Are you in your own way of compliance?

Machu PicchuIf you have the travel bug, I can recommend Peru for your bucket-list. The beauty and magic of Machu Picchu, and majestic snow capped mountain peaks, took my breath away. It’s just like a fairy-tale – a sacred, enchanted city of stone and terraces built by the Incans in 1430, and shrouded in mystery.

The stone walls fit together so precisely (without mortar), to stand the test of time. There’s a powerful energy you feel from these natural structures that stirs a sense of peace, serenity and healing. It’s like a calling.

They grew crops, worked on the land, worshipped their gods and created this engineering masterpiece in just 100 short years, using their own uniquely advanced technology.

Machu Picchu is a reminder that genuine wisdom is found in simplicity. Life is not complicated. Most of the time, we just make it that way. They had compliance, rules and regulations to follow, and everyone knew their place.

I found myself drawing comparisons with our approach to regulations and compliance today, and just how progressive we really are (or not) in the grand scheme of things.

Like most companies, we run the gauntlet of compliance day-in, day-out. So on face value, the explicit new government strategies to reduce red-tape are a huge leap forward, and will help firms invest again. Whether you go with the “authentic” or “just rhetoric” view, time will judge.

Our latest study, Executive Outlook, explored the impact of compliance on local businesses. The general vibe amongst the 50 firms we surveyed was “Don’t get me started”, and Government promises to reduce red-tape drew much cynicism.

82% of firms said compliance pressures had grown in their business, with the feeling they were hit from all directions. Government regulations across environmental, health, safety, licenses and Work Cover (coupled with ever-shifting goalposts) were singled out.

Indirect red-tape was another issue, with specific accreditations needed by more customers. Directors now have to put their personal assets on the line, and endless risk management reports are part of the deal. This creates challenges in attracting experienced directors of the calibre needed.

All of this detracts you from the core business of talking to customers and looking after staff. No-one disputes that good processes are critical, especially when it comes to safety. After all, a world without rules would be anarchy. The point is that reputable businesses are already on top of this.

Duplication of red tape (and the associated costs) remains a burning issue, particularly for global corporations, where the cost of doing business in Australia is much higher. This leaves innovation as our only competitive edge, and it is critical to capitalise on this, without being hamstrung by red-tape.

Risk and return go together. If compliance overpowers productivity, you stop incentive, risk and innovation, and this kills profitability. Whilst our local study highlighted some of these issues, national research by Deloitte takes this to a more in-depth level.

Deloitte’s new report, aptly named, “Get out of your own way”, reveals there are now more compliance workers in Australia, than workers in the construction, manufacturing or education sectors. The growth in compliance workers has offset technology-related declines in back office workforces. Their study used both census data and survey responses from 137 firms to assess the cost of complying with regulations, and found that:

  • Of all the resources available to the Australian economy, we ­allocate a scary 16% to ­administering and complying with rules and regulations. AND
  • One in four (25%) workers in the public sector are ­involved in administering, enforcing and complying with rules.

The report articulates why compliance processes are costing the Australian economy billions of dollars, which ultimately impedes productivity. They calculate this in specific annual financial terms:

  • $94 billion to administer and comply with public sector rules
  • $155 billion to administer and comply with self-imposed rules and regulations
  • Unquantifiable losses from forgone incentives, enterprise and innovation
  • At least eight weeks of work just to cover the cost of administering and complying with rules

The report spells it out bluntly ‘….. the biggest single drag on Australia’s productivity (is) red tape and overzealous rulemaking.’

They also found that the economic burden of rules imposed by companies on themselves is even greater than that imposed by ­government.

Not only have we replaced many . . . back-office workers with our new army of compliance workers, it turns out many of the new technologies we’ve come to love are also time thieves, stealing [our] most valuable resource: workers’ hours.

I don’t have to look too much further than our own company, to uncover examples such as long-winded tenders that exhaust valuable resources, cost money and turn us into compliance workers. Once the contract is implemented, we employ more compliance workers to ensure the new rules are followed. (A cost analysis on this is a scary prospect, indeed).

The Deloitte study wraps up these challenges perfectly:

  As a nation, we’re wrapped up in red tape. Something must be done, and government – as rule-maker in chief – is in a strong position to fix the backyard we all share, set an example, and promote best practice in its own operations and across the economy.

Yet that doesn’t let businesses and other non-government organisations off the hook. As we’ve shown in this research, the largest part of Australia’s annual compliance cost comes from the rules private sector organisations impose on themselves.

In other words, we need to get out of our own way.  As for whether we are more progressive than the Incans, the jury is definitely still out.

Jan Gadsden