The Regulatory Paradox

The Regulatory Paradox and the Role of a Process-Oriented Approach
How companies can re-gain control in a troublesome situation

Setting the scene: To highlight the role of a process-oriented approach for companies in regulated markets let’s have a look at an illustrative thought experiment. What most people think is a more stressful situation: to be a fighter aircraft pilot in an air combat or being stuck in a traffic jam on the way to an important appointment? Everybody would agree that the situation for the fighter aircraft pilot is much more dangerous then being stuck in traffic jam. However there is a lot of empirical evidence, that the traffic jam situation is individually perceived a much more stressful then the situation in an air fight. This looks counter-intuitive at the first glance but it shows that the absolute level of threat is not the most important driver of the individual stress level. What is important though is the perception of ‘being in control’. The fighter pilot is well trained, has weapons at hand and has the ability to react accordingly. The person exposed to a traffic jam has no control whatsoever over the situation and this is the most important driver of stress – to have no control.

The Regulatory Paradox: Regulation is by far the single most important factor for a business in regulated markets, like electronic communication and postal services. Therefore it seems very logical to expect that the attention of the top management to a large extent is focussed on regulation, how to manage the regulatory system and the mechanisms how regulation is influencing their business. Surprisingly we’re observing the exact opposite: Many top managers perceive regulation as something like an unpredictable ‘natural disaster’ (unfortunately this is sometimes the case) and pushes it to the ‘fire fighting experts’ (i.e. a specialized department) to deal with it and eventually fix it. It is similar to the situation described above: the perception to be exposed to something beyond control creates stress and aggression and is no motivation to deal in a systematic manner with the challenge. According to the managerial standard toolbox, issues seen as controllable (and important) are kept under own responsibility whereas issues that are very complex and technical (often perceived as “un-controllable” by the C-level) are pushed either aside or they get delegated to experts, although these issues are mission-critical for the success of the business. I call this his phenomenon the regulatory paradox.

The European Context and the political agenda setting: As a matter of fact the investment level in Europe’s telecom infrastructure is too low compared on a global scale, the investment conditions and climate is seen as not sufficiently attractive by the majority of investors and analysts and therefore the situation for Europe is not sustainable. What can be observed is a lot of blaming and complaining but this is not effective and certainly does not help. However ‘complaining’ is the least common denominator amongst the telecom operators. On the other hand Chancellor Angela Merkel and Vice-President Neelie Kroes have both positioned the improvement of the European ICT ecosystem high up on their agendas. This represents an important move, but its not enough.

Telco’s stuck in the Regulatory Impasse: As soon as the top management of the telecom operators gradually recognized that their dealings with the regulatory challenges were not sufficiently effective, they began – at least the majority of them – to reduce significantly the regulatory resources, because they were lacking effectiveness. This led to an even more serious situation that I call the regulatory impasse.

Setting a new agenda: Many politicians and many top managers have not realized fully yet, that in the ‘post-Lisbon-Treaty-era’ the balances of power in the EU have changed fundamentally. ‘Veto’ is not in the toolbox anymore! Now it’s about creating qualified majorities to get things fixed. In my view, there are two conditions for leapfrogging out the regulatory impasse:

(1) A re-scoping of the top management’s agenda with regulation being part of it, either as part of the dossier of the CEO or with a dedicated member of the C-Suite, a CRO (Chief Regulatory Officer). To support this new agenda, the compensation scheme for the C-Suite could be structured accordingly. The Management Consulting industry has taken up this issue in the meanwhile offering new value propositions:

http://www.businesswire.com/news/home/20131014005558/en/Arthur-D.-Competitiveness-Investment-Public-Policy-Goals#.U1watMfj5PA

(2) The agenda setting for the top management requires a systematic approach to successfully convey the messages of the industry to the policy makers and policy implementers. Isolated interventions are counter-productive, at least not effective; to become effective successful companies often seek external process support on a continuous and well-orchestrated basis. Recently I found an interesting article in the Harvard Business Manager highlighting the situation and process clearly (HBM – German Edition, Mai 2014, pp. 86-87. www.harvardbusinessmanager.de)
If you find it worthwhile to explore these issues in more detail, you’re invited to drop me a message: advice@serentschy.com