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We have all heard that culture eats strategy for breakfast (Peter Drucker). What we may not have heard is that the same holds true when it comes to compliance tools and measures. Organizational culture also determines which tools and measures will work and which ones won’t. In fact, without the right culture you will never be able to benefit from the tools you need most to meet all your obligations and keep all your promises. Let’s take a closer look. In a study published by The International Association of Oil and Gas Producers (OGP) in 2010 an evaluation was conducted of 53 Health, Safety, and Environmental (HSE) tools against organizational culture. In this study HSE tools range from processes (i.e. measures) to commercial products across the following 15 categories: Reporting and Recording Incident Investigation and Analysis Auditing Human Factors In Design Work Practices and Procedures HSE Risk Management HSE Management Systems HSE Training and Competence HSE Appraisals Situation Awareness Questionnaires and Surveys Observation / Intervention Incentive Schemes HSE Communications Other Organizational culture was assessed using these classifications: Pathological - Who cares as long as we’re not caught Reactive - Safety is important; we do it along every time we have an accident Calculative - We have systems in place to manage hazards Proactive - Safety leadership and values drive continuous improvement Generative - HSE is how we do business around here Each tool was judged as appropriate for the level of organizational culture when it meets these criteria: It is likely to be accepted and actively used; Its use serves a required purpose; and It should improve HSE performance. An excerpt from the study is shown below (see link at the end of this post to download the full study): According to the study, a tool no matter how good it is will not provide the intended improvement unless an organization is ready for it. As a result, this study shows that the majority of HSE tools needed for an effective HSE program will not be helpful without higher levels of cultural maturity. For example, risk management tools will not be effective unless a culture is proactive. Another insight can be inferred from the study by considering organizational coupling. When this is considered we noticed that many HSE tools require higher levels of integration to be effective. For example, Management of Change (MoC) processes require engagement across multiple areas of responsibility to effectively contend with risk due to planned changes. In other words, MoC is not effective as a stand alone tool conducted by one person – an example of low coupling. The following chart combines these two insights: What Does This All Mean? The majority of tools needed by a compliance program cannot be used without sufficient pro-activity and organizational coupling. This is a big deal for organizations trying to improve HSE performance that are mostly reactive and operate in functional siloes. They will face an up hill battle which will be the case for many, perhaps the majority, of organizations. What do you do when your organization is not ready to benefit from tools that you need to achieve program performance goals and advance outcomes? Let's consider three options: No Transformation Big Bang Transformation Progressive Transformation 1. No Transformation This option recognizes that the organization is not ready to take advantage of the majority of tools needed by a program. It accepts the culture that exists and uses it as a place to start. Understanding that it will not be enough to meet performance objectives or advance program outcomes. The outcome of this approach is a partial, and most likely not operational, program managed by a few resources working independently, mostly reactive, and focused on reporting. Engagement with internal stakeholders will be limited to collecting data needed to feed basic tools of the program. Taking the program to the next level will require organizational transformation. However, many that start here never transition to the next level – their culture prevents them from doing so. 2. Big Bang Transformation This option recognizes that becoming more proactive and integrative is necessary and fundamentally a change management problem requiring strong leadership and stakeholder support. Change management will among other things introduce proactive behaviours along side of greater levels of stakeholder engagement needed to drive organizational coupling. This if successful should enable a larger set of program tools (perhaps 3 times) to better meet program objectives and realize benefits. Transforming culture and implementing new technology all at once is a high-stakes, high-risk endeavour. Sustaining focus and effort across multiple years is possible but very organizations have the patience. It usually takes new leadership or a serious incident for those organizations to change. Organizations, that do not sustain their efforts using this approach will end up with partial and non-operational programs and often end up starting over. 3. Progressive Transformation The previous option is similar to a "waterfall" approach where benefits are realized only at the very end. This approach makes sense when: The organization has had prior success with this kind of transformation in the past, A high degree of certainty exists with what and how things need to be done, All program capabilities (behaviours, skills, tools, capacity, etc.) need to be present to realize the majority of the benefits. However, when these conditions do not exist the organization will need to learn new behaviours as they implement technology. This requires a change management approach of a different kind. An approach designed to do this is, "Lean Startup." This methodology uses a BUILD-MEASURE-LEARN cycle to achieve greater levels of program capabilities.This is different than phased implementations or continuous improvement strategies. Not all behaviours and not all parts of the organization need to be integrated at the onset or all at once. Instead, what is needed is for every version of the program (minimal viable program) to have essential behaviours and properties operational for a targeted level of effectiveness (measure of progress). Lean Startup takes advantage of this and provides organizations the opportunity to learn new behaviours over time while improving program performance and effectiveness at every stage of system development. Lean Startup aligns change management with implementation to produce intermediate / instrumental transformations in culture, coupling, and program effectiveness. This approach is still high-stakes but a lower-risk endeavour. If and when priorities change, organizations are left with a program that is operational but may not be fully effective. This is better than nothing, or a partial inoperable system, or having to start over in the future. As benefits are realized at every iteration rather than at the end they can help fund further program development. In essence, every iteration of the program generates a return on investment (ROI). Summary Many organizations invest significant amounts in tools and technologies to support compliance programs. These have the potential to improve program performance and outcomes but only when reinforced by particular levels of organizational maturity specifically associated with culture and coupling. When organizations are not ready for the tools they need organizational transformation must occur which is a risky endeavour. However, this is not as risky as implementing tools that will never realize the intended benefits. Effective change management is critical to address the people-side of change. This can be improved further by implementing technology in ways that reinforce learning of new behaviours and integrative practices. References: 1. "A guide to selecting appropriate tools to improve HSE Culture (2010)", OGP:

Organizations and individuals make promises to meet obligations of all kinds. These might be in the form of duties, commitments, responsibilities, or customs connecting with such things as: a license to operate a business, a license to practice a profession, a license to drive a vehicle, becoming a citizen of a country, becoming a member of an association, getting married, being part of community, signing a contract, and so on. When we enter into these arrangements we accept the conditions to meet the specified obligations. This is a promise we make not under compulsion, but voluntarily and usually with good intentions. However, over time and for a variety of reasons, we may find that the promises we have made are not being kept. The gap between the promises we have made and those we no longer keep is a measure of integrity. Measures of integrity do not only apply to people. They also apply to such things as engineering systems and processes that we use to operate our businesses. For example, when mechanical integrity has been compromised the equipment or process in use is no longer able to perform according to its design specifications. In a manner of speaking it can no longer keep its promise to perform. As engineers we attempt to compensate for this loss by including safeguards in our designs in addition to continually monitoring any gaps in performance during operations. These gaps are also a measure of integrity and keeping them in check is necessary to keep trouble at bay and sustain safe operations. When integrity, personal or otherwise, is lost or diminished we start on a path that leads to all kinds of trouble that usually ends with disruption. We start to observe an increase in the number of problems and issues often accompanied by the presence of inspectors, auditors, and lawyers. We end up on a path that we did not choose (at least directly) or want, but one that we are now compelled to follow. This disruption comes at a cost, over and above any fines we might pay. We can avoid these troubles and the disruptions that ensue by maintaining integrity which requires that we have a measure of integrity . When it comes to risk and compliance programs a good place to start is by having clear and concise compliance specifications that describe what the obligations are, how they will be met, and key results and objectives by which performance and outcomes can be measured, Companies that have these in place will know their level of integrity. If you are unsure of your obligations or if your plans to meet them are able to perform to achieve your targeted outcomes please contact us to learn how our programs can help.

To meet the challenges of environment-first future organizations will need to establish modern compliance systems to assure environmental policies are implemented across all their operational business units, divisions, and departments. In this post we outline a policy management approach based on ISO 14000 that provides the means to align and coordinate environmental commitments flowing from an organization's environmental policy across all of its operations. This framework consists of three primary functions: Policy Development Policy Deployment Policy Implementation 1. Policy Development The purpose of policy development is to create and maintain an overarching operational environmental policy to direct and govern environmental performance across the enterprise. This begins by taking inventory of both regulatory requirements along with voluntary commitments. These obligations provide overall direction, industry and regulatory targets, and objectives covering aspects associated with: Board Priorities Strategy and Plans Laws and Regulations Assets / Operations Stakeholder Concerns Using this information organizations are then able to set appropriate organizational outcomes, direction, and goals commensurate with the level of commitment and operational risk, all of which are used to establish an overarching policy. This policy is "operational" in nature as it defines specific commitments for the organization bridging the gap between intention and action. 2. Policy Deployment Once an operational environmental policy is created it will need to be deployed across existing operations, departments, and services. Policy deployment keeps the organization on track and from drifting away from its environmental obligations. To be effective policy commitments must be operationalized into internal systems, processes, and procedures. This is assurance-by-design which when done well decreases the need for excessive inspections and audits. It also holds operations accountable for its environmental performance. The operationalization of environmental commitments is captured in individual deployment plans for each divisions, department and service. 3. Policy Implementation Each business unit, division or department will implement their individual environmental policy deployment plan and evaluate their progress. Assurance is improved by evaluating performance and engaging in continual improvement which although required more with voluntary obligations is increasingly becoming the norm for regulatory requirements. Establishing a modern environmental assurance framework will help organizations do what they say and say what they do when it comes to meeting their environmental, social, and governance obligations (ESG).

Over the last several years what is traditionally called risk management has undergone significant criticism from professionals, practitioners and benefactors of its practices and principles. For the most part these criticisms are justified. Up until now risk management has been practiced across disparate domains each having their own definition of risk, taxonomy, rigor, and practices for amelioration (some do not even have that as an objective). One risk domain might focus on better decision making informed by quantifying the value at risk usually in financial terms. Another domain might direct its attention to preventing risk from becoming a reality by implementing controls and measures. Some will talk about hazards and obstacles while others will speak of threats and events. Most will focus on negative outcomes and fewer the positive side of risk. Some will deny that positive outcomes are risks at all and others will espouse that using heat maps is pseudo science, and if you are not using Monte Carlos you are not doing risk management. Some are trying to find the elusive black swan and most are trying to realize the benefits from risk management in a world that is calibrated to measure things that happened rather than things that may or may not. As companies have continued to elevate the role of risk management further up in their organization the lack of consistency and coherency has become more prevalent driving much of the criticisms we now observe and for the conclusion by some that r isk management as a whole is broken which is something I agree with. What the risk profession needs more than ever is a conceptual frame that is comprehensive enough to properly incorporate the way that risk manifests itself in reality as a whole not only in particular categories. The Game of Snakes and Ladders Risk as we now understand it is a manifestation of uncertainty which has been described as the fabric of reality found all the way down to quantum level. It should therefore come as no surprise that this reality has been present since the beginning of time and of course in the game of “Snakes and Ladders.” This is an old game but has important lessons to teach us about how risk manifests itself in reality. “Snakes and Ladders” captures a reality of life that for every path you take there will always be the possibility of snakes waiting to take you down. However there is also the possibility of ladders to rise above them. The International Standard Organization’s ISO 31000 guidelines defines risk (and rightly so) as the effect of uncertainty on objectives. As an aside, this definition has perhaps had the most impact in recent years to advancing the domain of risk management. In the game, uncertainty is represented by the roll of the dice which serves to turn possibilities into reality, the effects of which can be both negative or positive. You can be bitten by the snake and sent back down or find yourself climbing a ladder towards your objective. The presence of uncertainty affects everything. Contending with Snakes (managing threats) Snakes hinder getting to where you want to go or what you are trying to achieve. They take you down in the game, in business and in life. However, not all snakes matter. The snakes that matter are the ones in your path. These snakes can sometimes be avoided, or their effects minimized but they can never truly be eliminated. Snakes can be active as in the case of bad actors who want to take you down. Snakes can also be passive, holes in your defences that wait to be exploited. All snakes contribute to the uncertainty of winning the game. In business this uncertainty is manifested in the form of institutional or operational risk; the effects of uncertainty on mission objectives. You can wait for snakes to come or you can take advantage of ladders to stay above them. However, what the game teaches us is there will always be snakes. Climbing Ladders (exploiting opportunities) Ladders are the opposite of snakes. Instead of taking you down they take you up. Ladders help to advance your progress towards what you are trying to achieve. As with snakes, not all ladders matter; some are more useful than others. Ladders can help to avoid snakes which is what traditional risk management focuses on. Ladders can also represent opportunities to get ahead. Winning strategies not only build defences against snakes, they also include measures to exploit opportunities to win the game. Deciding which Game to Play (evaluating value at risk) The game of snakes and ladders is a game of chance. However, in life and in business winning strategies must also consider the effects of choice which have their own snakes to contend with. You can choose to avoid as many snakes as possible or decide to build more ladders to improve your chances of winning, or any combination of both. Which option do you pick? To decide which is best you need a way of determining which strategy among alternatives is most likely to succeed. In many cases you can calculate the probabilities and the cost of one strategy over another. However, even when you can't you still need a way to choose which game to play and what strategy to use to win. A New Risk Management Framework Although the game of “Snakes and Ladders” is a simple one created years ago it is based on observing how risk manifests it self in the world over hundreds of years. The following principles derived from the game have past the test of time:" Chance (uncertainty) affects everything. There will always be snakes (threats) to contend with. Ladders (opportunities) are necessary to overcome snakes and win the game. You need a way to decide which game to play and how to succeed. It is disconcerting that many risk managers are not aware of these basic principles and how to use them to advance mission success. All too often only one aspect of risk is considered usually driven by a particular set of analysis tools or definition of risk. A few years ago I conducted a risk workshop with a group of managers who were considering structural changes to their organization. During this meeting one of the managers commented that there were no risks since there were no hazards. This was coming from an approach to risk that is common in safety; when you eliminate the hazard you eliminate the risk. In other words, no hazard no risk. This was technically true since of course there were no physical hazards. However, there were organizational hazards, uncertainties, and associated risk. There were options that needed to be evaluated and opportunities to exploit to improve the probability that intended outcomes would be achieved and negative ones might be minimized. Unfortunately, there was no framework that everyone understood for effective discourse to occur. The effects of this problem surface throughout organizations across every sector. When we talk about risk we are seldom talking about the same thing. Risk management must move beyond individual risk domains, tools and approaches if it is to have the role that it should have in an organization. Of course it will always be necessary for specialized research and practices to support individual risk categories. However, the way we talk about risk should be the same across all of them. Until that happens risk management will not be as effective as it could or needs to be. Confusion rather than certainty will prevail and we all know where that leads. The current frames to describe risk are overly reductive lacking the scope to properly describe and effectively contend with uncertainty. In other words, how we frame risk has become more important than what is inside the frame. As we transition into a new year, my hope is that we continue the transition towards a coherent and comprehensive risk framework. The work that ISO has done is a good start. However, we need to continue to build ladders that will help risk management move up in organizations and be effective in the role that it needs to have.

In recent years, standards and regulations have specified the need for companies to adopt improvement models or frameworks for their risk and compliance programs. The need for maturing systems is not new and there are many: methods, frameworks, and models that can be applied to improve business and compliance processes. Frequently, I come across those who promote approaches based on the CMMI framework along with those who suggest using the Plan Do Check Act ( PDCA ) cycle and everything in between. At a high level, CMMI takes a capabilities and systems perspective to improvement and has been used successfully for years. What makes the CMMI framework so compelling is that it provides a way to assess process maturity. You can identify where you are and what the next step should be. Likewise, the PDCA cycle has also garnered much attention due its success in improving quality. One of the ways that the PDCA cycle helps is when you know where you want to go but not sure exactly how to get there. It provides a way to take incremental steps, validate the results, and then advance further to the next objective. The LEAN Improvement Kata (IK) also referred to as "Toyota Kata" goes even further. This is a coaching approach where the best coaches help the learner to learn to improve. It is more of a meta approach and Toyota Kata is an excellent example of how this is done. The improvement Kata incorporates the scientific method to discover a path forward towards an overall direction instead of just a point improvement. In my experience, the CMMI approach is well suited to program level objectives and initiatives. Whereas, the PDCA cycle provides an accessible approach for front line workers to identify and implement incremental and equally valuable improvements to existing processes. The Improvement Kata (IK) with its focus on direction can help to align processes to overall system and sometimes even program objectives. Choosing a continuous improvement approach is important and you may need more than one. A common and unfortunate tendency is to use a "one size fits all" approach when making these kinds of decisions. Whatever approach you take, the important decision is to make continuous improvement part of your process at the onset. Don't wait until the last step in your implementation plan for this to happen. What is even better is when continuous improvement becomes part of your culture and practices at all levels of the organization.

GRC is an acronym for: governance, risk, and compliance which originated from the management consulting world to describe processes needed to bridge the gap between a board and the CEO. GRC establishes the context by which the "ends" defined by the board are met through the "means" of an organization. The primary drivers for GRC originally stem from the United States of America’s Department of Justice (DOJ) sentencing guidelines as a way to: Avoid prosecution, Prevent loss, and Demonstrate compliance The purpose of GRC is to provide oversight, manage risk, and assure that legal and regulatory requirements are met. Evidence of these processes is demonstrated by audits conducted by internal functions which may include third parties. GRC has mostly concerned itself with meeting prescriptive regulation applied to finance, code of conduct, and more recently data privacy (IT). The primary mechanism by which this is done is through the audit function. In fact, for many companies, the words compliance audit, and even GRC are used interchangeably. This is indicative of companies that use an audit-fix cycle as the means of steering their organizations. This method of governance has been used for years for assuring the integrity of financial statements and correcting non-compliant processes. However, it is too slow and too late to address the effects of non-conformance leading to loss of life, reputation, stakeholder trust, and more generally where the effects are irreparable. Unfortunately, when compliance only has an audit “hammer” everything looks like a nail which increases the tendency to "double down" on audits. This creates the side effect of reinforcing reactive behaviours that contributed to the need for doing more audits in the first place. As one board member asked, “how do we get ahead of all this?” This is the question that GRC is fundamentally trying to answer. In addition to a compliance role, companies may also have a risk management function. This is gaining more support but suffers from a lack of effectiveness. Risk management at the corporate level has more to do with decision making regarding investments rather than buying down risk to ensure that the outcomes for decisions that have been made are achieved by the organization. The latter requires risk management approaches more aligned with improving safety than it does calculating value at risk. In recent years, there has been an increased desire to integrate GRC across its functions (G, R, and C) and throughout the organization. The non-profit organization, OCEG, is well known in the industry as leaders in the advancement of this direction. Although, there are other standards and regulatory bodies such as COSO (Enterprise Risk Management Framework) and ISO who are also extending their body of knowledge to create a more integrated framework. However, most the work to-date has focused on improving audit efficiency and consolidating existing practices. Very little has been done to improve effectiveness. To effectively bridge the gap between the board and the CEO, GRC must go beyond simply integrating disparate processes and improving efficiencies. A more holistic approach is needed based on proactive behaviours and practices. One way to accomplish this is by viewing GRC as a capstone that connects management to the board rather than as isolated functions that sit outside the board and organizational structures. Architecturally, capstones connect supporting members so that together they are able to carry all the weight. Although, and this is critical, capstones do not bear the primary load, however, without them the other members cannot bear their forces. This approach can serve as an overarching framework and as an ideal for how GRC could be more effective. GRC would not bear the primary weight for governance, risk and compliance, but would connect the board and organizational structures so that they can. GRC would become a form of self-regulation which is another way of describing the purpose behind GRC. In this context, GRC provides the processes to advance outcomes, address threats that hinder or opportunities that help to achieve those outcomes, and embed conformance in the same way that quality and safety are designed into products and services. The purpose of each function would now be to: Regulate (steer towards) outcomes, Ensure (make certain) outcomes are achieved, and Assure (confirm) that outcomes were met. GRC implemented in this fashion could better address all compliance objectives including: quality, safety, security, environmental, and regulatory objectives by reducing overall risk which would increase the certainty that progress is made by the organization towards its desired "ends." And this progress defines the measure of effectiveness not only for GRC, but also for the organization.

Compliance is all about staying between the lines and ahead of risk. This requires organizations be proactive and integrative with their compliance. This is best accomplished by having effective Operational Governance – the proactive side of compliance. In this blog post, we explore three essential functions of Operational Governance that will enable organizations to stay on mission, on budget, and on-side. Provide Vision and Direction: At the heart of effective Operational Governance lies a clear vision and direction. By defining where we are going and the path we are taking, we can set the destination that will guide our every decision and action. A compelling vision not only inspires and motivates employees but also provides a shared purpose that aligns their efforts towards a common goal. Effective leaders must communicate this vision consistently and ensure it resonates throughout the organization, empowering teams to make decisions that steer them towards the desired future. Align Operational Objectives with Organizational Values: To stay between the lines and avoid straying off course, operational objectives must be closely aligned with the core values and principles that define the organization. This alignment acts as a compass, guiding decision-making processes and ensuring that every action taken is consistent with the overall mission and vision. By integrating values into operational strategies, organizations can create a strong ethical foundation that not only mitigates risks but also strengthens trust among stakeholders. An unwavering commitment to organizational values cultivates a culture of integrity, excellence, and accountability. Regulate Organizational Capabilities, Behaviours, and Practices to Deliver Value: The pursuit of protecting and ensuring value necessitates a vigilant focus on continuously regulating and refining capabilities, behaviours, and practices. By proactively identifying gaps and shortcomings, organizations can implement targeted measures to enhance their performance and deliver sustainable value. Effective Operational Governance demands a systematic evaluation of internal processes, the establishment of robust controls, and the development of best practices that streamline operations and maximize efficiency. By fostering a culture of continuous improvement, organizations can proactively adapt to emerging challenges and seize opportunities that propel them closer to their defined destination. Summary In a rapidly changing business environment, Operational Governance is not a luxury but a necessity. By providing vision and direction, aligning operational objectives with values, and regulating capabilities and practices, organizations can stay between the lines and mitigate risks that may jeopardize their success. It is through these deliberate actions that organizations can forge a path towards sustained growth, cultivate a culture of excellence, and secure their position as leaders in their respective industries. Embrace the power of Operational Governance , and watch your organization flourish as you confidently navigate the journey ahead.

Compliance can either be a " necessary evil" or a " necessary good ". The path you choose will determine: whether you are reactive or proactive , your approach to risk , and the effectiveness of achieving your outcomes. The path of " necessary evil " is fraught with uncertainty and is driven by inspections and audits. You are always behind and always catching up. Even with the multitude of action items that come from these audits, you cannot "react" your way to better outcomes in the same way that you cannot inspect your way to better quality. The path of " necessary good" is one that not everyone takes. It is based on: anticipating, planning, and acting to be more certain about meeting compliance obligations. It is a road less traveled because it requires a desire for better outcomes, instead of maintaining the status quo. This is the difference between leading and managing compliance and leadership is in short supply. Not choosing is also a choice. It's a decision to "just see what happens" and hope that everything will turn out alright. Unfortunately, this also leads to reactive compliance. In fact, it is far worse than the path of "necessary evil" as nothing is done even to mitigate the effects of non-compliance. When it comes to compliance, you must choose a path to take. You can take the highway that is frequently traveled by those who believe compliance is a "necessary evil." Here you may find comfort at least in knowing that many others are taking this path too. Or, you can take the road less traveled, and be in the company of those that want more than just to pass an audit. You will be with those that want to see: better outcomes, improved safety, increased quality, appropriate risk, less environmental damage, and more meaningful work, and through it all earn the trust from their stakeholders. It's up to you. Which path will you take?

Over the last several years I have written, along with others, concerning the need for compliance to be more proactive. This is set against a prevailing reactive approach characterized by waiting until something bad happens or compelled by laws, or pressured by stakeholders to improve compliance particularly with respect to safety, security, sustainability, environmental, and other high-risk objectives. Reactivity, in these contexts is not desirable or the best behaviour for organizations that want to stay between the lines and ahead of risk. However, reactivity is not on its own negative. There are many cases where reacting to past events is exactly what's needed. One such place, critical to compliance, is to adapt to variations in systems and processes to ensure systems perform within specified boundaries. This is accomplished by measuring outputs and comparing them to a defined standard. Deviation from standard results in corrective actions to eliminate the gap and return back to normal operations. This reactive process is foundational for regulating processes of all kinds including those used in compliance. It's found everywhere within organizations and contributes to shaping overall corporate culture. In this article we consider how to exploit the power of reactivity to achieve more than just staying between the lines. We will explore how to hack reactivity in pursuit of future goals, so that we can also stay ahead of risk. The Power of Systems - Resisting Change Compliance systems are used to meet procedural obligations such as adherence to standard operating procedures, controls, measurements, management review, audits, and so on. In addition, compliance will also have performance obligations associated with goals and targets connected with commitments. These will include, for example, targets connected with zero emissions, zero violations, zero defects, zero breaches, and other vision zero initiatives. In both cases, processes are established to measure change from conformance or performance standards. Any change from standard (called a deviation) is then eliminated. The presence of deviation initiates corrective actions in the form of a CAPA (Corrective Action and Preventive Action). Corrective actions may arise from audits or inspections but also as part of system level monitoring. To address a deviation, an iterative process such as a Plan-Do-Check-Act cycle may be conducted and repeated until the deviation is minimized or eliminated. While this process is reactive since corrective actions are triggered by past events, it's possible to harness this reactivity to meet future goals. The key to leveraging reactivity for proactive ends lies in bringing the future into the present, by making anticipated goals into actual goals and raising standards to meet future needs. Changing Goals When embracing a new goal, a gap emerges between the current and desired system states. This gap shares similarities with deviations that are addressed by means of corrective actions. Since this gap has not yet happened, instead of executing corrective actions in response to actual performance, improvement actions are conducted in anticipation of future levels of performance. An example of this approach is the Toyota Kata, a process associated with the Toyota Production System. It involves: The Improvement Kata, a four-step routine focused on setting challenging objectives, understanding the current situation, defining the next target, and experimenting toward that target. The Coaching Kata represents leadership's role in guiding individuals or teams through this improvement process, fostering continuous learning and problem-solving. Toyota Kata can be viewed as an adaptive process that integrates both proactive and reactive behaviours to pursue a better future state. Defining future objectives and targets is proactive while experimenting towards successive targets is reactive. Raising Standards Improvement methodologies such as Toyota Kata are not the only way that we can harness reactive behaviours to achieve proactive ends. Another approach is to leverage the system itself to improve. Raising standards induces the affected system in the present to adapt to new levels of performance targets by invoking reactive behaviours. The system will initiate corrective actions to achieve and sustain the new level of performance. In this case, corrective actions are used as improvement actions triggered by the adoption of higher standards. This approach is considered proactive in terms of the future state of the system but reactive concerning addressing the gap between the old and new standard. An Integrative Approach The cases we have considered share similarities. They both change system performance triggered by either past or future events which create: corrective or improvement actions respectively. When combined together they form an adaptive system: Adaptive systems refer to systems that have the ability to adjust and modify themselves in response to changes in their environment or in accordance with specified goals. These systems are designed to be flexible and responsive, allowing them to thrive in dynamic and evolving conditions. Adaptability, is one of the properties of the Operational Compliance Model we introduced in previous articles: Instead of building compliance systems that react only to past events, we design them to respond to anticipated future events. This is accomplished by introducing feed-forward processes and behaviours that when combined with feed-back processes and behaviours create adaptive cycles of change across three critical aspects: conformance, performance, and effectiveness. Creating an adaptive system harnesses the power of reactivity to achieve proactive ends. When it comes to compliance, proactivity is needed to stay ahead of risk, and reactivity to stay between the lines. However, together they provide a powerful means for compliance to continuously adapt in the midst of changing obligations and uncertainties. This ensures that organizations always stay between the lines and ahead of risk. Not a luxury, but a necessity for mission success.

Over the years I learned that many organizations increasingly find they are not able to keep up with all their compliance obligations. On paper they are fine, but in practice is another story altogether. The cause can be attributed partly to the expansion of regulatory requirements. To stay between-the-lines many choose to double down on audits and inspections. However, this often proves to be too slow and too late to drive needed improvements, let alone keep up with the speed of risk. The traditional approach to compliance characterized by reactive, siloed, and reductive practices is unable to deliver what organizations need to meet all their obligations associated with safety, security, sustainability, environmental, quality, regulatory, fraud, and other compliance objectives. Working hard at following rules and procedures is not working or enough to realize the benefits of their efforts. Organizations are still unable to answer questions such as: Are they any safer? Is their quality better? Does their security provide adequate protection? Is fraud reduced? These have more to with outcomes of compliance rather than adherence to prescriptive rules. In many ways, organizations are caught in a trap of working hard and hoping for the best not knowing if their efforts will be effective in any unit of measure. As a result, these organizations are vulnerable and perhaps only one mishap, one non-conformance, one violation, one breach, or one explosion away from mission failure. An Old Sign On The Door How can organizations escape this trap when the sign on the compliance door reads: “We are in compliance with all applicable rules, laws and regulations as far we know. Will be back after our next incident." When there is nothing to improve, there is no need of escape. However, there are important reasons to escape this trap. Over the last decade regulators have started to modernize their programs to become more risk-based; moving away from rules towards performance and outcome-based designs. The intended impact is to enhance public safety beyond what prescription alone could provide. This means that regulators are now more focused on risk mitigation rather than adherence to rules. Also, in recent years the number and nature of obligations has increased coming from industry, stakeholders, and the investment community connected with ESG, climate change, carbon neutrality, environmental sustainability, cyber security, and many other objectives. We have reached a tipping point where there are just as many non-regulatory as regulatory requirements that need to be managed. Compliance needs a new sign. A Better Sign And A New Hope For Compliance Operationalizing obligations requires more than training, following procedures, completing checklists and conducting audits. Organizations must learn how to advance towards targets, handle risk, and continual improve their performance. This requires that organizations adopt an operational approach: one that is proactive, integrative, and holistic. A program that reduces waste, handles risk, and delivers compliance outcomes rather than only audit reports. Compliance must become an operational function not just an administrative expense. Organizations that have implemented an operational program for their compliance, have a new sign on their door: “We are experiencing the benefits of our compliance and improving our effectiveness with confidence every day. Meet you up ahead, already there." That's a better sign and a better way to do compliance.

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. Operational Compliance 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. Operational Readiness 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. Summary 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. Getting started 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.

“Not all those who wander are lost” - Gandalf, LOTR We cannot always know what a thing is without first knowing how it relates to our purpose and goals. Let’s imagine we are walking on a path on the way home. We notice a huge boulder up ahead. How would you perceive this boulder? Psychologists say we don’t see objects only as things. In fact, we see them also as something that is useful (an opportunity) or as or something that is not useful (an obstacle). We see things through the lens of our goals: If we have no goal, the boulder is just a rock. If we want to get home, the boulder is an obstacle preventing us from getting home. If we are tired, the boulder is a chair; a place to sit down and rest so we can make it the rest of the way home. If we are in need of safety, the boulder protects us from walking into a sink hole to ensure that we make it home. What we perceive is based on what we are trying to achieve or what we need. What this means for risk This is why risk should not be evaluated in isolation. Risk must be considered in connection with objectives. Whether something is a threat or an opportunity depends very much on what we are trying to accomplish. Sometimes a risk is just a thing. It isn't connected with any goals and therefore doesn't affect what we are doing. Too often these are the majority of what is contained in risk registers – they are unconnected things on a list. Other times risk look like obstacles. They hinder or are in the way of meeting our business goals. These obstacles need to be avoided or handled to improve the probability of achieving our goals. In the words of Gandalf from LOTR, "Not all those who wander are lost." In the same way, not all rocks are obstacles and not all risks are threats. Sometimes, they are opportunities to help us achieve our goals and need to be exploited. These are rocks that can be used as chairs to sit on, barriers to protect us from harm, or some other use that will improve our chances of success. What this means for compliance For compliance to improve its risk perception it needs to look through the lens of its goals connected with: Obligations - this will help to see obstacles and opportunities associated with meeting obligations (Compliance Risk). Objectives - this will help to see obstacles and opportunities associated with keeping commitments (i.e. promises) associated with obligations (Operational Risk). Doing this will create better risk registers but more importantly provide better measures to improve the probability of achieving compliance and realizing its benefits. It also will avoid wasting time cataloguing rocks that don't matter, no offence to geologists.