Regulators love red tape. They may not admit it, but they love it because it allows them to provide evidence that they are effective regulators.

Have a think about what is driving regulators and the response by industry (and check out the industry dynamics figure below). The regulator wants you to deliver on your promises and therefore have happy customers. Otherwise the regulator’s boss, the politicians, get cranky. What makes customers happy? Banks, superfunds and insurers not going bankrupt for one. And being treated fairly when things go awry. Other sectors keep customers happy by ensuring their safety and not telling fibs to make sales.

Because the regulator wants evidence that you have controls in place to ensure you deliver on your promises, red tape is inevitable. So support functions like HR, WHS, risk and compliance are tasked with creating red tape. And the business? Well they spend the rest of the time avoiding red tape. Because of this dynamic, support functions find themselves sandwiched between two opposing forces and it can be a very tough job.

Figure 1: Industry Dynamics from Regulator Imposed Red Tape

As I wrote last week in my blog link on waging war on self-imposed red tape, the cost to industry and ultimately to customers is horrendous. There is $250 billion of red tape in Australia according to Deloitte Access Economics.

The solution is that support functions need to be both very, very good at articulating the need for AND the benefits of red tape. But even more so, they need to be good at designing it. In fact, if you are a business leader, you should insist on co-design of red tape. That is, support functions should co-design with staff from the front lines and avoid trying to “save money” with a one-size fits all approach. One-size fits all might save back office costs, but invariably it either drives up the cost of compliance or the level of avoidance. And avoidance means an accident waiting to happen.

If you are a leader of support functions, check out this 2 min, 47 sec video of five wonderful internal advisers I helped last week as they discuss what they had learned about turning red tape into blue ribbon!

Enjoy!