Difficult economic times are spurring many CEOs to demand cuts in corporate back offices. And no wonder: finance, HR, IT operations, and other support functions can represent 15 to 20 percent of a global company’s personnel expenses and are thus prime targets for retrenchment. Yet the savings are often fleeting—we find that barely four in ten companies meet their targets one year into a cost-cutting program, and by year four fully 90 percent of back-office costs are right back where they started.

Why? One reason is that many companies pursue sweeping, top-down cuts that—while fast, easy, and seemingly fair—can unintentionally lower the effectiveness of back-office services and thereby fuel resistance among business units, many of which hire back the workers at first opportunity. To understand the risks associated with a broad-brush approach, consider the experience of a global European manufacturer’s finance group, highlighted in the exhibits in this article. This snapshot of one company’s situation is drawn from an ongoing proprietary benchmarking initiative that maps a range of back-office efficiency and effectiveness data at more than 900 companies in Europe and North America.¹