In today’s world of compliance, organizations face a dual challenge: not only must they faithfully adhere to regulations, but they must also make significant progress in their compliance efforts. This requires compliance to be reliable and effective.
Eliyahu Goldratt, the visionary thinker behind the Theory of Constraints, introduced in his book, Beyond the Goal, definitions for reliability and effectiveness:
Unreliability: things that should have been done but were not
Ineffectiveness: things that should not have been done but nevertheless were done
Though traditionally applied to operational throughput, these definitions hold remarkable value when employed in the context of compliance.
In this article, we'll explore how organizations can apply Goldratt's principles to achieve both reliable and effective compliance while introducing new measurements and rules to drive the desired behaviours.
Reliability: Consistently doing what should be done
Goldratt's definition of unreliability - "things that should have been done but were not" - establishes the heart beat of compliance, integrity, and a commitment to keeping promises.
Compliance is unreliable to the degree that an organization does not do what should be done.
According to Goldratt, the end result of being unreliable, in terms of the organization as a whole, is that the company fails to fulfil its commitments to the external world.
The BP Deepwater Horizon oil spill in 2010 stands out as a prime example of a company failing to do what should have been done in terms of safety and environmental compliance. In this catastrophic incident, BP compromised safety practices, lacked adequate emergency response preparedness, and neglected environmental responsibility. The result was one of the largest environmental disasters in U.S. history, with severe consequences, including environmental impacts, extensive legal and financial penalties, reputational damage, operational challenges, and leadership changes.
Effectiveness: Not doing what should not be done
Goldratt's concept of ineffectiveness, described as "things that should not have been done but nevertheless were done," complements reliability by offering a perspective on compliance progress.
Compliance is ineffective to the degree that an organization does things that should not be done.
If we continue to do things that we should not be doing, what is the end result? The answer is at worst mission failure and at least significant waste.
For example, Volkswagen (VW), one of the world's largest automakers, was under tremendous pressure to meet strict emissions standards, especially in the United States. To comply with these regulations while maintaining high-performance diesel vehicles, VW engineers developed a sophisticated software known as a "defeat device." This software manipulated emission tests to make the company's diesel engines appear much cleaner and environmentally friendly than they were in real-world driving conditions.
Volkswagen did what should not be done.
You Do What You Measure
Goldratt reminds us that measurements play a dual role in our endeavours.
They act as navigational aids, offering insights into our current position and guiding us towards our desired destination. A common example of this is the dashboard instruments in a car that inform us about its status.
Measurements also serve as instruments of influence, shaping our behaviours and actions. However, it's vital to bear in mind that we are dealing with humans and organizations composed of humans, as Eliyahu Goldratt noted:
"Tell me how you measure me, and I'll tell you how I behave."
When selecting measurements, it is important to do so with the understanding that they should encourage individual parts to contribute to the overall well-being of the company. This is particularly relevant when it comes to compliance and making progress towards compliance outcomes.
For compliance to succeed, organizations can follow Goldratt's advice by introducing measurements that foster desired behaviours:
Define Clear Compliance Outcomes: Begin by clearly defining the compliance outcomes you aim to achieve. These outcomes should encompass broader objectives beyond mere adherence, such as strengthening risk management, enhancing stakeholder trust, and realizing the benefits from being in compliance: better safety, security, sustainability, quality and so on.
Prioritize Outcome-Driven Activities: Align your compliance activities with the defined outcomes. Prioritize initiatives that directly contribute to progress in achieving those outcomes while eliminating or optimizing tasks that do not.
Embrace Outcome-Oriented Metrics: Shift from traditional, compliance-focused metrics to outcome-oriented ones. Measure progress based on the achievement of desired compliance outcomes rather than merely tracking adherence to individual regulations.
Encourage Cross-Functional Collaboration: Break down silos within your organization by fostering collaboration among departments responsible for compliance. Encourage teams to work together to achieve shared compliance objectives.
Continuously Adapt and Improve: Embrace a culture of continuous improvement, where lessons learned from compliance efforts drive innovation and refinement. Regularly review and update your strategies based on outcomes and insights.
Eliyahu Goldratt's Theory of Constraints, rooted in concepts such as reliability and effectiveness, offers valuable guidance for organizations seeking to transform their compliance operability.
By introducing measurements and rules that focus on achieving desired behaviours and outcomes, organizations can achieve both reliability and effectiveness in their compliance efforts.
While reliability (always doing what should be done) ensures an unwavering commitment to fulfilling obligations, effectiveness (not doing what should not be done) encourages ethical behaviours resulting in better compliance outcomes.
This holistic approach empowers organizations to not only meet compliance requirements but also make significant strides toward broader compliance objectives.