Platt Perspective on Business and Technology

Regulatory oversight, prudent business practices and risk allocation – 1: setting a foundation for discussion

Posted in macroeconomics by Timothy Platt on November 3, 2012

I have been writing a fair amount over the last year about regulatory law and oversight, and about how this is and perhaps should be promulgated, interpreted and enforced. See, for example my:

• 14 part series: Considering a Cost-Benefits Analysis of Economic Regulatory Rules at Macroeconomics and Business as postings 64 and loosely following, and
• My 7 part series: Macroeconomics and the Fallacy of a Pure Meritocracy System, available at that same directory page as postings 108 and loosely following.

I have at least started looking into the direct and specific impact of regulatory law and oversight on the individual business as it develops and executes its ongoing operational policies and practices, and as an example of that I cite as background reference my posting: Conflict of Interest and the Need for Layered Due Diligence Regulatory Separations in the Age of Online Social Media. My goal in this posting is to at least begin a more general discussion of best practices for developing and managing a business more effectively in the face of outside regulatory challenge. And in that, and as we are facing impending national elections in the United States, I begin this with a simple, basic observation that is empirically validated in the real world marketplace.

Politicians and their spokespersons, and the lobbyists who all too often guide them can frequently be heard to speak out against regulatory oversight and regulatory law as creating non-competitive barriers to the success of businesses in their states, or for the country as a whole. This can be a valid point and certainly for inconsistently drafted and over-drafted law that through its prescriptive detail creates complication and confusion. And inconsistency and confusion in how laws are interpreted and enforced can create problems too. But the larger source of challenge to businesses from regulatory oversight is not from the laws involved per se, or from their enforcement. It stems from how businesses all too often fail to strategically and operationally plan for and accommodate this. Bottom line, effective businesses need to be able to respond to change all the time as their competition changes and evolves and as the marketplaces they serve do to. Regulatory law is simply one more source of this change, and it is one that unlike most, can be discerned and in some real detail well in advance of its full enforcement. This is change in business context that businesses can see coming and that they can evolve and adapt to. And as change creates challenges this is a place where effective businesses can look for new sources of competitive strength and advantage too – through new best practices that meet even stringent interpretations of these new laws while still operationally-effectively and cost-effectively meeting market needs.

So my goal here is to discuss at least in general terms, a process for discerning and planning out, and executing and feedback-correcting and fine tuning agile business practices that can turn the potential challenges of regulatory oversight into opportunity. Yes, I acknowledge that retooling a business’s operational processes can mean accepting up-front expenses. But so does redesigning and rebuilding a bricks and mortar storefront to more effectively attract and meet the needs of a changing neighborhood’s demographics for a locally oriented business. There, making the right changes, and as agilely and cost-effectively as possible, and in both the physical facilities and in how staff works with customers is everything. Change, and adaptation to the needs and pressures of change always cost. But doing so better than your competition can leave you ahead.

Anti-regulatory politicians do have a valid point, and for too many regulatory laws and certainly as they are enforced and interpreted in the courts. But in that any that are badly drafted, implemented and enforced, or both is too many. Regulatory law should simply be seen as a part of the business context. And with that I set aside the question of international disparities in regulatory restriction, and the prospect that some competing businesses face less onerous regulatory climates and that they would start out with an advantage from that. Some businesses operate from stronger local and national economies than others too. This simply adds one more wrinkle to the already far from smooth-and-even business context and playing field that every business faces.

So I set aside all of the political arguments here, and the issues raised and discussed in the first two series noted above in this posting as well. I simply assume that regulatory law and oversight happen, and that good or bad they place constraints on businesses and on what they can and cannot do. And I assume that even when particular regulatory law explicitly specifies certain types of business processes that must be followed, that still leaves a lot of room for variation and for a business to differentiate itself from its competition elsewhere in its strategy and planning, and through their execution. My focus will be on that, and on best practices for identifying and following through upon new sources of opportunity.

This is the first installment in a new series and I am going to follow it with an installment on:

• Planning for upcoming regulatory change, and knowing precisely what your business will face and where it will have to do things in new ways,
• Strategically and operationally planning how best to change to accommodate that in satisfying regulatory requirements, and
• Identifying and acting upon processes and functionalities in your business where you can still create opportunity, where your business can still be flexible and agile.

You can find this and related postings at Macroeconomics and Business.

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