What should it cost to run a back office and how can a plan be developed to identify areas for improvement that lead to improved operations and ultimately deliver on the promise of "the workplace of the future"?
Every company is different, yet they share a common base line of back office functions and associated costs. We’ll set our back office baseline with the most commonly found areas of indirect spend.
The cost elements incurred in back office operations are varied and can even include things like worker compensation, back office equipment capital expenditures, software investments, and simple office supplies expenses. With so much in the indirect spend bucket, the key challenge for a business is to find ways to maximize its return on investment from capital expenditures, to optimize the efficiency of its administrative labor, and to minimize expenses on general office operations (indirect spend).
To remain competitive, it's important to assign resources for implementing improvements designed to maximize back-office efficiency. However, although elements of each of these spend requirements will remain, regardless of where a business is in its transition cycle, what can change is the amount invested into each element and the ratio and impact each element represents of the total (reduced) spend.
A $45M business with 17.5% SG&A equals $7.9M in expense. Assuming 40% of this expense is General & Administrative then that's the equivalent of $3.2M each year. A 16.5% savings on the indirect (G&A) spend brings $520K of additional profit to the bottom line.
Software applications are designed to improve efficiency. Improvements in efficiency ultimately lead to a reduction in operating costs. This is important because businesses with higher operating costs than their competitors eventually are forced to make changes or suffer the diminishing of their business.
What type of business can take advantage of the transformation to a digital office?
All businesses, regardless of their size, have opportunities to reduce spend and to implement measures that improve their efficiency. Doing so is not restricted to only the biggest businesses. Of course, it's the biggest businesses that are usually the early adopters for innovative technologies and processes because they're motivated to implement measures that can save lots of dollars. They're also more likely to have management resources dedicated to assessing the latest systems as well as to attract the most sophisticated providers looking to explain and implement their services to demonstrate a return on investment.
The higher the level of efficiency a business operates at, the greater its competitive advantage. Larger businesses usually have competitive advantages over smaller rivals because they have scale. However, although their purchasing power means they have lower material costs, these cost advantages may disguise inefficiencies elsewhere that allow them to continue to operate with less efficiency, while still retaining their overall cost advantage.
Smaller businesses cannot usually purchase materials and supplies at the same low levels of material cost as larger businesses but, they can implement other measures to maximize their efficiency and narrow the competitive gap with their larger rivals. This is precisely why more modern businesses, regardless of size, are focusing on processes, systems, and software to continually improve their competitive standing. There’s low hanging fruit in doing so.
Why business can’t afford to ignore the transformation to a Digital Office?
Work practices are undergoing rapid changes, with access to the internet and the availability of sophisticated software applications at the root of these changes. The internet is not going away and the changes in work practices facilitated by software are unstoppable. Businesses that fall too far behind in technology will no longer be able to integrate and collaborate with partners and service providers due to their outdated technical capabilities. For businesses that fail to recognize the importance of adopting the kinds of changes in work practices that improve their efficiency, enhance their value proposition, and reduce their cost, they will likely fail and most certainly suffer great loss in market share.
This example is based on industry averages for the business segment represented by those with between 100 and 499 employees. Based on data provided by the United States Census Bureau, we know there are 87,500 firms in the United States within this segment, collectively employing 17 million people and generating an estimated $3.9 trillion in annual sales or 20% of total U.S. GDP. The average number of employees per enterprise is 195. (17,085,461 employees divided by 87,563 enterprises = 195 average employees per enterprise)
Case Study Profile Assumptions:
In determining average revenue per employee, we researched 108 enterprises with sales between $1M and $315M per year with known employee headcounts. The average was established from total revenues of $2.5B and 10,961 employees which equates to the average revenue per employee per year of $229,964. Of course, this will vary considerably by industry and by selling vertical. To keep it simple, we will use the one average number to explain our case.
Separate research suggests the average spend on office products and supplies is around $228 per employee per year. This may also vary considerably depending on the industry. For example, the same research suggests the average spend in the legal vertical is closer to $1,000 per employee per year.
We've utilized office product industry research to arrive at a different number: Total estimated spend on ink and toner in the United States is $25 billion per year, of which we estimate 65% is spent by businesses and 35% by end consumers. Therefore, the office spend on ink and toner is $16.25 billion per year. If ink and toner represent around 25% of the spend on office products and supplies, then the total spend on office products and supplies by U.S. businesses is $65 billion per year. This means the average spend per employee (121 million) is $536.88 per year.
So, for our example, we've assumed an average spend on office supplies of $537 per employee per year.
This is the methodology that forms the basis for determining the average spend on office products and supplies for a $45M business with 195 employees to be around $105,000 per year.
To demonstrate the opportunity for cost savings and improving efficiency in the back office, we devised a three-stage model that demonstrates the following:
Successfully implementing such a program delivers an increase of overall profitability of almost $500,000 per year, increasing operating income, as a percentage of sales, from 7.4% to 8.5%. The average spend per employee on office products and supplies is reduced from $537 to $263 per year, and the administrative headcount is ±20% from 104 to 84 as a result of increased efficiency from improved workflows. Important to remember here is this activity is focusing on the back office. Somewhat non-glamorous however with a little attention it can yield significant savings, efficiencies and other customer-centric benefits.
It borders somewhere between unlikely and impossible for a business to optimize the performance of its back-office without introducing new software into the environment. Identifying and selecting the right software is probably more art than science and is quite challenging for most organizations. Success with new technology is much easier to achieve when specific improvement goals are established. It’s only once these goals are known, that it becomes much easier to identify the right software that will achieve them.
The idea is that by increasing utilization of COTS software and digital systems, operations in the back-office become more efficient leading to a reduction in overall G&A expenses. Less labor is needed, the indirect spend bucket is reduced.
Typically, the older a business the bigger the problem (opportunity!), and the greater potential for savings because of the accumulation of inefficiencies resulting from years of band-aids applied to fix emergencies and from the residual reluctance to change. These band-aids mask long-term structural problems and, the longer they're left in place, the less willing business owners are to address them because of their ever-increasing perception of the degree of difficulty that's involved to do so.
Traditional Office companies; Stage 1 in our Digital Office Maturity Model, are still wrestling with these familiar challenges:
Software applications are designed to improve efficiency. Improvements in efficiency ultimately lead to a reduction in operating cost. This is important because businesses with higher operating costs than their competitors are eventually forced to make changes or suffer the decline of their business. For today’s businesses, there’s plenty of low hanging fruit found in the transformation to a digital office.
It’s a good time to remind ourselves that in any kind of workplace change initiative, these improvements can only be achieved when management and staff are open to changing the established way of doing things. To achieve the efficiencies and economies available to a modern business operating with a digital back-office requires embarking on a journey that takes time and effort to complete. Hence, achieving the goals of the digital office or workplace of the future is truly transformational in nature.
Assessment – How close are we to achieving the office of the future? Transformation to the "The Digital Office" can be achieved and it starts by understanding where you are today.
It may be tempting for a business to ignore inefficiencies in its back-office operations because it appears to be an overwhelming task to figure out what they are, and how to go about changing them. However, like many projects, once it has been broken down into a series of smaller, sequential steps, milestones emerge that illuminate a path toward the desired goal. Each milestone can then be associated with a small set of achievable goals with realistic timelines designed to help management successfully accomplish the overall transformation.
A three-stage process and maturity model has been developed that is designed to break this journey into manageable steps. Not surprisingly the journey starts with the adoption of some new technology in the back office. Our first step is the deployment of a simple app that connects all networked printing devices to the cloud. Immediately they're connected, the app starts to gather data, sending it back to the client database where it's converted into business intelligence. The client dashboard provides a clear view of all the networked devices and, over an initial 60-day reporting period, a picture emerges that displays usage patterns, including how much is printed and when it's printed. The level status of ink and toner cartridges is determined and, after applying proprietary algorithms, re-supply dates are calculated.
It's this business intelligence that provides the foundation for an overall assessment of the business requirements/opportunities. This will then be used as the basis for establishing workflows and processes to maximize efficiency, reduce labor costs, identify the most optimal equipment for business needs, and to manage the spend on office products and supplies.
From improvement opportunities considered to be low hanging fruit to realizing the aspirational goals of the paperless office or the office of the future, the 7 areas of transformation outline an achievable path to maturity in the digital office.
In Stage 1 Traditional Office companies, the opportunities abound to optimize the print environment. Typically, printing devices are purchased without ever fully considering the company's overall printing requirements. New copier leases are cycled through every three to four years whether they are needed or not, often with inadequate intelligence applied to whether the equipment is optimized for the customers print requirements or even worse, designed to maximize the re-sellers business revenue. Smaller, desktop printing devices are frequently purchased on an ad hoc basis, again, with little to no consideration for the total cost of ownership. Quite often, the new printer, with the lowest sticker price may, in fact, turn out to be the one with the highest cost of ownership after factoring in a couple of years worth of ink, toner, and other supplies.
Long before entering Stage 2 The Evolving Office and Stage 3, The Digital Office phases of the program, and long before contemplating any equipment replacements with new devices that have lower total costs of ownership, there are usually significant and immediate savings that can be identified once print monitoring and data collection software have been installed.
Having deployed a DCA, companies in stage 1 & 2 will find cost savings that can be captured very quickly. Once all the printing devices are identified and print volumes established, then each device can be mapped to the supply item it's most suited to. Because replenishment dates can be calculated, the need to keep backup supplies on premises is eliminated, as is the risk of premium freight charges previously incurred to expedite cartridges for unexpected outages. Finally, spot buys at the local office supplies retailer caused by emergencies, and usually at much higher prices than planned purchases off a contract, can be eliminated.
There are other savings that many have no idea exist, including overcoming the practice of replacing cartridges when the ink-low or toner-low warning first appears. Most don't know that as much as 20% of the original capacity may remain when this warning first appears. A cartridge with a page yield of 20,000 may still have as many as 4,000 printable pages left. If that device is printing say 2,000 pages per month, that's the equivalent of two-months additional usage that's literally thrown away. Also, look at it this way, if that cartridge originally cost $200 then the expected cost per page ($200 divided by 20,000) is $0.01. If the cartridge is unwittingly replaced at 16,000 pages then the real cost was actually 25% higher at $0.0125 per page.
Also worth noting, printer cartridge recycling is an obvious way for companies to meet sustainability and environmental goals. Companies can qualify for rewards depending on their procurement and recycling program and their level of participation. Participating in a printer supply recycling program is another indicator of back office maturity and is complimentary to company sustainability initiatives.
The Print Environment Matures
The business intelligence obtained from the DCA is utilized to transform the operations of the back-office and the indirect expenses incurred to run it. In leveraging the intelligence gained with regards to which employee has a need to print which documents, the foundation is established to transform processes and save cost. It would be easy (but wrong) to simply analyze existing print requirements and suggest alternative equipment and supplies that may reduce the printing cost associated with existing work practices. This approach fails to maximize the potential savings designed to be extracted out of a full transformation.
Instead, work practices are studied, and workflows created that are designed to eliminate much of the print taking place in the Traditional and Evolving Office environment. It is only once these workflows are established that intelligent recommendations can be made for the optimal printing equipment suitable for each set of Digital Office requirements. Once projected print volumes, associated with the new workflows are determined, a series of decisions leading to efficiency improvements and cost savings become possible.
Software Applications & Audit
From accounting systems to CRM, to email and general office applications (Microsoft Word, Excel), in Traditional Office companies, software installations are inconsistent across users and many individual users fail to update to the latest versions. Not only may this lead to security issues that can threaten the integrity of company data, it can also lead to losses in productivity and tech support headaches.
Effective use of various software applications is unavoidable for any business to survive in the digital era. The software is designed to help humans accomplish their tasks more efficiently. Higher efficiency equates to lower costs and lower costs result in competitive advantages. Essential applications include the accounting system (ERP), customer relationship management (CRM), and general office applications such as Microsoft Office or Google Drive. Then there's a company website, e-Commerce platform, and marketing software systems. Finally, to make it work effectively, they all must talk to each other and collectively form an integrated information technology platform.
In Traditional Office companies, what's found in the office environment is a series of disjointed software applications that may or may not be updated to the most recent versions. The IT department frequently lacks the technology to monitor employee's individual software revisions or to determine whether a one-time paid license for an everyday application like Microsoft Office should be changed over to a subscription model. There's rarely a chief technology person who has prepared and authorized the implementation of a vision to put a fully integrated platform in place.
In June 2016 Microsoft reported there were 1.2 billion users worldwide using Microsoft Office applications and, five years after its launch in 2011, there were over 60 million active monthly commercial subscribers to Microsoft Office 365, with 50,000 more being added every month.
Stage 3 Digital Office companies with a fully integrated suite of software applications, optimized workflows, procurement and document management demonstrate an overall advance in technical sophistication including cloud-based networking and collaboration.
The days are fading fast for Stage 1 Traditional Office companies that are attempting to make do with the acquisition of new PCs with pre-installed versions of Microsoft Windows bundled with various pieces of anti-virus software. Instead, more mature companies are well along the path of migration to subscription-based software applications with programmers having access to APIs enabling integrations between applications. All the while benefiting from more modest expenditures. It used to be that sophisticated information technology systems could only be afforded by the richest companies but, that is no longer the case. All the software applications necessary for running a business in the digital world are available at reasonable costs, enabling businesses to put together world-class platforms, capable of matching anything the largest enterprises have historically been able to present.
Software Systems in the Digital Office
The positive impact on the value proposition resulting from information technology platforms inclusive of these capabilities is very significant. There are other benefits too.
Companies in stage 3 Digital Office benefit from things like improve customer retention rates. Stage 3 maturity also allows businesses to pursue opportunities with prospects with sophisticated and challenging technical/software requirements that may have previously led to them being considered off-limits. In opening these new customer opportunities, customer acquisition rates can be improved at the same time as churn rates are reduced.
Enterprises are able to manage their back-office operations at the highest levels of efficiency, reducing costs, and establishing platforms that help build sustainable competitive advantages.
Spend Analysis & Longtail Spend Management
Most companies have rigorous controls in place to manage the costs of their manufactured products. Unfortunately, the same companies often fail to apply the same attention to managing the other indirect costs incurred to run their business. This area of unmanaged spend covers everything from ink, toner, and paper all the way through marketing expenses, travel, facility MRO, employee benefits etc. Indirect spend can account for up to 50% of a company's purchases and, for a manufacturing company, as much as 20% of its total revenues.
A widespread practice is for businesses to use the 80/20 "rule" to guide their purchasing and procurement activities. This rule is applied by focusing on the 80% of the dollars spent on the top 20% of items purchased. This tactic is favored by many busy purchasing departments that choose to invest their time on the highest volume products.
This can often be where suppliers make most of their margin because they know the buyers are probably are not looking closely at these items. Of course, if that's where suppliers make most of their margin, then it remains an area with the potential for back office operations to find incremental savings.
It’s not uncommon that the unmanaged longtail spend in the back office (made up of many small suppliers), in aggregate exceeds the amount spent with the largest "managed" supplier.
This unmanaged spend is made up of two components:
Unfortunately, not only may the unmanaged spend be at higher prices than they should be, they are also likely to result in significant downstream administrative time and effort, (i.e. cost), that may not be readily visible within an organization.
Reduction of administrative overhead and savings may result from improved efficiencies as excess vendors are eliminated, meaning fewer employees must be chased down for post-purchase confirmation of prices, retro-active POs are eliminated, along with having to seek management approvals, etc.
With administrative costs often amounting to as much as 35% of every dollar spent, then the potential savings in administrative costs incurred to process payments are likely to be even greater than negotiated price reductions obtained as purchases are brought under the control of managed spending or formal procurement process. Combined, administrative savings and product cost savings can be significant.
To simplify, a business spending $100,000 a year on 100 different office products and workplace supplies items, the purchasing agent in theory focuses on the $80,000 spent on the top 20 items. This leaves an unmanaged spend of $20,000 per year on 80 items. In practice, we find that most office product spend is unmanaged – or lacking a procurement program, so finding a ratio of 50% managed and 50% not managed is commonplace for Stage 1 Traditional Office companies and many cases demonstrate well more than 50% unmanaged spend on office products and workplace supplies. Stage 2 Evolving Office companies might reach the 80/20 ratio and fully enabled Stage 3 Digital Office companies can even achieve 100% managed spend through procurement marketplaces that have been come online recently.
In our example, If six or seven suppliers make up the top 20%, and the largest of these provides $18,000 worth of product, then it becomes clear that the largest "supplier" is, in fact, the unmanaged tail spend taking place on $20,000 worth of annual purchases. This is quite a conservative estimate in our experience.
Looking at the context of all the other indirect expenses, our example shows business spending $460,000 a year on all the other elements of indirect spend, and with the purchasing agent focusing on the $370,000 spent on the top 20% of items, it leaves an unmanaged spend of $90,000 per year. Again this ratio is conservative in experience and it decreases as companies move to Stage 3 maturity.
Behind the scenes, a $110,000 longtail spend, the hidden costs to process payments and shipments from these unmanaged vendors may be as high as $40,000 per year! Furthermore, if we assume it's possible to obtain cost savings of 10% from negotiated price reductions and consolidation of the spend under fewer, managed vendors, then the total annual savings could be over $50,000 per year.
Every company's numbers will be different because some already manage their longtail spend better than others. Our case study was developed to illustrate the concept of improvements that may be extracted if clearly set, well-defined policies are established that allow management to gain more effective control.
As companies move to the realization of Stage 3 The Digital Office, budgets and targets are established for all components of spend; direct and indirect. Companies fluent in Digital Office operations will routinely conduct spend analysis that demonstrates accountability for the spend and shows that it is purposefully managed. KPI’s that are typically monitored and measured:
Asset Tracking & Asset Management:
Our work environment is undergoing fundamental changes with the labor force becoming increasingly mobile as it operates out of virtual offices. These may be home offices, or they may be work-friendly commercial environments like Starbucks that provide free Wi-Fi and other office services such as pay-for-print. The corporate office may still play a significant role as the operational hub of a business but, more and more employees visit less and less and instead carry valuable company assets around with them as they travel. In this environment, it's becoming increasingly important for businesses to implement software systems for tracking its assets, depreciation schedules, service and warranty agreements, etc. It’s unlikely that Stage 1 companies employ such systems while Stage 2 Evolving Office companies are experiencing the necessity and pain of implementing a solution.
All corporate assets are recorded in the asset register with depreciation schedules tied to the company accounting system. Asset locations and responsible individuals are all identified and maintained. Service and extended warranty agreements related to all asset purchases are established and maintained in the database.
Identifying, managing, and controlling company assets is important for many reasons. First and foremost, it's challenging work to run a profitable business and, investing some of those profits into hard assets (computers, furniture, manufacturing equipment, etc.) or into soft assets (software), can quickly eat up significant portions of them. Manually tracking where the assets are, especially within an increasingly mobile environment, becomes more and more difficult. However, despite these difficulties, it's important assets are reliably tracked, not only because they make up part of the financial assets on the balance sheet, but, also because there may be tax implications associated with their depreciation that must be accounted for.
Furthermore, there are other important intangibles associated with most assets, such as warranties and service agreements. If companies don't manage their assets, they lose track of them, and they may needlessly pay for repairs, no longer aware there could have been an active service or warranty agreement in place to cover that possibility.
Earlier we mentioned that the first step for identification and location of assets can be taken with the installation of a data collection agent (DCA) designed for capturing all networked printing devices. In Stage 2 and 3 companies this foundation can be expanded to include the tracking and identification of all networked devices, including PCs, laptops, mobile devices, etc. through the implementation of additional software. As the company assets are captured in the asset tracking database, the foundation is established for implementing more sophisticated aspects of the program to include monitoring, not just the devices for signs of breakdown, but also the overall health of a network, constantly watching for traffic bottlenecks and warning signs for potential equipment failures that could lead to service interruptions.
Service & Warranty Agreements
How many enterprises have purchased their equipment on an ad-hoc basis, some with warranties and service agreements and some without? When something goes wrong, is there a service or warranty agreement that covers the equipment or not? Who knows if there is or isn't and, if there is, then who knows who to call? Chances are, warranty or not, the fix-it guy gets a call and the repair is paid for, whether it should have been or not.
It's rare in the Traditional Office environment for there to be a process or procedure in place for measuring the return on investment associated with the costs for purchasing service and warranty agreements. Furthermore, it's the absence of these procedures that becomes the root of the problem underlying the failure to establish coordinated, consistent practices that make the best financial sense for a business, and for it to protect the assets it acquires.
Because it's usually a series of uncoordinated, ad hoc decisions whether or not to obtain extended service and warranty agreements on asset purchases, it doesn't take long before management loses track of what equipment is covered under an agreement and what is not. Typically, as a result, it may be known or suspected that a subsequently defective asset is covered under an agreement, but no one recalls who the provider is or who must be contacted to make a claim. This results in extended downtime and extra costs incurred by someone having to research document files, invoices, or purchase orders to determine who's responsible and who to call.
In the absence of a process involving software and a structured database, there can be no central record of what equipment is covered under a manufacturer's warranty, what's under an extended warranty, what's under a service and repair contract, what the service level agreements are, who's responsible for providing the service and who to contact when it's required.
Stage 2 and 3 companies are addressing these inefficiencies and costs. With effective control over the total spend established, management has processes and procedures (and data) in place for determining when it makes sense to purchase extended warranties and service agreements, what equipment to purchase them for, who they are provided by, what the terms of the various agreements are, and which provider is responsible for them. In conjunction with a capital asset register, locations for all the assets are known and continually tracked. When there's a failure on a piece of equipment there's no longer any doubt whether it's covered by an agreement and who it's covered by because it’s recorded in the database. Responsible parties can be quickly and efficiently contacted, and repairs carried out under the terms of the agreement.
From PCs, laptops, printers, mobile devices, etc. most SMEs and still today, many large organizations, have trouble with knowing where their assets are, who's responsible for them, what firmware is installed, and whether it's up-to-date or not. This is why Stage 1 companies will start their journey to a digital office by installing an automated tracking and data collection agent (DCA)
More and more as companies progress to a fully realized digital office, a combination of machines and sensors make up their modern network. The sensors are gathering data and the machines are running software designed to convert that data into business intelligence. The sensors may be installed to help control costs - i.e. thermostats for managing utilities, cameras and access points for security, delivery trucks for optimized delivery routes, or they may be installed to gather information - such as pages printed, scans performed, etc. The data that's collected is utilized both to help manage internal costs and to improve the customer value proposition.
Managed IT services monitoring for signs of potential breakdown, enabling preventative maintenance to be performed and thereby avoiding costly interruptions to service. An example, Stage 2 Evolving Office companies will be realizing the benefits of a Managed Print Services offering that optimizes the operations of the company’s fleet of printers and supplies. This same service can evolve into driving savings with optimized workflow and document management processes and systems.
Another example, Mobile workers can always access the mission-critical applications so long as they have access to a web browser and the credentials necessary to log in. Access to business intelligence is provided 24/7 and the decision-making process is vastly superior to those lacking integrated systems. Along with process improvement that comes from mobility, further benefits are realized as Mobile Device Management (MDM)systems are employed for security and risk mitigation and device management and support.
IOT and the Next Big Thing
When people talk about the "next big thing" they usually don't think big enough. This is not usually the result of a lack of imagination, but instead a lack of observation. From the perspective of the Digital Office, the future is already here and it should not be necessary to imagine what's already in plain view.
The "next big thing" we're especially interested in is the Internet of Things" (IoT) and the increased level of machine-to-machine communications. The IoT is built on cloud computing and networks of data gathering sensors. Most people don't think big enough when they think about the potential of the IoT because they're only thinking of machine to machine communications. A machine is an instrument or a tool, and it's built to physically do something. To make machines "smart" we must introduce sensors, and sensors are not machines because their purpose is just to gather data. The IoT only comes together with the connection of the sensors, the machines, and the applications (software) built to run on the machines that interprets the data and turns it into actionable business intelligence.
The ramifications of connecting a vast array of data gathering sensors and machines result in information that's able to be translated into action at a rate the world has never seen before. We are entering an era with almost immediate reaction times and are presented with the ability to respond to changing conditions, alongside unparalleled control of assets and resources.
According to Gartner, there were expected to be 8.4 billion things connected to the internet by the end of 2017, and the projection is for this to increase to more than 20 billion by 2020. By the year of 2020, spending on IoT devices is projected to reach $2.9 trillion and the spend for IoT services already exceeded $270 billion during 2017. The progression of the IoT is a "hard" trend, it's based on measurable facts, facts that cannot be changed and that will cause disruption and opportunity in every imaginable field. It is up to every business and every individual to decide if they are to become one of the "disrupted" or one of the "disruptors" because there's no place on the sidelines for ignoring the sweeping changes taking place.
There isn't a single business that won't be disrupted by the advent of the IoT, whether it's by implementing systems to improve the performance of its own business, or by offering features and services that add to the value proposition they offer their customers. The importance of the network to support the flow of data between private LANs and the internet has never been more crucial than it is today.
Basically, there are two types of network architecture: Standalone or Peer-to-Peer (P2P) in its simplest form, this is when two computers are connected directly to each other, so they may share resources without going through a separate server computer. Workloads are partitioned between the connected machines that all have equal privileges. Client-Server architecture is a computer network in which one centralized, powerful computer (the server) acts as a hub to which multiple less powerful personal computers (known as workstations or clients) are connected.
Cloud computing is an abstraction of traditional server hosting solutions. Instead of a business deciding to invest in acquiring its own servers, it decides to lease the server capacity it needs from a cloud provider such as Amazon Web Services or Microsoft Azure. There's likely to be a distinct advantage in leveraging cloud-hosted services because the client only pays for the capacity it uses and that capacity is infinitely variable. As additional capacity is needed it's instantly made available and charged for accordingly.
In the traditional office environment, it's still quite common to see legacy in-house client-server architecture continuing as the primary infrastructure used to meet business requirements. Quite often decision makers lack the understanding or skills required to perform a cost-benefit and risk analysis that can lead to an appreciation of the potential merits from migrating to a cloud-hosted solution found in Stage 2 Evolving Office and Stage 3 Digital Office companies
For a business that decides to continue to invest in its own servers then it must invest in equipment that satisfies peak demand. This may mean its in-house server capacity operates with an average utilization as little as 10%. To cover peak demand means equipment must be purchased, maintained, upgraded, replaced, etc., that will forever, on average, be poorly utilized. As businesses progress to the digital office they will question the wisdom of in-house servers and find themselves migrating their back-office business operations into the cloud.
As this migration occurs, while there's no longer a client-hosted server involved it remains a client-server architecture albeit a cloud-hosted one. The decommissioning of local managed servers is often a source of cost and headcount reduction.
As more and more software applications become cloud-based and, as more and more workers adopt mobile (out-of-office) work practices, it becomes more and more important to ensure there's uninterrupted access to the network. Losing network connectivity, at what inevitably turns out to be at the worst possible time, cannot be tolerated with access to critical information interrupted while a problem is diagnosed and fixed.
Within the Digital Office (Stage 3), businesses have successfully migrated from expensive in-house servers and relocated the major elements of their network and software applications into the cloud. Owning and maintaining hardware for hosting productivity software, database systems, web platforms, etc. has become an increasingly obsolete model. In migrating to cloud-based systems, there is less capital deployed, there is less to go wrong, and there is less to monitor for signs of something that's potentially going to go wrong.
Of course, anything that could break in an in-house hosted client-server network could also break in a cloud-based client-server network. However, the difference is that the specialists operating the cloud-based systems have deployed state-of-the-art technology for monitoring their infrastructure and have redundant capacity to take over in the event of a system failure. Absent a major and widespread breakdown of internet service, the likelihood of an interruption occurring in a cloud-based system hosted by a reputable provider is comparably very small.
The client must pay for the cloud-based hosted service but, when all the costs are tallied, the Digital Office operation saves money when compared to the in-house hosted architecture.
Project Phases and Timeline
Stage 1 The Traditional Office
As you can see, Traditional Office operations will soon be a matter of only historical conversation. Literally it will become completely impractical or impossible to run a back office only with traditional methods. Note that Government entities have been for some time forcing the issue by no longer accepting mail or paper returns/forms etc leaving business with either conducting business electronically or archaically, in person at the government office. As technology marches on, so too businesses will be forced to adapt or suffer the consequences.
Particularly in more established companies the challenges to transforming all the way to “the office of the future” is too much change to handle all at once. That’s why the phased approach is recommended. As we described the best way to stare is with building a foundation using the steps in Stage 1.
Print, software and long-tail spend are the first components to tackle in the progression to digital office maturity because of their ease of implementation and low hanging fruit. Companies with a fully realized effort in only Stage 1 will experience significant cost reductions and efficiency making the achievement of Stage 1 a worthy and beneficial cause all by itself. The cost reductions and efficiencies gained in this stage should be compelling and encouraging for companies to progress to digital office maturity.
Stage 2 The Evolving Office
With inconsistent implementation of technology and automated back office solutions, Stage 2 is characterized by a mix of abandoned projects and partial successes toward digital office transformation. For some, simply restarting and re-committing to the effort is all that is needed to mature. Notably the transformation to a digital office is much easier today than even just two years ago. New technologies products and services are elevating the base line for companies starting today plus new companies don’t have legacy platforms to deal with.
Stage 2 companies are still limited in implementation of technology and automated solutions such as managed print services, device monitoring, document and workflow management tools and processes. Perhaps some information technology support services are outsourced in Evolving Office companies but, examples of coordinated digital document management, print volume reduction initiatives, or workflow analysis and process improvements are the exception not the norm.
There are generally two categories of companies within the Evolving Office stage:
What we're illustrating here is that many companies may have implemented one or two of the elements required for a Digital Office but did so without a fully developed vision for all the components necessary for a complete transformation. In these cases, we may see, for example, a managed print environment and some parts of managed information technology services implemented. However, there's usually no evidence of a planned implementation for the other elements necessary for a complete transformation.
The second category of an evolving office may mean a business appears, on the surface, to be the same as the first - i.e. it has implemented a managed print environment and some parts of managed information technology program and, to all intents and purposes, it's no different than the first example. However, there's a key difference. That’s the lack of a plan.
Although at that point in time the two companies may have implemented the same preliminary elements of a Digital Office transformation, the first one does not have a fully developed plan encompassing all the elements necessary for a complete transformation, while the second one does. The second company is on its journey toward a fully integrated Digital Office with clearly defined end-goals and measurable progress. It just hasn't yet completed its journey.
Regardless of where a business may be in terms of its progress toward a Digital Office, it's never too late to create the plan and to set the process in place to finish the job and gain the benefits.
Stage 3 The Digital Office
Stage 3 companies have put to good use the business intelligence obtained from the DCA set up in Stage 1. Digital office companies have utilized data to transform the operations of the back-office and are actively managing indirect expenses incurred to run it. With a fully integrated suite of software applications, optimized workflows, procurement and document management. Stage 3 companies are actively and with little friction adopting and adapting to changing technologies. And importantly the mature Digital Office company can, because of practice and experience, easily understand when and what technologies will produce a benefit to their back-office operations.
For businesses that have accomplished their transformation to a Digital Office, or for those businesses well on their way to doing so, progressing to the realization of Stage 3, the Digital Office means budgets and cost reduction targets are established for all components of the transition; print environment, software, indirect spend management, asset management service contracts and warranties, networked devices and architecture. The company actually builds habits to identify better ways to operate and reduce costs
For many this transition will bring along with it not only back office operations maturity but maturity and competence in the IT department. On the coattails of the back-office transformation, organizations routinely become more disciplined in technology selection, project management, business analysis and in business intelligence/reporting, as these disciplines are stretched to accomplish the goals set out for the digital office transformation.
Rather than an overlooked and undervalued part of operations, the transformed back office ultimately becomes a formally recognized opportunity to improve the business, positively impact customers and demonstrate innovation inside the company.
Focusing on the back office to drive cost reductions is worth while for any company. There's no question that cost can be taken out of back-office operations with improved technology and processes and these increase efficiency. A long term benefit for companies achieving stage 3 is that they will have engineered a built-in process (maturity) to incorporate improvements on an ongoing basis. Digital transformation behaviors become part of daily culture and standard operating practice.
We also know that completing the transformation from Traditional Office to a Digital Office is not without its hurdles. It takes time and it's demanding work. It takes leadership and direction from the top of an organization, all the way down through to fully engaged project champions, to ensure steady progress toward the defined goals is made. However, the rewards resulting from accomplishing the objectives can be expected to be significant and multifaceted.
Reducing cost through improved efficiency and lower indirect spend
Reduced indirect spend on materials and labor was the goal from the outset and was designed to be accomplished by ensuring each of the seven elements of the Digital Office were fully implemented. The savings are obtained from:
Rewards Beyond the Expected - Improving the downstream value proposition and impact on customers and customer experience
In implementing the information technology components required to accomplish the transformation, including state-of-the-art systems for CRM, document management, asset management, print, and print systems management, a business is simultaneously positioned to improve the value proposition it's able to offer to its own customers and prospects.
Existing customers exhibit higher retention (lower churn) rates than before the transformation because technology and increased efficiency allow for a better quality of service to be provided. Customers no longer tolerate un-competitive suppliers with inadequate record-keeping and information retrieval capabilities that are characteristic of enterprises with high costs and poor service. Technology helps overcome these shortcomings and customer expectations may then be routinely exceeded.
New customers can be obtained at a higher rate and with less friction than previously because service levels are improved as technology is implemented and costs eliminated that improve competitiveness. There's only a finite amount of business to go around and, in today's competitive environment, it's necessary to routinely "delight" customers and prospects and to "wow" them with a performance that exceeds expectations. Implementation of better back office technology helps reduce errors and it helps improve response times. Customers benefit from these improvements.
Access to information and the use of technology helps enable bids and proposals to be submitted promptly and professionally. A customer proposal in a Traditional Office may get held up on the boss's desk waiting for a signature or an internal review to confirm it meets profit requirements. Something that may take a week or more in the traditional environment can be processed within hours in a Digital Office, even if the boss is away from the office at the time a proposal must be approved prior to it being submitted.
Customers absorb information and standards have been set by pioneers in the digital fields. It's become routine for information to be seamlessly provided during the processing of an order, including order acknowledgments, delivery dates, shipping information, tracking information, followed by accurate invoicing and billing. Because a sub-conscious checklist is compiled as each of the steps are consistently and reliably completed, if a piece of information is not provided customers notice and alarm bells sound.
How much will it cost and what is the return on the investment likely to be?
No two offices are the same. The starting points are always likely to be different and the scale of improvements will vary between different types and sizes of business. So, while it may not be possible to provide a specific number, or even a range for potential returns on the investment, what we believe should be clear is that the transformation from a traditional to a digital office will be self-funding. The costs for deploying software systems necessary to build the transformation will be more than offset by the savings garnered from the seven components of the plan.
Another sure thing, the transformation to a digital office is inevitable for any growing business and there will be a day where the “office of the future” is the office of today. These days are not far away.