For IT and engineering staffing firms, an effective back office is the foundation upon which the company’s success is built. Given the highly competitive nature of the industry, a thoughtful back office strategy that ensures continuity, prioritizes cost-effectiveness, and supports growth is essential. Optimizing payroll, HR, and compliance processes becomes even more critical as a firm grows and expands its geographic footprint, given the proliferation of state and local employer mandates.
In this article, we will address how to strike the right balance between a firm’s near-term back office needs while ensuring an infrastructure is in place to support future growth. Moving beyond the perspective that the back office is a mere cost center and an afterthought, we explore ways to streamline essential functions and transform the back office and the data it generates into an asset that accelerates growth and enhances enterprise value.
The Challenges of Small and Mid-Size Firms
In the IT and engineering staffing industry, small and mid-size firms face numerous challenges in managing the back office in a way that ensures reliability, controls costs, and supports future growth. While these firms often command higher average gross margins than larger firms—which are more likely to have a larger percentage of their revenue derived from lower-margin VMS/MSP programs—they are at a distinct disadvantage when it comes to operating efficiency, including back office functions.
No Economies of Scale
According to a recent survey of TechServe Alliance members, 75% of smaller firms report investing a higher percentage of their budgets in their back office. The reason is straightforward—they lack economies of scale to secure the efficiencies and benefits from the buying power enjoyed by larger firms. From payroll services to 401(k)s, scale helps reduce back office costs as a percentage of revenue.
Staffing Inefficiencies and Lack of Expertise
When it comes to the back office, the larger the firm, the more significant the advantages. For example, firms with fewer than 50 consultants face notably higher operational costs—on average, 79% more—than those with 51 to 100 consultants. The outsized impact of scale on back office costs is even more significant when compared to larger firms. In proportion to revenue, small and mid-size firms have 2.5 times the number of individuals in the back office compared to larger firms.
TechServe’s annual Operating Practices Report shows that a $16 million firm has a median of four people in the back office. In comparison, a firm with $160 million in revenue only has 16. That’s 10 times the revenue but only four times the back office staff. Further, while small and mid-size firms are typically relegated to employing overtaxed generalists (which may include one or more owners), larger firms operate with more specialized teams, which are generally more efficient and accurate.
Vulnerability to Staff Absences and Departures
Because small and mid-size firms have only a few individuals on their back office teams, they are highly vulnerable to staff absences and the departure of even one team member. In a recent survey, over one-third of firms expressed concern about the lack of redundancy in their back office operations. This inherent vulnerability represents a significant risk to operational continuity and the ability to scale.
The Risks of an Inadequately Staffed Back Office Team
An understaffed or inexperienced back office team poses risks to a firm’s daily operations as well as potentially hobbling its ability to grow. Some of the critical areas that are vulnerable include:
Missed or Inaccurate Payrolls
Paying employees accurately and on time is a fundamental expectation of all teams. Missed payroll deadlines and errors can lead to employee dissatisfaction, undermine trust, and lead to penalties by enforcement agencies as well as private lawsuits.
The Inadvertent Release of Sensitive Data
By their nature, payroll processing and HR administration regularly handle and store Personally Identifiable Information (PII) and other sensitive information. Most small and mid-size firms don’t have the expertise and safeguards in place to minimize the likelihood of inadvertent release, exposing those companies to both reputational risk and legal liability.
Increased Risk of Employment Law Claims
Given that most small and mid-size firms employ generalists in the back office, few can afford to employ payroll or HR professionals with true expertise in federal and state employment laws and regulations. From improperly classifying employees as exempt and the lack of familiarity with the obligations around the timing of paychecks to improperly handling employee complaints, inexperienced back office personnel potentially expose a firm to significant legal liability.
Institutional Knowledge Known to Only a Few
Few small or mid-size firms have adequately documented the dozens of processes required to operate the back office. This leaves a firm extremely vulnerable to the loss of the institutional knowledge of even a single employee, which can threaten both a firm’s operations and growth initiatives.
Lack of Capacity to Innovate
For back office teams of small and mid-size firms, there is usually a lack of capacity to innovate. With limited bandwidth and a lack of expertise to evaluate new technologies, it becomes difficult for these firms to drive continuous improvement and maintain a competitive edge.
Four Strategies for Mitigating Risks and Building a Scalable Back Office Infrastructure
While no one action can ensure success, a number of strategies can mitigate risk and ensure a company’s back office infrastructure can support future growth.
1. Maximize the Use of Automation
Within IT and engineering staffing firms, the back office represents the best opportunity to automate. The benefits of automation include improved efficiency and reducing the risk of error inherent in the manual manipulation and transmission of data. Reducing the level of manual work also frees the team to be more strategic and engage in high-touch activities.
2. Leverage the Power of a Modern HRIS Platform
Like the ATS for the front office, a Human Resources Information System (HRIS) serves as a centralized hub for the back office. Ensure your HRIS is built on a modern technology infrastructure that utilizes the latest security protocols. Ideally, an HRIS integrates all of the back office functions seamlessly to maximize efficiency and minimize the risk of error.
3. Ensure Your HRIS Provides for Employee Self-Service
An HRIS should provide robust employee self-service capabilities that are accessible by any device. From managing payroll and withholding, timekeeping, and leave requests to benefits, an employee self-service portal elevates the employee experience, enhances efficiency, and reduces the risk of errors.
4. Outsource Core Back Office Functions
As an alternative to internally managing your back office, consider outsourcing your back office to a trusted partner. An outsourcing partner can relieve you of the burden of managing complex back office functions such as payroll, HR, and compliance, allowing your team to focus on sales and recruiting. In addition to ensuring continuity and controlling costs, the right back office outsourcing partner can support your future growth.
A High Performing Back Office: The Backbone of Successful Firms
While sales and recruiting tend to be the focus within most firms, an effective back office is also critical for success. In today’s hyper-competitive environment, a back office must go beyond merely handling payroll and benefits. As the backbone of an IT and engineering staffing firm, back office operations must not only deliver on its core responsibilities without fail but also:
- control costs
- ensure compliance in an increasingly complex legal and regulatory environment
- respond to the evolving needs of the firm in a dynamic market, and
- provide a firm’s leadership with the data and insights to successfully manage the business
A tall order to be sure. Discover how TechServe 360 can transform your firm. By taking on core functions with its seamlessly integrated back office services, TechServe 360 allows your team more time to focus on driving revenue and increasing profitability. Your consultants, clients, and internal team will enjoy a personalized service experience delivered by industry experts. In addition to seamless integration, TechServe 360 offers embedded business intelligence dashboards, providing you with easy-to-track metrics and actionable insights.
Get Optimized. Get Compliant. Get TechServe 360.
To learn how TechServe 360 can help streamline your back office operations and help your team drive growth and profitability, reach out to us today!
