The real cost of our overcompliance culture

Rules and policies in organisations are necessary to maintain order and for a business to run smoothly. This concept is engrained in corporate Australia. But at what cost?  

Often the go-to response for leaders when facing anything new or different is to legislate, to produce new rules or procedures. Of course, this is often driven by bigger issues such as insurance, licensing, safety or as a safeguard against potential litigation, but it’s worthwhile considering the drawbacks of such bureaucracy as the impacts are big and far reaching.

When it comes to rule-making, organisations overestimate the extent to which they are able to protect themselves from risks; such as backlash from angry customers, negative media coverage, toxic employees leaking information. 

Rather than weighing up costs and benefits, businesses often introduce these rules without much thought as to whether they are really needed, or even whether they are consistent with other rules they already have in place. They over overlap with existing rules and over index on safe-guarding against any risk, often to their own detriment. What’s more, the rule-makers usually don’t go back and really analyse if the rules are actually working. 

The drawbacks of such high levels of compliance outbalance its benefits. 

Companies too often introduce rules in an effort to eliminate risk in a way that is out of proportion to the potential damage. As a result, we are hindering our potential. Here are some drawbacks to over-compliance;

  1. Over compliance is killing innovation and productivity. In a recent report by Deloitte exploring the hidden costs the trend of increased bureaucracy in organisations, it was found that overall, Australian productivity growth has been in “low gear”, as a result of increasing compliance. “New technologies are delivering a huge dividend but we’re not seeing the gains.  ‘Back-office’ workers such as switchboard operators, mail sorters and library assistants have been rapidly shrinking as a share of the workforce, yet those productivity savings have been swallowed up amid the rising cost of Australia’s compliance culture”. In fact, one in every eleven employed Australians now works in compliance. Businesses across corporate Australia are employing more people whose role is to create and enforce rules and regulations; across legal departments as well as finance, IT, HR and the fast-growing governance and security roles. As a percentage, compliance workers outweigh the number of people employed in the construction, manufacturing and education sectors of our economy. This does not help Australian business to be innovative, trailblazing companies. 
  2. It results in a more brittle organisation that is less able to adapt to changing circumstances. Never before have we needed our businesses to be more fluid and flexible, adapting to change at break-neck speed. Having rigid red-tape and rules in place often prevents businesses from responding to opportunities quickly and effectively enough. Rules can stifle a businesses ability to reach it’s full potential when new opportunities for growth arise. 
  3. We lose the opportunity to conduct safe to fail experiments and to learn. Trailblazing businesses who thrive in our modern world are those who embrace taking an experimental approach to doing things. Mistakes are seen as opportunities for growth, failures are seen as learnings to do better next time. Again, rigid rules and policies can stand in the way of this type of approach as it seeks to minimise risk and reduce the potential for mistakes, in doing so, limiting the ability for the business to grow to its full potential.  
  4. We lose a degree of engagement in the task.  When there are too many obstacles in the way, employees can quickly lose sight of the bigger picture and lose their level of engagement in their work. Again, too many rules and procedures kill creative thinking and sap incentive, the things very that we need the most in order to change and adapt. 
  5. We lose a degree of autonomy. Autonomy is lost when your decision making is taken over by rules and procedures. This links back to a decrease in employee engagement and motivation, ultimately affecting productivity. 

How does your organisation address rules and policies? Next time your leadership needs to implement new rules and policies, ask the question ‘what is missing from the conversation? What do we stand to when we chose to legislate?”. I’d love to hear your feedback. 

Could your leadership team benefit from one of my workshops? Please get in touch today. I’d love to help!

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