Avoiding regulatory failure — Don’t forget the ‘bit in the middle’
With Tom Gott / 27 November 2019
Regulatory strategy and practice expert Tom Gott begins with French pastry and ends with the importance for regulatory agencies of having an effective operating model to translate strategy into activity.
Imagine. The patisserie door closes softly behind. The air is soft and redolent with the scent of warm croissants. Your mouth waters as you reach for your favourite pain au chocolat. Eyes closed, your teeth sink in anticipation into the crispy, sweet pastry … and keep going, and going, and going until top meet bottom.How could they have missed out the crucial bit in the middle? No tongue-melting chocolate sweetness to drown the senses — just pastry top and bottom! I can hear you: ‘Fail! Fail!’ You’re now pained more than ‘pain’ -ed.
Or imagine if the filling were there but not chocolate, instead a savoury mixture of feta, capsicum and chilli. This ‘bit in the middle’ would send your senses in a completely different direction from where you intended. Again I hear you cry: ‘Fail! Fail!
And, you know, it’s not too different with organisational endeavour…
At the top, strategy defines the organisation’s purpose and what it is aiming for, and at the bottom operational activity is what the organisation does to execute strategy. A high-performing organisation will have a clearly defined ‘bit in the middle’ for how it will go about doing what it does.
The operating model in between
This ‘bit in the middle’ is often referred to as an ‘operating model’ to guide decision-makers’ choices in the allocation of resources, investment, and operational activity.
In the regulatory context, as elsewhere, an operating model is a crucial link between strategy and execution, as illustrated here:
An effective regulatory operating model will do a number of crucial things.
It will position the organisation in the regulatory system, define relationships with other parties, articulate the regulatory strategy and approach, and define approaches to decision-making.
It will also mandate the desired attitudes and behaviours at both leadership and frontline levels, signal the capabilities needed to execute the strategy effectively, and provide for monitoring and evaluating performance.
Finally, and underpinning all those other elements, the operating model will provide mechanisms for risk management and regulatory intelligence and analysis, to give the organisation visibility over risks and trends at all levels.
Those key elements are reflected here.
Learning from regulatory failures
Experience shows that the risk of regulatory failure is greatest when an agency has no clear regulatory operating model to guide and support its leadership and frontline activity, or when the operating model is deficient or flawed in some way.
For example, MartinJenkins’ recent review of the NZ Transport Agency’s regulatory function found that deficiencies in the NZTA’s regulatory operating model led to a number of serious problems. These included a significant lack of regulatory capability at Board and senior leadership levels, a lack of visibility of risks at governance and management levels, and a culture focused more on efficient customer service delivery than regulatory effectiveness.
Those problems were all serious contributors to the agency’s recent regulatory failure.
Regulatory theorist Julia Black has identified four main elements that matter, both for the regulators and the regulated, when it comes to avoiding regulatory failure. These are having the right culture, having the right training, skills and expertise, having good leadership, and managing risks strategically.
Professor Black also found that another contributing factor has been regulatory agencies failing to interact and work together effectively.
All of those factors can be addressed through having an effective operating model that gives direction and a mandate for the agency’s work. A robust operating model will help ensure that organisational and individual behaviours consistently align with legislative requirements and organisational strategy. It will also provide good-practice guidance for the agency in executing its strategy at all levels, from governance to the front line.
So the proof of the pudding — pain au chocolat of course — is in the eating. And without the right bit in the middle we are looking at potential failure, be it culinary or regulatory!
About the author
Tom Gott has more than 25 years’ experience in advising clients on organisational strategy and performance improvement. He also has particular strengths in regulatory strategy and implementation.
Tom joined MartinJenkins in 2009, having worked previously as a Director in PricewaterhouseCoopers’ Public Sector Consulting practice. Tom has a wealth of experience as a trusted senior advisor to public-sector clients in core departments, Crown entities and statutory agencies.
Tom’s focus is on working with organisations to achieve significant improvements in operational performance and breakthroughs in strategic direction.