The scale of regulatory change, whether driven from within the UK or internationally, is unparalleled and unlikely to subside. In 2010 the Institute of Directors reported that, according to their research, Government regulation costs businesses £80bn a year. In addition the ongoing suite of legislative changes coming from Europe and new government commitments will affect both the public sector bodies responsible for implementing the policy and the private sector firms that will be required to respond to it.
This kind of change requires a different approach to that adopted when organisations are dealing with their own change initiatives. In particular, regulators and the firms they affect need to recognise the challenges that these unexpected and resource-intensive initiatives bring, and should co-operate to successfully deliver the intended benefits.
They should also recognise that they can reduce the costs of meeting the new requirements and deliver better outcomes by:
- prioritising delivery in the areas where compliance is most important;
- collaborating to influence policy and provide greater certainty in delivery;
- incorporating discretionary initiatives into the mandated changes.
We set out below the key actions both the regulator and regulated firms can take to manage the increasing regulatory burden more effectively.
Use a more agile, collaborative approach to delivery
When first announced, there is usually scant information about the actual change and what it means. Where new legislation is required, requirements can continue to emerge until very close to the implementation date. This means organisations should consider prioritising how the change is deployed, perhaps by taking a phased approach and focusing where compliance is most important. For example, when we supported a government client in the rollout of new information security standards, we prioritised external information exchanges which were critical for compliance and where there was the greatest risk of reputational damage.
A collaborative approach between the regulator and the firms affected by the legislation will help address policy uncertainties, for example by agreeing a set of commonly held assumptions to guide policy design and implementation. Where common standards (e.g. codes of practice, technical standards) are required, firms can work together to develop them and create an environment that makes it easy for the regulator to adopt their proposals. For example, when we created the market for energy inspectors through the Energy Performance of Buildings Directive in the UK we established technical standards for information interchange through an industry working group. This increased industry buy-in and reduced delivery risk by enabling technology solutions to be developed early.
Firms should also consider how they can deliver some of the aims of the legislative change before it has been through the parliamentary process. For example, by looking for ways to provide “quick wins” in existing initiatives, firms will be able to give early feedback on the policy development process and strengthen their relationship with the regulator, as well as delivering early benefits. An example of this work, can be seen in our pilots of the Home Information Packs scheme in six towns across the UK, prior to full rollout in 2007, which built greater confidence in the wider implementation of the scheme.
Recognise the implications for your broader organisational strategy
It is rare that legislative change only has a minor effect on an organisation. Most changes are high-profile and bring a risk of reputational damage if delivered late or if an organisation is unable to prove compliance. This means organisations need to review and adapt their overall strategy to reflect the new legislation. This includes examining existing strategic initiatives and adapting them to align with the new policy, as well as identifying work that needs to stop in order to create capacity to meet the new requirements.
As these changes are imposed from outside it is easy for affected firms to adopt a position of “we’re doing this because we’ve been told to”. So regulators have a role in explaining the rationale behind the changes and how they fit with existing regulatory initiatives. A deeper understanding of the regulator’s aims will help companies respond more effectively to new requirements.
It is also important to recognise that regulatory change can also create opportunities. Where the new requirements are relatively modest, the funding allocated to change can enable the development of additional, discretionary activities that may not previously have been possible. For example, we are currently working with a UK regulator to move more of its services on-line as part of a legislative change programme.
Consider the impacts on the rest of your change portfolio
A common reaction to a new regulatory initiative is to establish a new programme and add it to the current change portfolio. However, the scope of these changes frequently overlaps with existing initiatives and can have significant implications for organisational strategy and ways of working. That means it is unlikely that they can or should simply be absorbed into the work of existing teams and firms need to find different ways and new resources to manage these changes.
All this underlines that, when managed effectively, regulatory change can bring benefits to the firm. Financial services organisations have secured savings of up to 20% by thinking more innovatively about the structure of their change portfolios. They have focused on reducing duplication, improving project success rates and using resources more efficiently. For example, where a legislatively-driven change requires redefinition of a business process, they should ensure that all the requirements are included in the new process design.
Alternatively, organising the portfolio around each key business process may enable the company to combine strategic and mandated changes, utilise resource more effectively and avoid “digging up the road” multiple times. This approach has been used effectively in the banking sector where there can be a multiplicity of legislative changes that need to be delivered simultaneously.
By focusing on these opportunities, companies may well learn to like legislation, or at least to manage its burdens better.
For a further discussion with a member of the PA team about seizing the opportunities presented by regulatory change, please use the contact us form to get in touch.