machine components

Frontend Versus Backend for Digital Innovation

Very simply speaking, business processes can be divided into two categories, namely, front office processes, which are all customer interfacing business processes and, back office processes, which are all business processes that have no customer touch points.   The back office is usually what the customer does not see.

Let me use a simplified exemplary scenario to explain how all these things interplay:

A customer finds a red wardrobe in a catalog and would like to know if his nearest furniture shop has this particular product available to make sure he does not drive 35 miles to the store for no reason. The front office business process in this scenario is that the customer asks the question if the product is in stock and gets the answer to his question. To answer his question, we need to know which products are available at any given time. Hence, there is also a back office process required, which is to keep track which products are in stock and which ones are out of stock at the moment.

If the front office process and the back office process are both not digitized at all, the customer has to give the store a phone call and hope that some staff member will pick up the phone, go to the shelf where the product is stored and checks visually if there is still a red wardrobe available for sales.

Examples Front office process Back office process
Not Digitized Process Customer gives the store a phone call. Staff member picks up the phone, checks if the product is available Staff member goes to the shelf where the product is stored and checks visually if there is a red wardrobe still available for sales
Digitized Process Customer types “red wardrobe” and his address at the web site of the furniture store and it shows that product is available in the nearest store All products contain an RfiD chip that can track them on the shelf. IT System can provide real-time availability information to staff and customers.
Automation of Business Process Website makes call obsolete and staff does not need to take an additional phone call RfiD tracking of stock instead of visual check if product is available
Digital Data Generation Customer address and product of interest is captured Stock level and availability for each product is captured
Digital Data Usage Data about availability of red wardrobe is used to answer request Data showing which RfiD tag is linked to which product is used to track stock level

In contrast, if we want to digitize the front office process, we could create a website through which the customer can check if the wardrobe is in stock. The website would automate the business process in the front office. By typing the product name of interest at the website, the customer provides this information in a digital format. The result comes back on the screen, which uses existing digital information about product availability in store. The data about product availability could still be entered into an IT system and maintained manually by an employee in the back office. The customer would not notice if the back office process is digitized or not as long as the information is up to date.

Finally, if we want to digitize the back office process in this scenario, we could, for instance, automate the tracking of products in the shelf by putting RfID tags on each product (RfID = Radiofrequency Identification). An RfID reader can then wirelessly detect how many products are on the shelf at any given time and store this information in an IT system. The IT system can provide this information to the website so it is visible to the customer. But the front office process does not necessarily have to be digitized. Even when the customer calls in, the staff member still saves time. The staff member would not need to make a visual inspection to capture the stock level as he can look up the product availability in the IT system.

Even if your customer does not see what is going on in the backyard, digital transformation of your back office is very important to your business success. A great customer experience is often not possible without efficient and effective back office processes. In our small furniture shop scenario, when the stock level and availability for each product is captured digitally, it is ensured that the customer has always accurate information in real time. Secondly, making your back office running more efficient with digital transformation can save you a lot of costs and make your operations run smoother and leaner. In our small example, you would need a lot of additional service staff that answers service requests. And thirdly, digital transformation makes your back office more effective, which can help you, for instance, to optimize your supply chain management, to prevent fraud, manage business performance better, optimize your physical assets, create the highest value with your human resources and better manage your finances.

In essence, executives should avoid to focus all their digital innovation efforts only on what is shiny and visible to the customers, the inner core of your business can be an even stronger competitive differentiator, even if that is not directly seen from the outside. And not everything that shines is gold.