Does Regulation Really Stifle Innovation?

Last week I did a presentation to a group of managers when the issue of governance and regulation ‘getting in the way’ of innovation came up.

People often think regulations stifle innovation, new business and services. They assume that regulators are there to control and curtail what they want to do.

“We are so heavily regulated, we can’t change what we do” is a familiar cry from those in the public sector.

Is it true that regulators are blockers of innovation, or is it false perception?

Even worse – is this simply a convenient excuse used to resist change?

It’s true that if you looked at the websites and reports of most regulators you’d likely get a view that they are a pretty conservative bunch. There’s plenty of talk of consistency, best practice and benchmarking. And we all know that best practice and benchmarking are often just a race to be first at being average.

In reality though, when you meet face to face, I’ve never met a regulator who doesn’t want to see more innovation in their industry.

Last year I did two pieces of work, one for Ofwat, the economic regulator of the water sector in England and Wales, and the other for the Regulator of Social Housing. Both organisations were looking for ways to innovate within their own organisations and to spur on a greater drive for experimentation within their wider sectors.

It’s not in the interests of a regulator to be anti-innovation. A report last year  found that respondents were looking to regulators to support innovation, and to an extent most organisations are seeing this take place. 1 in 4 though see regulators as innovation blockers.

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Part of the problem here is the definition of innovation, a disruptive pioneer (Uber for example) to one person is the unregulated aggressive exploiter of people to another.

Unregulated disruption is sometimes necessary. Had ride-sharing firms been prevented from entering the traditional taxi cab market, we would not be enjoying a better customer experience today. Arguably, the incumbents would never have improved their services left to their own devices.

In today’s world of speed and digital innovation though, regulators need adaptive regulations -and a more responsive, iterative approach.

That said – innovation gone bad requires regulation. Arguably “financial innovations” such as easy credit, subprime lending, mortgage-backed securities caused the financial crisis. It was a perfect storm to have uncontrolled innovation at the same time as encouraging light touch regulation.

Innovation as risk management

The fear of innovation within any organisation is far more likely to come from heavy handed approaches to governance and risk than it comes from external regulation.

At the event earlier this week, Ian Wright, Managing Director of the Disruptive Innovators Network asked a very good question: what is your risk patience? 

Most of our organisations and institutions lean toward control and order and away from chaos and risk.

How does your organisation actively seek out risk? Only 20% of strategy officers describe their organisation as risk seeking. We need to transform risk management from being about “stopping doing things” to being about “starting doing different things” within a well managed framework.

Traditionally we have not being good at focussing risk management on the right areas. Significant amounts of time are spent auditing areas that are highly unlikely to ever cause major reputational damage. This can be a huge inhibitor of potential innovation.

Whenever you innovate you’re taking a risk. What I’m anxious to get across to the public sector is that you DO need to take those risks – the Auditor General for Wales.

The work of the Wales Audit Office and in particular their Good Practice Exchange is a great example of an audit and assurance approach that encourages well managed risks

Innovation done badly IS a risk, but innovation done well is good risk management.

Having a framework that protects the host organisation from early stage experiments until they have proven value is actually good governance.

Orbit Innovation Event

The best approaches to innovation always have a way of framing and strategising, allocating and diversifying risk – whilst buffering the rest of the organisation from it. Organisations equipped with this will be less risk averse and conduct more risk-taking behaviour.

Ultimately, your organisation has plenty of excuses not to take risks, to stick to the tried and tested, to follow the same path as everyone else.

But fear of the regulator isn’t one of them.

Four Factors Hindering Transformation

The problem with good service design is that you don’t notice it.

It’s only when you experience truly bad design that you appreciate the good stuff.

That’s why so few organisations are design led. They focus on designing out the bad rather than designing in the good from the beginning.

Earlier this week I ordered a package – to be delivered from the Royal Mail.

It required a signature so I arranged it to arrive on Thursday when I planned to be working from home.

On Tuesday morning the Royal Mail sent me an SMS and email to say they were pleased to announce that the item would arrive earlier than expected.

They might well have been pleased at the early arrival, but I was 60 miles away and stuck in a meeting. There was no option to request a redelivery. No option to even cancel it. Just accept an inevitable failure. 

Any redelivery could only be attempted after they had first failed to deliver it.

Here was a company actually wasting the time of their employees and their customer – and seemingly proud of it.

In defence of Amazon and Uber

It’s easy to criticise the likes of Amazon and Uber for their ethics , but we forget at our peril the benefits these providers have bought us.

But they don’t pay taxes! As if no company ever evaded taxes before Amazon.

But they exploit workers! As if taxi drivers were never exploited before, or resisted the opportunity to exploit us customers.

We shouldn’t let these type of companies off the hook for their transgressions, but neither should we forget what life was like before their breakthroughs in customer experience.

Getting a delivery within 24 hours or not having to queue for a taxi now feels so normal that one starts to wonder why it took so long.

The incumbent companies they disrupted all had the same money, time and technology to change the way they did business, but they resisted the opportunity to shape themselves around what customers actually wanted.

Why digital transformation isn’t enough

Richard Godfrey makes a similar point about the failure of banks to reimagine their services. Setting up a new account in most cases still requires a bank visit, or an e-form or a phone call at the very least.  How can that still exist in a world where you can sign up for a Monzo or Revolut account in minutes by downloading an app and proving your identity and address with image capture software and facial recognition?

As Richard points out, most ‘transformations’ are nothing of the sort, but simply a digital overlay on top of how business has always been done. He wonders why the process of claiming housing benefit can’t be made so easy. Of course it can, people just don’t want to make it easy.

As someone who has worked to redesign services from the ground up, putting the customer in control, I’d say you can’t underestimate how difficult this culture change required is.

Many of our organisations – despite the rhetoric – have policies and procedures that are profoundly anti-customer. We have built checks, balances and verifications into our process because , deep down, we don’t actually trust the motivations of the public.

This is an uncomfortable truth – but goes some way to explain the difference in satisfaction levels between some of the public and private sector.

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A new post from McKinsey finds that whilst many the public sector and governments are moving forward with customer experience initiatives, in general private-sector organisations are a lot better at providing services.

I don’t always agree with the private/public distinction but some of the stumbling blocks they identify are helpful. The common traits that prevent genuine transformation are:

  1. A monopolistic mind-set. When customers don’t have a choice, it dramatically removes a major incentive to innovate and improve service.
  2. The public sector have to be fair to everyone.  They can’t just ignore certain customer segments. This ‘fairness’ often solidifies over time into a principle of providing one-size-fits-all service. Or rather, one-size-fits-no-one.
  3. We often lack the capabilities needed to assess and address gaps in customer experience. Those with deep analytics skills, as well as human-centered design skills, are often in short supply.
  4. Data is typically incomplete or sequestered in silos. Organisations often lack a full, timely picture of the customer’s overall experience.

This ‘fair for everyone’, but exceptional for no-one, agenda presents a genuine design challenge. The capacity for innovation for huge, but the capability for it is virtually zero.

It’s hampered because innovation requires a tolerance for failure , and upsetting people.  It’s too easy to see the short-term political consequences of initiatives gone wrong and debate whether public money is going down the drain.

However we have a responsibility to take risks – we need to cultivate a culture of innovation, and sometimes that means spending money trying new things, and being ‘unfair’ to some people.

What if Uber and Amazon did health, housing and social care?

Three years ago I wrote a post speculating on that very question – it remains the second most popular piece on this blog.

I don’t stand by everything I said back then, but I do agree with the final point.

Any sector that has multiple players performing similar services is ripe for disruption.

There’s no question about whether the Uber , Amazon, Facebook and Alibaba of the public sector will emerge.

It’s simply a matter of when.

What We Can Learn From The Oldest Companies in The World

Shigemitsu Kongo, a Japanese Buddhist temple builder, formed his construction company Kongo Gumi in in 578 AD. His company built relationships with their customers that lasted for 1,400 years, surviving through many wars and natural disasters,  just like their temples.

It wasn’t technology that nearly killed the company, but cashflow. The oldest company in the world became a subsidiary of Takamatsu Construction in 2006.

There’s a very good chance you will outlive the company you work for. Whilst our life expectancy is increasing, the lifespan of organisations appears to be in decline.

The average age of a company listed on the S&P 500 has fallen from almost 60 years in the 1950s to less than 20 years today. Only 30 of the original companies still exist in 2019, the 35th anniversary of the FTSE 100.

Disruptive technology is killing off older established companies at a much faster rate than ever before.

This is why when you go to conferences you’ll see presentations selling the virtues of Uber, Amazon, Netflix and Google.

Be like them the wisdom goes. Be agile. Only by doing as they do may you survive.

This is only half the story though.

Rarely , if ever, do we look at the companies that are bucking this trend. The companies who have been around forever and are still doing business.

A look at the oldest companies operating today is fascinating.

Worldwide there are over 5,500 companies that are over 200 years old. However the distribution of these is heavily weighted to just a few. Japan dominates the list (3,146), followed by Germany (837), then the Netherlands (222), and France (196).

I started this week staying in Düsseldorf, Germany, in a district known as “Little Tokyo on the Rhine” — one of Europe’s largest Japanese communities. I was there to talk to European students about the opportunities of smart cities , but I concentrated more on the possibilities of building upon the wisdom of communities that have existed for generations.

It’s deeply unfashionable to talk about , let alone revere, older things today. It’s almost like innovation started with the iPhone and disruptive companies began with Uber.

My week ended with a visit by the Disruptive Innovators Network to Bromford, who at 56 years old is barely out its pre-school stage in Japanese or German terms. It was interesting to hear in the talks by Helena Moore and John Wade how there was almost an apology for referring to things we had learned more than five years ago, as if we were becoming embarrassed by the weight of our own history.

We shouldn’t be though. The right culture for innovation is one where there is:

  • Just enough friction – with teams having regular, intense debates
  • The practice of high standards, with a steady supply of high performing people who are committed
  • Permission to be different – a culture where it’s allowable, even encouraged, to push back. 
  • The ability to think and act experimentally with a tolerance for failure through practical experiments

However it’s also a culture that creates a feeling of belonging and a feeling of purpose.

Why have so many Japanese and German businesses lasted so long?

A study by the Bank of Korea found that such companies thrived over the years because they created new demand while sticking to a corporate culture that promoted tradition, attention to detail, and frugal innovation.

Instead of going after short-term results, they pursued longstanding trust with customers and partners. They also pursued growth within their means, rarely borrowing to expand.

In his book The Living Company, Arie De Geus attributed the success of older businesses to four factors:

1. Long-lived companies were sensitive to their environment and remained in harmony with the world around them.

2. Long-lived companies were cohesive, with a strong sense of identity. No matter how widely diversified they were, their employees felt they were all part of one entity.

3. Long-lived companies were tolerant and generally avoided exercising any centralised control over attempts to diversify the company.

4. Long-lived companies were conservative in financing. Frugal even.

However his strongest point is contained in one sentence “Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations’ true nature is that of a community of humans.”

It’s time to stop worshipping the new and the shiny. We need to strike a delicate balance between continuation and innovation, being reliable and disruptive at the same time.

Creating a culture where these two competing sets of values can coexist is difficult – and not always a comfortable place to be.

Clearly though , the innovation potential of us older lumbering giants is vastly under appreciated – and the disruptive power of the younger and hungrier is often overstated.

Why We Solve The Wrong Problems

untitled-presentation-2Everywhere I look I see organisations and people investing heavily in new initiatives, transformation, and change programmes.  And in almost every case the goals will never be met.

One of the most crucial causes of the failure? The right questions were never asked at the outset.

We default to ideas and plans. Too many of which fail to get exposed to the tough love of effective questioning.  We get wrapped up in solutions.

It’s no surprise: we are conditioned to find solutions rather than define problems from an early age.

  • We start off being very good at it. Kids ask about LOTS. Annoyingly so. We tell them to stop asking so many questions.
  • In school we start to be assessed and graded on the quality of our answers, not the problems we are contemplating.
  • As we enter the workplace we get rewarded for the solutions that we propose, not the questions that we have asked.

Indeed, great performance at work is usually defined as creating and implementing solutions rather than finding the best problems to tackle.

So we become very good at solving problems – even if they happen to be the wrong ones.

Here’s a few things to watch out for when considering if your organisation is leaning towards solution rather than problem. And some questions you could ask.

Management is becoming excited by transformation as an end in itself.

Question: What exactly are we being transformed into and who asked for it in the first place?

People start talking a lot about what Apple would do. Or Netflix. Or Uber.

Question: We aren’t Apple, Netflix, or Uber. How are the problems our customers face similar to theirs and if they are, are we the best people to solve them?

Getting excited about building a new app or website

Question: What’s the unique benefit of your solution compared to what’s already available on the market?

Fancy PowerPoint business case pitches at corporate away days and Board meetings

Question: Before you tell us what Google did  can you explain what the impact of your last project was, what failed, and what you’ll do differently this time?

You see – ideas people are regarded as sexy. They are positive, optimistic and the people you want to be around.

The person who keeps asking the difficult questions is often regarded as an obsessive – a detail person -a procrastinator. A complete pain in the arse.

This is the very problem we face – and why we see so much innovation theatre rather than genuine impact.

  • Initiatives and projects come with an over simplification of the problem statement. If indeed such a statement exists at all.
  • There’s a lack of penetration into the root causes of problems. We don’t understand our world half as well as we think we do.
  • Most of our organisations have a cultural bias for execution over thorough problem definition. We simply want to get the product on the street. Even if it’s the wrong product (or the wrong street).

Not so long back Tom Hartland , our Lab Designer, was sitting evaluating a new concept. A senior leader walked past and asked him what he was working on. Tom told them there was a problem with the data, the impact was inconclusive and it needed lots more work.

The response came back – “Well, don’t spend too much time on it – we’ll probably do it anyway.”

I share that anecdote not to embarrass anyone but to illustrate the point.

We are hardwired to doing things rather than purposeful contemplation and questioning.

Innovation , as Philippa Jones said, is all about getting better at being wrong. However it must be founded in a deep understanding of the problem we are seeking to solve.

To have the most impact, it’s simple. Just ask the right questions.


 

Hey – we have a great job going as Design Lead in the Lab. You need to ask a LOT of questions before you go near designing though. Take a look here or message me if you want a chat. paul.taylor@bromford.co.uk or DM me on Twitter @paulbromford

 

Building Trust and Standing Out in the Digital Age

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In many ways the events of 2016 are less a surprise and more the logical outcome of what we already knew.

As I wrote early last year – we are in an era of ‘trust deficit’ – where more people distrust institutions than believe in them.

When belief in government, business, media and nonprofits dips below 50%, you are bound to see mavericks emerge to challenge the incumbents.

At opposing ends of the spectrum Farage, Trump and Corbyn have used digital and physical networks to leverage the untapped potential in these communities.

Question is – will this mood of anti-establishment dissent sweep across the social sector?

Let’s be challenging:

  • Housing talks to housing.
  • Care talks to care.
  • Health talks to health

I could go on. It’s not so much an echo chamber as an entire galaxy of echo chambers – each their own solar system of professional bodies, conferences and award ceremonies.

If a malcontented public has taken a swipe at the political establishment for being out of touch and bureaucratic – we surely have to consider ourselves fair game too.

The only difference being we can’t be voted out.

But what if Uber really did do health, housing and social care? It seems impossible to imagine our failure to adapt and change is not being carefully watched by leaner, smarter start-ups.

As consumers we are well-informed and volatile as never before. Through pervasive social media and connectivity we are inundated with information which magnifies any grievance – real or imagined.

At Comms Hero this week Grant Leboff pointed out that we’re now so inundated with noise even Coca Cola are marketing as one brand in an effort to stand out.

The point Grant made was clear – in an age of storytelling you need to take a position. If you have no position you won’t keep attention. And most communications fail as we don’t have the balls to take a position.

Conversely there’s huge opportunity here for organisations:

  • Mediocrity doesn’t happen by accident. It’s a choice you get to make everyday. You can take a position tomorrow.
  • Trust is built through engagement and integrity -we can consider whether every action we take is a trust builder or trust killer.
  • We can enshrine transparency as part of our values – with less talk of innovation and more demonstration of our impact.

In the US election only one voter in 50 viewed both candidates as trustworthy; nearly one in three voters said neither was.

Without trust, institutions just stop working. The incumbents get disrupted. 

Many organisations have chosen to ignore the warnings about public expectations of more openness, transparency & accountability.

Any leadership team or board who are not actively building trust right now are in peril.

 

What if Uber did health, housing and social care?

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If you’ve been to a conference in the past 12 months – you’ll almost certainly have seen the slide above, or a version of it.

Mentioning “disruptive innovation” adds a sprinkle of sophistication to otherwise ordinary presentations. It’s a sit up and take notice slide that says: ‘Better listen, or you could be history.”

However – it doesn’t always hit its intended target. A significant portion of the audience at a couple of events I’ve been to recently have looked at each other as if to say ‘that couldn’t happen to us’.

The reason for this seems to be the comfort blanket that can come with extended working in the public and social sectors.

The thinking can go like this.

  • We are different.
  • We deal with people who are highly complex with multiple needs and vulnerabilities.
  • No tech outfit could hope to understand the extent of the personalisation involved in our services.

It’s optimistic thinking – probably the same that was held by some taxi firms pre-Uber and hotels before Airbnb.

It’s going to take radical change a lot closer to home before many managers recognise how profoundly the rules of business have changed in the digital age.

Arguably though , it’s already happening. I’ve made a slide of my own that might be more relevant to the public sector.

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Far from fantasy – we are at the beginning of the end of one size fits all health, housing and social care monopolies.

Some examples:

Mercy is a hospital with no beds, no waiting rooms and no patients.There are nurses but they work virtually, providing care across 33 hospitals. The strategy is quickly expanding beyond hospitals and into the home. By keeping tabs on patients at home, Mercy can help keep people with chronic conditions out of the hospital.

Buurtzorg is a care system without managers, even though it has 9000 employees. To kill bureaucracy and overheads there are no call centres. Nurses take the calls. In self-managing teams of ten they plan patient visits and decide how long they spend there, depending on their judgement of the need.

Honor is home care without direct employees. Like Uber , the care professionals here are self employed and use an app that helps them find and keep track of job offers. Applicants undergo background checks and in-person interviews to screen them, with only 5% allowed onto the platform so far.  More flexible than traditional care – it allows people to book packages in just one hour increments, and aims to foster long-lasting relationships between caregiver and the customer.

What these systems and technologies do is to enable existing infrastructure to be used more efficiently. They are harnessing the power of the connected citizen rather than the analogue organisation. As Alastair Parvin has written – we are no longer stuck with the choice between the public sector and the private sector. The citizen sector now needs to be recognised as a viable, industrial force.

Is it impossible to imagine a local authority as just a digital platform with its services all outsourced?

Paul Blantern, Chief Exec of Northamptonshire County Council is almost there. The Council employed 12,000 people when he took over. Today they employ 6,000 and his vision is to reduce that to just 150. He was asked in this programme “Is there anything you wouldn’t outsource?”. His response – “No – it’s all about the outcome to the end user.” Essentially the ‘Council’ could reduce to zero as long as people feel the services are still good. [UPDATE MARCH 2018: This approach was ultimately disastrous]

Is it impossible to imagine other organisations , housing associations for example, being managed entirely differently? Rather than multiple companies we may see a singular platform where users themselves directly procure the services they need from the cloud. The next generation of housing manager could be an algorithm rather than a person.

It’s not just housing. Any sector that has multiple players performing similar services is ripe for disruption.

There’s no question about whether the Uber , AirBnb, Facebook and Alibaba of the public sector will emerge.

It’s simply a matter of when.

 

[Credit to  Mike Clark and Shirley Ayres for inspiration on the slide! Thanks both]

 

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