Sourcing Insights

S T R AT E G I E S F O R B U S I N E S S L E A D E R S

BRINGING TOYOTA-LIKE
FACTORY EFFICIENCY TO
YOUR BACK-OFFICE
OPERATIONS
BY MIKE ETTLING

Some of the biggest factories in the world these days don’t

move hard goods like cars, toasters and washing machines
along an assembly line. In fact, some of the very largest ones –
measured by number of workers — do not produce any hard
goods at all. They produce information in the form of bills,
payments, health insurance claims, life insurance policies, and
paycheques, and they manage customer interactions through a
variety of communication channels.

The people in these information-producing operations must

issue their products quickly and with as few errors as possible.
But like the factories of the 1980s and 1990s, many of these
information-processing operations are woefully inefficient.
That has become a big problem for the companies that own
them, just as producing high-cost, low-quality automobiles or
washing machines is for its manufacturer.

Of course, the owners of these operations do not refer to their

operations as factories or plants. They use terms like “back-
office” or “back-room” operations — more amorphous
words, indeed, but not amorphous when it comes to their cost
and importance. Whatever term managers may use, nearly all

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of them need dramatic improvements in the efficiency and the massive consolidation in many service industries – bank-
effectiveness of these operations. And there’s no better model ing, insurance and credit services among them.
to learn from than the world’s leading manufacturers, espe-
cially Toyota Motor Corp. Back offices, as a result, have become big and important
information-processing operations in which companies have
Companies with back-office operations need to adopt the type invested billions of dollars in information technology.
of factory mindset that Toyota used to become the world’s However, despite all the technology, many people remain in
largest carmaker and make what many consider to be the high- the back office. While pure transactions will continue to be
est-quality automobiles. It is about creating operational excel- automated, exchanges of information with customers and
lence in back-office processes. There are great opportunities employees that require human intervention will not.
for companies in nearly every industry to take huge costs out
of their back-office operations. As important, in doing so, they WHY THE BACK-OFFICE PRODUCTIVITY LAG?
can generate greater revenue by accelerating how quickly and In the factory world, workers fairly or unfairly have been
effectively they process customer transactions and thus how blamed for the disparity in cost and quality between goods
many customers they can serve at the same time. Additionally, produced in Western countries and goods manufactured else-
creating operationally excellent back offices gives these organi- where. But what accounts for the difference in productivity
sations more time to focus their resources on product and serv- improvements between our back-office operations and hard-
ice innovation, which can truly differentiate their company. goods plants? Do employees who make products work hard-
Based on our extensive business process outsourcing (BPO) er than those who push paper?
experience, let us review how to make substantial improve-
ments in back-office effectiveness and efficiency – improve- Not from our experience. From running major back-office
ments that come less from automating manual processes and operations in the banking, home mortgage, insurance, gov-
more from managing people in more productive ways. ernment and other industries, we believe the key to back-
office productivity is not so much in finding workers with a
THE BURGEONING BACK-OFFICE better work ethic. Rather, it is in finding managers with bet-
PRODUCTIVITY PROBLEM ter leadership skills who understand how to increase produc-
The term “back-office operations” is vague. Let’s start by tivity, and then continually improving their skills and prac-
being explicit about it. “Back-office” operations can be tices.
thought of as the activities of a company that come into play
after a customer buys its product or service (or when that The fact that there are fewer great leaders of back-office
customer must be qualified to purchase it). Companies must operations than there are of goods-manufacturing plants is
qualify whether their customers are creditworthy, bill them, not hard to explain. Few educational institutions teach stu-
collect and process their payments, and field their inquiries dents how to manage back-office workers. Just look at the
after the purchase. Such activities may also include a compa- number of university programmes and qualifications for fac-
ny’s internal communications with employees – issuing pay- tory managers vs. back-office managers. Many universities
cheques, benefits statements, etc. around the globe have a programme for manufacturing
improvement. But try enrolling in academic programmes on
Companies have always had substantial back-office opera- how to manage back-office work and you’ll be looking hard
tions. But with the flight of manufacturing plants to lower- to find any.
cost regions of the world, these back-office operations have
become some of the largest sources of personnel and costs for Even if you try to “grow your own” back-office leaders by
company operations in the Western world. The back offices putting them through your training and development pro-
of service companies – banks, insurers, health care institu- gramme, don’t expect it to be embraced by top managers in
tions, mortgage lenders, stock brokerage firms, to name a few your company looking for a career change. Many will
– have always been big. They’ve become even bigger given regard it as a sideways promotion, not a step up.

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Even if you are able to lure your best managers, they may From generating major operational improvements in the back
not bring the right orientation to the job. You need leaders offices of multiple industries (including payments processing,
who thrive on focusing on the operational details of process- mortgage, and insurance), we have come up with three prin-
ing cheques, claims, payments, and other information – just ciples for operational excellence in back-room activities.
as the best factory managers intimately understand how the They are quite similar to, yet in some places different than,
assembly line works. Managers who are used to working Toyota’s secrets for making great cars:
with concepts – ideas for marketing campaigns, strategy, new
products, pricing programmes, sales processes and the like – A) People performance – clearly defining roles, providing
are not likely to show an affinity for the intricacies of accurate and timely information, and creating a culture of
cheque-clearance steps. You need managers with a blue-col- optimal productivity;
lar orientation, not a white-collar one. B) Process improvement – carrying out each stage of a
process in the most efficient way possible and empowering
And don’t think that you’ll solve your back-office productivi- employees to use their own initiative to seek better ways
ty problem just by automating it or offshoring it to lower- of doing their jobs; and
cost countries. While technology certainly has been replacing C) Waste elimination – identifying and removing every
people for many back-office tasks, it cannot eliminate every activity that distracts from core goals or unnecessarily uses
aspect of the back-office job, particularly those that require resources.
considerable judgment and customer hand-holding. Try
arguing with a computer that it shouldn’t have denied your Let’s explore how each has played out in several companies.
mortgage application and you’ll understand what I mean.
PEOPLE PERFORMANCE
LEARNING FROM THE TOYOTA WAY Managing back-office workers through the appropriate tech-
What, then, leads to operational excellence in the back niques for leadership, metric measurement, capacity manage-
office? To be certain, information technology is essential. ment, skills development, and motivation will ensure dramat-
But too many companies focus on technology and mini- ic improvements in operations as opposed to the historical
mize other factors, only to find that they improve their evolutionary impacts that most companies have experienced.
back-office activities only incrementally. Instead, superi-
or management protocols are what produce operational Back-office workers respond far better to carrots than to
excellence in back-office operations. By this, I mean how sticks. Rewards for good performance, rather than penalties
you design an efficient process and how you motivate the for bad performance, will do far more to motivate people
people who work in that process to perform repetitive who process cheques, claims, and customer orders to reach
tasks rapidly but thoroughly. It’s about how you get new levels of productivity and quality. Establishing well-
them to take pride in all that but not rest on their defined productivity metrics sets a clear direction for consis-
achievements – how you convince them to continually tently achieving high performance. Empowerment, open
increase their own productivity. teaming, and accountability are key fundamentals of achiev-
ing people performance. How one embeds these principles
There’s much to be learned here from the 20th century mas- into the day-to-day operational culture of the organisation is
ter of manufacturing in the automobile industry, Toyota. the recipe for success in execution.
The company has come from virtually nowhere in 30 years
to No. 1 largely on the back of its factory management meth- In 2003, a number of Dutch banks chose Unisys to take
ods. “The Toyota Way” comprises 14 principles organized in over their paper payment processing operations, including
four areas: having a long-term approach; perfecting processes processing remittance and the cheque-like “giro” payments.
in ways that eliminate waste; developing people; and continu- The operation was named UPSS. Through creating and
ally getting to the root of problems and never being satisfied enforcing staff productivity measures and rolling out new
with the status quo. technologies, UPSS has regularly achieved between 10%

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and 15% process improvements year over year. Employee from the system. There is monumental waste in most
productivity has doubled since the operation started. back-office operations: checking that should only be done
Today, each UPSS full-time employee processes about 2,100 once (not multiple times) or eliminated, records that should
documents per hour – more than double the 1,000 docu- only be entered once, questions that if answered by com-
ments per hour rate of 2003. puter would not take the time of other workers or man-
agers, and much more.
PROCESS IMPROVEMENT
Back-office managers must make sure the core processes of Managers must look for waste everywhere and reward
their “plant” are optimal. But within each step of the workers for rooting it out. iPSL (Intelligent Processing
process, they must empower the people doing the work to Services Ltd.), which is a cheque-processing joint venture
institute better ways of handling those steps. The amount of between Unisys and leading UK banks, shows the power of
innovation that must happen at this level is more important eliminating waste. Since its 2000 launch, the business has
than the level of process innovation that comes from the commanded approximately 65% of the UK check processing
“plant” manager. market by becoming a highly cost-efficient way for UK
banks to process cheques. iPSL managers and workers have
Approaches like Six Sigma and Lean can be used as the effectively leveraged the Six Sigma principles to drive out
tools to help redesign process and eliminate waste. errors and re-work, which erode productivity.
However, those methodologies in themselves will not pro-
duce the required results. How people are empowered to The combination of these principles will ensure significant
innovate and challenge their day-to-day process activities, improvements in back offices including 20% to 30% reduc-
how much pride they take in their work, and how they are tions in costs. You may well question why technology has
rewarded for embracing and driving change are critical to not featured in our key principles. Technology is an impor-
achieving success. tant tool for deploying these management principles.
Managers will need information systems to set metrics and
An Australian mortgage company whose loan processing and goals, measure productivity, track projects and achievements
service operations we took over in 2002 illustrates this. The on incentives, and automate process steps where appropriate.
company, RAMS Home Loans, had 220 people who processed
home mortgages. Unisys redesigned the overall work flow for However, technology is not the Holy Grail. Too many organ-
loan processing and servicing. We then asked workers in each isations have pinned the operational improvements of their
area to come up with better ways of doing their work. The back offices on a new “gee whiz” technology platform that is
results were remarkable. Our process efficiencies at Unisys supposed to transform the operation. Some of those systems
Credit Services (UCS) enabled RAMS to double the number of may be good. But implementing them in a factory environ-
applications it processed. That enabled RAMS to take on ment that is not operationally excellent will not achieve the
more business and increase revenue. Costs have fallen over level of improvements that simple operational management
25% even though mortgage volume has doubled. techniques can achieve.

Consequently, RAMS has doubled its book of business while Operational excellence should be the first priority: Get the
substantially reducing back-office costs. basics of running a factory right, then analyse whether to
deploy the all-embracing new core technology operation.
WASTE ELIMINATION You may be surprised to find that what you really need is
Waste is the bane manufacturing processes, as Toyota optimised processes and improved productivity from your
would say. Every step, extra part a worker has to deal employees – not a new technology platform. And you could
with, and every unnecessary second must be extricated save yourself millions! •

F o r m o r e i n f o r m a t i o n g o t o : w w w. u n i s y s . c o m