Can compliance contribute to a competitive advantage?
 The Value Chain describes how a business takes inputs and converts them into some sort of value that the customer wishes to pay for. It consists of a collection of "Primary Activities" that converts inputs into outputs and "Secondary Activities" that support these. This careful orchestration of moving parts allows a business to take a few lumps of aluminum, rubber, plastics and glass and turn it into a car, a computer or even an eCommerce offering.
Typically the model is drawn with four supporting Secondary Activities: the firm's infrastructure; human resource management; technology development and procurement. I believe this is one activity short of a full set. In the modern world of Corporate Social Responsibility (CSR), conflicting global regulation and de facto best practices a fifth supporting activity has evolved. That of "Compliance."
The Value Chain Redrawn. (Click for larger image options)
Compliance stretches right across the Primary Activities, covering everything from the socially responsibly sourcing of raw materials, to adherence to labour laws around production, monitoring carbon footprints when products are shipped, sales messages used in brochures and telesales scripts and even the service that the customer can expect after the sale is complete. It requires its own management structure, often with a clear reporting line directly into the board and pulling together the structures of "Quality", "Regulatory and Legal Compliance", "Business Risk" and "Internal Audit."
If the objective of the value chain is to demonstrate how a business creates value (and ultimately find a competitive advantage), what role could Compliance possibly have? It is often seen as a destroyer of value, putting in place additional barriers and controls to ensure the business doesn't mis-sell products or poison customers or upset special interest groups. As such it is typically put into the "firm infrastructure" layer, usually the holdall for all "overheads" that the firm has to carry.
My experience tells me that Compliance can be a significant contributor to the formation of a competitive advantage. The type of activities this layer can undertake - from forming policy on which regulatory and de factor regimes to apply (and how), establishing standards of performance and quality, approving and overseeing other activities - can influence how successful a business is in pursuing a particular generic strategy, or even close off entire strategic options.
For example, in the UK it is a regulatory requirement that no more than 3% of outbound calls are "abandoned": that is the person receiving a call hears silence because they are not connected to an agent or a voice message. Some compliance teams will insist on keeping as far away from this as possible, which adds between 5 and 10% to the resource requirements for their call centres compared to those willing to go closer to the mark. This can be a significant cost burden to the more cautious call centre firm and compromise cost leadership.
Differentiated strategies can also be assisted by the Compliance layer, particularly where the buyers are themselves heavily regulated. Manufacturing products to suit niche markets can often only be possible where the entire compliance landscape is understood, from laws that may affect the use and disposal of products to standards that ensure interoperability and safety. Healthcare is one example of a market where it isn't just the purchase of the product that the buyer has to consider, but also the way it is used, how it is disposed of and who is trained to use it. Embedding these considerations into the design, manufacture and servicing of the product is only possible if a coordinated Compliance layer is in place.
Supporters of the Value Chain model (and I do consider myself one) will argue that "Quality Assurance" is one of the activity types, and that legal and governance is part of the Firm Infrastructure. This is true and not in dispute. What I do question is whether there is a clear and distinct role for Compliance to play in the formulation of a competitive strategy. Perhaps in the "regulation lite" days of the mid-1980s it was entirely appropriate for this to be incorporated in such a way. Today, however, we have an extensive network of regulatory and de facto standards that can affect the way a business operates and influence its competitiveness profoundly.
Compliance used to be seen as a business layer that got in the way of being competitive. Today the potential for it to contribute positively to competitive strategies is greater than ever. That has to be harnessed as we move into an ever more regulated and standardised world.
Previously on this blog...
the global leader in Contact Center Consolidation 2.0
2.0 has become a meaningless addition to already poor tag lines.
A dozen beautiful images of Saturn
Wired presents a dozen of the best images from the Cassini mission
Setting up shop in a new country: beyond the website
Building a website for multiple languages is not just about translation. It is a critical business decision that has to be taken carefully.
Why call centre staff deserve your respect
If call centre staff set the first impression for your business, why do we treat them so badly?
Becoming a Specialist? A hard decision to make ...
Specialising requires hard strategic decisions to be made about your business.
When good people move on
Losing a member of staff to another company is not necessarily a bad thing
The quest for quality in Agile Software Development
Why quality assurance remains a central part of project management, regardless of the use of Agile methods
© 2010 Ross Hall. All Rights Reserved.
If you wish to use any of the content from this site please contact me.
All contents provided for information purposes only.
|
|
About Ross Hall