Practice Management

Five Steps to making compliance management your competitive advantage

The focus on compliance management was triggered with the collapse of companies such as ENRON, Worldcom and Adelphia in the United States almost a decade ago.

A public outcry prompted legislative bodies to take steps to protect the public’s money and this resulted in the minefield of acts and regulations Compliance Officers (COs) in the financial services industry have to navigate today.

The difficulty for most companies is, however, that improved compliance management and procedures do nothing for a company’s competitive advantage.

Here are five steps to leverage off compliance to give your company a competitive edge:

Visible CEO endorsement

In his 1995 article “Leading Change” in the Harvard Business Review, Kotter recommended that whenever a company wishes to implement any change initiative, such initiative should be driven, or at least be seen to be driven by the company’s CEO. Kotter described visible CEO endorsement as a critical step in any corporate change initiative.

The same can be said about compliance management. If companies wish to implement any initiative that will give their companies a competitive edge, including compliance management, CEOs should be seen as not only viewing compliance as important but also as being a critical element of the activities of the company. Staff and customers will not be fooled – CEOs need to do whatever is necessary to convince all stakeholders that compliance is as important as e.g. sales or product development.

Parallel decision-making process

The operational activities that COs typically engage in to manage the compliance burden more effectively are important – no compliance department can function effectively without the activities that some call the spade work: developing policy manuals, drafting compliance procedures, training at business level, structured review processes, surveillance, monitoring and testing.

To ensure that COs’ activities add value it is important to ensure that these activities are aligned with business level policies and the overall growth strategy of the business as a whole. This can be achieved through a parallel decision making process – deciding on which operational activities to pursue in collaboration with the compliance department.

As soon as the compliance department is viewed as an isolated compartment of the business, compliance management will be experienced as counterproductive activities that do nothing more than bind operational activities in red tape.

The two pronged positioning strategy

Strategic positioning entails performing activities differently from competitors and also choosing different activities to pursue, to deliver a unique mix of value. Competitive strategies focus on sets of administrative and competitive responses that will enable companies to improve their performance. Competitive strategies are accordingly concerned with the choices that are made to improve competitive performance.

Collaborative strategies entail forming strategic alliances with other organisations and developing networks to improve companies’ performance. This does not necessarily entail collaborating with the enemy – companies can collaborate with the regulator, foster relationships with the regulator and influence the implementation of new policy by making suggestions on legislative changes or suggesting ways in which problematic areas in legislation can be regulated better.

By combining these strategies companies have an almost “unfair” advantage. A company can predict and anticipate legislative changes far more effectively and consequently ensure that its business processes are prepared for such changes ahead of competitors.

Integrated Strategic Change (ISC)

ISC is a process which brings about an alignment between the company’s organisational design and corporate strategy. If a company competes in a dynamic, turbulent or fast-moving industry such as financial services its design must lend itself to being responsive and able to adapt effectively to legislative change. It will not assist the company if it’s CO is able to communicate new legislative changes but the company is unable to implement new policies and procedures promptly.

ISC is a deliberate, coordinated process that leads gradually (or radically) to systemic realignments between the external environment and a firm’s strategic orientation. This results in an improvement of both performance and effectiveness.Recommended activities

A number of activities that should be pursued by companies:

  • Assess the strengths and weaknesses of rivals;
  • Decide on what activities to pursue, different to those performed by rivals;
  • Form alliances that can assist in influencing regulatory change;
  • Engage regulatory agencies in dialogue, preferably through strategic alliances.

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