules instead of using rigid policies to find business space for the front desk on the premise of operating resources.
Therefore, we can determine the second principle that should be followed to assess the middle and back office relatively accurately:
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Principle 2-We should focus on the results of "transporting resources" in our department, not the results of "landing rules".
Principle 1 means that the contribution of the middle and back office should be separated from the front office’s operating performance by mathematical logic, and principle 2 means that the resource operation mode of the middle and back office departments should be clear and quantified. It is not difficult to find the combination of the two.The assessment of the middle and back office departments should have only one theme-efficiency.(Efficiency, that is, efficiency).This is the result indicator of the middle and back office, while other indicators are process indicators. Without outcome indicators, process indicators are castles in the air and meaningless.
Two perspectives of middle and back office effectiveness assessment
In the past, there was a misunderstanding in the middle and background of the assessment. For example, kazuo inamori’s "amoeba management" and Haier’s "market chain" implemented in 1999, this kind of model allows enterprises to conduct upstream and downstream transactions, trying to convey market pressure with the logic of "the next working procedure is the user". However, because there is only one role in the upstream and downstream, there is no substitute for the transaction, and the price is simply unclear. Moreover, this assessment method will inevitably lead to "each department is in charge of a section", and it is impossible to "market-centered" or "user-centered" cooperation.
Later, there was another misunderstanding, that is, to make such middle and back-office departments smaller and let more people from the middle and back-office departments enter the front desk. As a result, the front desk has become many small business units, but these seemingly flexible small business units have lost the support of "heavy firepower" because of "hollowing out" the middle and back office, so they can only manage "small guerrilla warfare". In addition, this way of extreme authorization to the front desk will also lead to management out of control.
The former way is biased, while the latter way tries to "bypass" the assessment in the middle and back office. Either way, it has not solved the problem of quantifying the operating value of the middle and back offices. And if we follow the first two principles, it should not be difficult to find that assessment efficiency is the best choice. Consider the following logic:Resource input x efficiency = effective resources obtained by the front desk.
On the one hand, these resources, as "ammunition", have entered the end products, which are naturally highly related to the front-office operating results, in line with "Principle 1". On the other hand, efficiency obviously determines the result of "transporting resources", which is in line with "Principle 2".
The front desk can assess the business performance, but it is also necessary to assess the efficiency, so as to avoid the front desk department from trading "big resources" for "small performance", which is ostensibly glamorous, but in fact it is not performing well. There is no obvious business performance in the middle and back office, and they can only evaluate their effectiveness. To put it bluntly, their positioning is to transport resources to the front desk as much as possible without loss. There is no obvious difference in the magnitude of resources between the two enterprises, which enterprise has higher efficiency in the middle and back office, and the front desk can get more food. Here, the spell is organizational ability, and the reason why I emphasize that "efficiency is the best endorsement of organizational ability" is this truth.
Any business is the result of investing resources and can be measured by efficiency. And all the resources invested by enterprises can be measured by two big caliber-human efficiency and financial efficiency. In order to improve human efficiency, we need to follow the principle of "selecting and retaining functions → team"(Organization+Talents)→ human effect "Human resource management(human effect)value chain; To improve financial efficiency, we need to follow the principle of "business function → business track → financial efficiency"Business management(financial efficiency)value chain. More interestingly, there is obvious synergy between the two value chains. The improvement of human efficiency can incite financial efficiency, and financial efficiency also has a feedback effect on human efficiency.
Figure: Value chain of human efficiency and financial efficiency
Source: Dr.Leo Moo Consulting.
In fact, human efficiency and financial efficiency are like the two veins of business. If you get through them, a business can be suddenly enlightened. For this reason, we also advocate that the heads of middle and back-office departments think about departmental work from these two perspectives and become "small bosses" in doing business. If they accept this view, the index system formed by the overlapping of human efficiency and financial efficiency can lead them to the right direction and quantify the operating value of these departments.
For example, we imagine the R&D department in the middle and back office as a "R&D outsourcing company", so the evaluation of its effectiveness should be two: one is human efficiency, that is, how much R&D and surrounding personnel are invested, or how much corresponding labor costs are invested, and how much revenue is generated.(workload, revenue, profit, etc.); The second is financial efficiency, that is, how much income has been generated by investing in various R&D resources. Overlapping the two, it should be possible to form several typical performance indicators, and simply quantify the effect of "transporting resources" by R&D departments. Of course, in order to realize the quantification in this direction more stereoscopically, enterprises can extend the assessment to the driving indicators in two value chains, forming an index system similar to "scorecard".
Application of middle and background performance dashboard
If we recognize that the middle and back office departments should assess the effectiveness, how can we put the effectiveness assessment into practice?
The first step is to find the key performance indicators.
There is a linkage relationship between the indicators in the efficiency index group: from a macro perspective, the human efficiency index has a clear driving role for the financial efficiency index. According to the research of Dr.Leo Moo Consulting in 2020, in enterprises with Internet attributes, for every unit of human efficiency change, the financial efficiency changes by 4.33 units in the same direction. From the microscopic point of view, there is also a clear linkage relationship within the human efficiency index or the financial efficiency index. In a word, we can form a causal chain between performance indicators, and find the most critical performance indicators as the main assessment indicators.
In fact, this step is to deconstruct the business logic of each middle and back office department as a company. It’s wonderful here. If you regard a middle-and back-office department as a "company", you will find many rules in their operation, so it is possible to find the key performance indicators that support the front-office operations.
The second step is to find the MID of key performance indicators.(Most Important Drivers, key drivers), explore the causal chain.
This step regards each middle and back office as a company and begins to go deep into the business details, not just staying at the business level. Only intervention based on business logic can improve efficiency, or efficiency is only a result. Only by considering the value chain of efficiency in business scenarios can we trace back to the source and find MID.
According to the experience of Dr.Leo Moo Consulting, there is almost a huge room for improvement in the human efficiency of every middle and back-office department. As long as you invest in the right people and resources.(money)Aiming at the main performance output targets, high efficiency is inevitable. In other words, any adjustment of "playing style" can bring gains in efficiency improvement.
For example, the supply chain department may send business partners to several front-end BUs by adjusting the team-building ideas, resulting in more accurate first-line demand and more accurate first-line delivery, thus improving the efficiency of supply chain support.
For another example, the R&D department may give priority to a R&D project with higher "cost performance" by adjusting the R&D schedule, which makes the support for the front desk BU stronger. Of course, they may also choose to give priority to a long-term R&D project to capture the value blowout in the later period, which can also support the front desk BU more. Here, it is an investment from a business perspective. If the head of the R&D department achieves this level, he is a "small boss".
Of course, the middle and back-office departments of the general level have various restrictions under the existing organizational model, and it is not easy to make these adjustments. Therefore, I will insist that the middle and back-office departments are effective and can improve the space.
Step 3, put "performance indicators+drivers" into the performance dashboard.（Efficiency Dashboard）, set a baseline（Baseline）.
When we find the causal chain of efficiency improvement, we can grab every indicator on the causal chain, and then allocate weights and measurement methods to form an efficiency dashboard. Of course, if the indicator can be applied, there must be a Baseline. With Baseline, we can judge how many indicators are called "high" and how many are called "low" and measure the score of indicators. Here, we must first clarify the principles set by Baseline.
The first is the management reverse method.Baseline is set to ensure that this causal chain with performance as the end point can operate normally. Therefore, the Baseline of each indicator should be mainly based on the delivery of the next link. For example, in order to achieve the company’s operating performance, what kind of financial efficiency standards need to be achieved by the production department, which forms the financial efficiency Baseline. For another example, in order to achieve the financial efficiency Baseline of the production department, what human efficiency standards need to be achieved, which forms the human efficiency Baseline. Then, each driver can also derive Baseline.
The second is the trend extrapolation method.On the basis of causal chain inversion, we should also consider the actual situation of departments. Some departments are at a low level and cannot reach the Baseline set according to business objectives. At this point, we need to change our thinking.
The third is benchmarking.Considering that the enterprise is in a competitive environment, based on the performance Baseline of business objectives, it may be necessary to consider benchmarking. This is a difficult problem in itself. If it cannot be broken through, it may lead to inaccurate Baseline, which will be introduced later in this article.
The fourth step is to use the results of the performance dashboard to motivate the middle and back office departments.
The last step is the easiest to make mistakes and must be reminded. Once the effectiveness of the middle and back office departments is measured, we must not allocate the bonus roughly, and then simply allocate it according to the level of effectiveness.
First, the bonus pool in the middle and back office is not allocated by the budget, but comes from the company’s profits.(If the profit is poor during the period of strategic loss, you can consider the measurement caliber of stock/equity value-added income, strategic profit and loss, etc.).
As an important part of salary, the source of bonus should still come from the grain hit by the front desk business unit. The way to form the bonus pool in the middle and back office is either mapping, nesting or cutting … There are several technical solutions here. In short, the middle and back office must be consistent with the goal of the front office. The front office has not made any money, and it is useless for the middle and back office to perform well. We cannot encourage everyone to be "not in the same boat". Many friends in the middle and backstage may question this, but if you are the boss’s perspective, there will be no controversy at all.
Second, the bonus distribution between the middle and back office departments should not rigidly apply the results of performance appraisal.
Due to the different performance indicators of the middle and back departments, it is impossible to rank the contributions according to the tournament model and distribute bonuses in turn. As for how to measure the contribution, the efficiency result is definitely an important factor, but it is not all factors. For the use of the efficiency result, technical data processing should be carried out.
Three fast knots in the performance evaluation of middle and back office
In reality, although most people will agree with the idea of evaluating the effectiveness of the middle and back office, it is difficult for them to push the concept of performance dashboard into practice. There are three reasons:
First, the performance of the front desk is vague.
For the middle and back office, the evaluation of efficiency is the evaluation, but the incentive is far more complicated than the evaluation. As mentioned earlier, the allocation of the bonus pool must come from the food hit at the front desk. Not only that, if we can’t quantify the performance of the front desk, it is difficult for us to calculate how many resources they use. Therefore, the efficiency accounting of the middle and back office must be based on the accounting of the business performance of the front office, otherwise the assessment of "transporting resources" will become self-talk.
In the methodology of Dr.Leo Moo Consulting, all businesses are divided into profit pools and growth engines. The former is a profitable business with realistic business value; The latter is the hope of the future and has long-term strategic value. The profit pool is also divided into one, two and three levels. As for the growth engine, it is even more complicated.The performance of the front desk, including both operating profit and loss and strategic profit and loss, is a comprehensive result.
The reality is that almost all enterprises are vague in measuring the performance of the front desk, and it is normal to use profit assessment across the board. In essence, this is due to strategic ambiguity, and the boss has not thought clearly about what he wants. If performance measurement is not based on strategy, the result will be a muddled account. The performance of the front desk is not clear, and the assessment of the middle and back offices naturally cannot form a closed loop of verification.
Second, the business processes in the middle and back office are not standardized.
If the business processes in the middle and back office are non-standardized, it is difficult to measure their output, and naturally it is impossible to account for their effectiveness.
When I teach, I almost always encounter the same question-"How to evaluate the effectiveness of the R&D department?" So far, I have heard this question dozens of times, and my answer to this question and the feedback from students can also explain this difficulty.
My answer is: "R&D is a process, and each node should be a gate. Formal R&D management requires time to pass the gate, and after passing the gate, the products are also graded. For example, before passing the gate, it was Grade A, and after passing the gate, it may become Grade S.. Then, based on’ time’ and’ grading’, we can simulate the value points of R&D.. On this basis, based on the investment of human and financial resources in research and development, their effectiveness can be obtained. "
Upon hearing my reply, almost all the students replied: "Our R&D process is not so rigorous, and the R&D personnel are all working hard."
Then the question is, is this chaotic research and development state reasonable? At least in my view, excellent companies have their own rigorous R&D processes. Some enterprises not only evaluate the product level at each gate, but also evaluate the "expected ROI" of products.(Production ratio)”。 Is it complicated? It is too complicated. But this is the competitiveness of others.
A large number of enterprises do not have rigorous business processes, which does not mean that it is wrong or impossible to achieve, but that leader in this field are unwilling to standardize business processes. As for why they don’t want to, one possibility is that they don’t have enough vision, they are used to feeling by hand and are afraid of trouble; Another possibility is that they are afraid that standardization will lead to the compression of their power space. Therefore, they will find various reasons to oppose standardization, and what they say is "the process is too rigid" and "the actual situation is too complicated".
Third, after the effectiveness of the assessment indicators, there is a lack of baseline, and the indicators cannot be used.
I talked about the indicator Baseline earlier.(Baseline)The most difficult method to determine Baseline is benchmarking. But this step can’t be bypassed, because the operating performance advantage that is not based on efficiency advantage is just a bubble. How to solve it?
First of all, this may require going to the market to find the target company. It doesn’t mean that a main business is a benchmarking enterprise. Everyone has different business models, different strategies and different stages … For example, Ali and JD.COM are both doing e-commerce, but one of them is a platform model and the other is a self-operated model. Can they be compared together? This selection requires skill.
Secondly, even if a few or a certain type of benchmarking enterprises are selected, their data should be cleaned to ensure the comparison with the same caliber. For example, one enterprise has achieved light operation through "outsourcing", while another enterprise is still standing by itself to the end, so the human efficiency data of the two enterprises cannot be directly compared. If we want to compare, we must also use the algorithm to "restore" the personnel outsourced by the outsourcing enterprise, or use the algorithm to "eliminate" this part of the personnel from the enterprise that has stood one way to the end. This kind of cleaning naturally requires technology.
Finally, as the number of baseline, it is very likely that it is not the data from a benchmark enterprise, but a comprehensive index or dynamic baseline. Think about it, can we find five benchmarking companies and simply average their performance data as a baseline? There is still a need for technology.
If you want the middle and back-office functional departments to create business value, you must solve their assessment problems and tie them into the data. It’s commendable to explore for yourself, but it’s too difficult to find a way out in this unknown field. It doesn’t matter whether it is difficult or slow. The key is to have the empowerment of professionals, step by step, and don’t go astray.
This content is the author’s independent opinion and does not represent the tiger sniffing position. It may not be reproduced without permission. Please contact hezuo@huxiu.com for authorization.
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