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Compliance Is Only Half The Story

December 15, 2009

Compliance has always been an important principle within business. Any social organism needs rules that govern aspects of its behaviour and of those who are part of it. Some of those rules are internal and relate to things like authorities to make decisions or procedures to be followed. Others are external and are imposed through regulations, laws and broader social standards or voluntary codes.

Over the years, the range of rules has increased. Within business, managers have bought in to the idea that internal compliance raises efficiency and in many cases adds to organizational effectiveness. External stakeholders have increasingly felt a need to define rules and principles which are designed to ensure ‘socially desirable’ behaviours and ‘beneficial’ outcomes.

Rules-based systems require monitoring and new rules generally become accepted and effective only if there is a rigorous system of control. However, over time there is a danger that rules will generate a bureaucracy with no real purpose except to oversee compliance. Not only does this result in additional cost (potentially to a point at which it erodes the benefits of efficiency and effectiveness), but organizations run the risk of losing flexibility and the ability to innovate.

This balance between compliance and innovation is a major concern for senior managers – and it must also be a concern for a community like ours. To many, we are the bureaucrats, the people who police the rules. They do not automatically see or accept the need for centralized procurement of everything, or of standardized froms of contract. In their view, any benefits that might once have flowed from the creation of such ‘expert’ groups have been outweighed by the extent to which we delay decisions, we stand in the way of opportunities, we prevent spontaneous or entrepreneurial initiatives.

Our community tends to suffer more than most from swings in our power and influence, including whether we are centralized or decentralized. This is because we have failed to achieve balance between compliance and creativity. And one result of this is that we are rarely able to describe the economic impacts of our work, beyond perhaps putting a theoretical value to some aspects of cost reduction or cost avoidance.

Examples of such compliance-based activity include the elimination of ‘maverick spend’ or the collection of service level credits. On the sell-side, they may include the percentage of agreements reviewed and approved, or the extent to which standard terms and conditions are utilized. The problem with so much of this is the fact that we cannot actually be sure that the results of our work generate value.

Rules are inevitable in any complex organization. It is right that we then monitor adherence to those rules. But the real value of compliance is the recognition that it represents a base from which deviation can be measured and managed. And it is through those deviations that we may discover new rules, new standards that generate additional benefits and may become a source of competitive advantage.

High value contracts, legal and procurement groups are not focused on compliance as the core of their work. Indeed, they seek to automate such activity, because their focus is on innovation and change. They are spending time observing shifts in the market, influencing internal and external stakeholders, monitoring competition and researching new ideas. Their internal clients do not see them as an unwelcome police force, but rather as a source of solutions that will help the organization to win.

One Comment
  1. fter implementing an e-procurement software within an entity, pushing paper POs through the system is replaced by a more efficient electronic approval and tracking process. No longer is the question asked;

    “Have you seen my Purchase Order for XX” but…

    “I know you have my order, can you please approve it so I can order the XX?”

    The process and ability to track purchase requisitions and orders becomes as easy as finding an e-mail. No longer are your end users wasting precious time and productivity trying to tack down their orders. It becomes so streamlined and structured, the organization can focus on contract compliance and budget management to save money more effectively.

    In addition, contract compliance is enforced and maverick spend is controlled

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