Updated: Nov 11
A proactive and integrative approach to improve compliance effectiveness.
Over the years working for companies in highly-regulated high-risk industries I learned that many were not able to advance or sustain continuous improvement of their risk & compliance programs.
The challenges were numerous and multi-faceted dealing with such things as values, culture, behaviours, policies, goals, objectives, standards, processes, technology, resources and the like.
However, these were only the downstream impacts triggered by something else. The compliance landscape had changed and the traditional approach to compliance was not able to keep up and this affected everything.
A Changing Landscape
Over the last decade regulators have started to modernize their programs to become more risk-based; moving towards performance and outcome based designs. The intended impact of this transformation was to achieve better outcomes rather than a doubling down of prescriptive obligations. The goal was to improve public safety beyond what prescription could provide.
To accomplish this, regulators started to focus more on the risks rather than the rules. This would result in regulatory designs moving away from rules-based requirements towards performance, and outcome based specifications.
Adopting these new obligations would come at a cost and would take time. Organizations under regulation would need to adopt a different mindset, skills, and practices which many did not have or have the time to learn.
At a fundamental level organizations would need to become more proactive with their compliance. They would have to anticipate rather than merely react. This new mindset would be closer to managing risks rather than managing audits.
Instead of inspection and audits as the trigger for change, organizations would now be expected to set their own compliance goals and objectives, establish risk measures, and measure progress towards targeted outcomes.
The role of regulators would also change as they would now need to validate outcomes instead of conformance to procedures. However, more importantly, they would need to take on a different role to help establish targets and foster industry support. Regulators would be, in a manner of speaking, more concerned about the "ends" rather than prescribing the "means".
The Effects Of Reactivity
The downstream effect of changes in regulatory designs would catch many organizations off guard and too busy fighting fires for them to have any time to be proactive and adopt to the risk-based approaches. However, even if they wanted to, they did not know what being proactive looks like.
Compliance for many had focused on managing actions coming from audits rather than proactively preventing non-conformance or pursuing targeted outcomes. Even still, given that it is impossible to inspect everything, management in most organizations would prioritize efforts on only a portion of their mandatory requirements and ignoring most if not all voluntary commitments.
This left a significant number of obligations unaccounted for and mostly hidden. Reactivity was not working and being proactive appeared not to be an option.
The Need For A Different Kind Of Change
To adapt to modern regulatory frameworks organizations would require a transformational change in how they approached compliance.
However, the constraint for many organizations was that any improvements would need to be funded from existing budgets. These improvements were not considered as investments but rather as stop gaps. Not the best conditions for a successful transformation.
Fortunately, LEAN has for years helped industries such as automotive and health care and is starting to gain traction in construction, oil&gas, and other segments, to change from a reactive to a proactive culture.
Could LEAN also work to transform compliance?
A Case For LEAN
To better understand how LEAN could help with compliance we need to go back to the early days of LEAN when it was first introduced by Taiichii Ohno at Toyota in the1950s. Taiichi Ohno, the father of LEAN, taught about the removal of waste, standard work, and continuous flow. However, that is only part of his story.
Ohno also taught that the production leader is the one who "breaks" the standard. When you make an improvement, you take out your very best person from the line. It is what that person did next that is transformational.
The freed up resources would work on further improvements, that resulted in even more people removed from the line. In the end, Ohno would have enough people to start an entire second production line. Instead of fractional improvements he was able to double his capacity.
“Making an improvement that can take one person out results in just one person's cost being saved. If you take that person and have her make improvements, you start getting savings of two, three, four, and five people and so forth. Taking out the best person and making her improve the rest is really effective."
Now, imagine if organizations followed the same process for compliance. They would still reduce waste, standardize work, and streamline the work flow. However, that too would only be part of what is possible.
Freed-up resources from the reactive side of compliance could be moved over to the proactive side. They could anticipate changes, address root causes, and introduce new capabilities to always stay in compliance.
If organizations did this they could also double their capacity to meet compliance obligations.
This is exactly what compliance now needs, but not without first addressing LEAN’s blind-spot.
LEAN's Blind Spot
LEAN is well known for improving productivity. However, when it comes to compliance and such things as inspections and audits these are seen as waste and something to be eliminated.
For LEAN to have a transformational effect on compliance it needed to understand that compliance and production have more in common than most realize.
LEAN fundamentally is concerned with removing variation from processes. Compliance is also concerned with this but calls in uncertainty. Instead of defects (or poor quality) as the effects of variation, compliance focuses on non-conformance (or risk) as the effects of uncertainty. Variation and uncertainty are really two sides of the same coin.
Instead of eliminating waste by contending with variation, compliance eliminates risk by contending with uncertainty. In fact, we can say that waste is the outcome of ineffective compliance and is indeed something to eliminate.
Adding Risk Management To LEAN
Reducing these wastes (i.e. risk) now becomes the mandate for lean practitioners working in compliance domains including environmental, safety, security, quality, ethics and regulatory programs.
ISO 31000 defines risk as the uncertainty on objectives. Broadly speaking, uncertainty takes the form of epistemic (lack of knowledge) which you buy down and aleatory uncertainty (having to do with chance and variability) which you treat with margins.
This differentiation can be visualized using a modified version of Michael Porter's Value Chain Analysis (VCA).
LEAN applied across the organization helps improve efficiencies which improves margins which buffers or guards against aleatory uncertainty – the outcomes it doesn’t want.
This buffer can be used to fund proactive, risk-based compliance to drive down risk by improving the certainty of meeting obligations. In other words, it helps organization stay between the lines and achieve the outcomes it does want.
To realize these benefits we need to operationalize compliance which starts with making compliance operational.
For compliance to be operational it must be more than a disparate set of practices or something tacked onto the end of a process. Instead, it must be a system of processes that work together to increase the certainty of achieving compliance objectives and outcomes.
To do this compliance must implement all essential behaviours and properties of a goal-driven system.
Compliance needs to encompass feed-forward processes that steer towards goals and objectives. It must also have feed-back processes to correct for deviations from planned targets. It must be capable of meeting obligations at the necessary performance levels to achieve the intended outcomes. It must also be continuously improved across all levels. If this looks like a production system you are getting the idea.
When compliance is trying to achieve operational readiness many take a phased: element first-approach. This comes from years of prescriptive obligations and a focus on implementing "shall statements" in order to pass certifications and audits.
When the focus is on meeting "shall statements" rather than improving outcomes we find these familiar steps:
Understand the elements of the regulation or standard.
Map existing practices to the elements.
Identify where current practices do not meet the standard.
Engage these deficiencies in a Plan-Do-Check-Act (PDCA) cycle.
Target these deficiencies for compliance with the standard.
This approach is not without its limitations the most significant being that it often fails to deliver operational systems fast enough or at all.
Organizations usually run out time, money, and motivation to move beyond the parts of a system to implementing the interactions which are essential for a system is to be considered operational.
For compliance to be effective in the new landscape another strategy is needed that:
Achieves operational status sooner,
Creates and sustains system properties over time,
Provides a platform to build-measure-learn with the least cost
Another way of saying this is that you cannot implement a holistic system partially.
We know from systems theory that systems are never the sum of its parts but rather the product of its interactions. It is these interactions that cause emergent properties to be produced. For compliance systems these are the outcomes we are targeting: zero incidents, zero violations, zero fatalities, zero emissions, and so on.
Lean Compliance's approach builds on the work by Eric Reis (Lean Startup) that emphasizes system interactions to achieve operational status sooner than traditional approaches. This approach includes the following activities:
Identify and evaluate mandatory and voluntary: prescriptive, performance, and outcome-based obligations.
Map obligations to existing governance, programs, systems, and processes.
Identify and evaluate measures of conformance, performance, and effectiveness.
Identify and evaluate uncertainties to meeting targeted goals and objectives.
Identify and evaluate capabilities, capacity, and performance to meet and sustain obligations.
Implement minimal viable compliance (MVC) based on essential behaviours and properties that can be improved on over time.
Elevate compliance effectiveness by improving the MVC using a build-measure-learn process.
This produces a compliance system that might start off looking like a bicycle but will soon look like a motorcycle, and then a car, and so on. What you will not have is an assortment of disparate compliance parts that are not working together that maybe some day will deliver.
Organizations of all shapes and sizes are struggling to meet all their regulatory and stakeholder obligations. Traditional approaches to compliance have not delivered or kept up with changes to regulation or the adoption of stakeholder obligations. This exposes organizations to significant non-conformance risk but more importantly reduces the probably of mission success.
A different approach is needed that is able to protect value but also helps to create it.
The application of LEAN has produced transformational results for many organizations in the manufacturing sector. These same principles and practices can be used to free up resources to implement proactive compliance programs to help organizations keep up with the speed of risk.
LEAN can improve efficiency and with a new focus on risk can also improve the chances that organizations meet all their obligations in the presence of uncertainty.
If your current approaches have not worked and you are falling behind on your obligations we encourage you to join The Proactive Certainty Program™ – A proactive and integrative approach to improve compliance effectiveness.
We are always looking to work with ethical and ambitious organizations who are future-oriented and strive to always improve their performance. If this sounds like your organization, you may be interested in joining our program.
We offer the first step at no cost. During this hands-on, working session we help you assess your current situation and identify areas to quickly improve your compliance.