Large corporations are under a lot of pressure right now. Thanks to rapid globalization and digitalization, new and nimble competitors – both global giants and startups – are entering the marketplace. Industry boundaries are shifting and companies are expanding their business into new fields, challenging all incumbents they find.
No company or industry is safe from the threat of new entrants, who shake up the market and make old business models obsolete in the blink of an eye.
Many large corporations have already significantly improved their competitiveness by launching programs for innovation or new business, renewing processes, tools, leadership and changing the way they work to meet the new challenges. Performance in their core businesses has improved and they’ve been able focus their attention on finding growth in nascent new areas.
These changes are often necessary, but they may not always be enough. In their haste to change, large corporations sometimes neglect one of their established strengths: good governance - the strong processes, practices and administration that ensure company activities comply with local laws and regulations, as well as follow rules that are in place for business in a any given industry.
Compliance is much more than just a burden
Companies tend to see their governance as a burden or an obstacle, failing to see its potential as a competitive advantage or enabler of new business. Too many companies highlight their good governance only when asked, when they should be talking about it proactively and loudly, bringing it up without anyone asking. Or sometimes they start referring to compliance only after their industry has already come serious under pressure.
Taxi companies are a good example. For decades they’ve provided reliable services under proper trainings and taxi permits for drivers, but only after the threat posed by Uber (and other similar new digital firms) are these companies starting to highlight the benefits that traditional taxis offer. Pharmacies are currently making a lot noise about their extensive responsibilities and broad service offering, but only after existing legislation on drug distribution has been questioned by some governments, and drug distribution might become possible in grocery stores, significantly increasing the competition pharmacies face.
We believe that compliance is not a bad thing. It’s something large corporations should be proud of and proactively advocate to their customers and society-at-large. By doing this, they may mitigate the risk of disruption and increase their chances of staying relevant in the future. To take it a little further, these companies should turn their attention to capitalizing their governance - putting governance to work for them, as a competitive edge and an enabler of new business. Anticipation and proactive strategies are much better than reacting after something has gone wrong.
Here are some examples of industries and companies that face heavy compliance, but can apply proactive strategies and turn governance to their advantage:
EU is currently pushing forward a new payment services directive (PSD2) that forces banks to open access to the account and payments data of their customers to 3rd parties in January 2018. On the one hand, this forces every single bank to comply with the laws and build APIs for the account and payments data transfer. On the other, various banks may also choose to take a very proactive strategy to PSD2 and build new services and partnerships on top of it, strengthening their market position.
Forced by the EU directive, media companies are currently working hard to adapt to new cybersecurity and data protection regulations that guide how consumers’ sensitive personal information should be protected, stored and used. In the future consumers will have much better opportunities to verify what information companies have about them and companies will be required to provide systems, contracts and practices that offer consumers increased transparency. This change offers media companies an opportunity to proactively talk about their renewed data security policies and invite consumers to see their own data related to advertising and other facets.
Environmental services and retail
Governments in many countries are enforcing new legislation related to recycling. Companies that sell packaged products are increasingly required to organize the recycling of the packaging materials, too. Very few companies have thus far built campaigns around the fact have exceptionally environmentally friendly practices for recycling their packaging materials. Many companies could utilise their great recycling for re-branding and re-positioning purposes.
Agriculture and food industry
Laws regulating the treatment of animals are rather stringent in northern Europe, compared to the industry’s global standards. This is, of course, a good thing for both animals and society in these countries. For agriculture and food industry companies this is a good opportunity to do more than the bare minimum for the humane treatment of animals and increase the transparency of their farms and production chains so that the conditions could be openly monitored 24/7.
Drug manufacturers are legally obliged to maintain a stock of critical medicines (typically the amount of 3 to 10 months´ usage) so that these drugs are constantly available, even in the case of major international conflict. Large established drug manufacturers can typically provide this type of continuity of operations much better than new medtech startups or other disruptors just now entering the market.
In various countries, governments and ministries of education decide on what is taught in the schools - what subjects and curricula are used and what the learning objectives are for courses or subjects. Due to their long history of adapting to governmental policies, established educational publishers know these local regulations much better than new edtech startups or global giants from other industries, such as Google or Apple. They can build their competitive advantage on their excellent compliance record.
What should large corporations do to take full advantage of their good governance? How can they turn their investments in governance into a competitive advantage and a source of new business? The following four steps will help:
- Identify all the rules and legislation regulating your industry. Understand how rules and laws provide consumers with significant added value, for example increased security and well-being. Build relationships with governments and ministries in order to anticipate and actively follow all potential changes to rules and legislation governing your industry.
- Ensure 100% compliance with the rules and legislations within your company. Make sure that your practices, systems, contracts and competences are truly world class. Do more than the bare minimum required by legislation and make sure your activities are broadly aligned with the ethical expectations of consumers and society in general.
- Communicate proactively about compliance. Make sure people understand the tangible value of having regulations in place and the role of responsible companies in meeting them. Tell people how compliance increases well-being and security in their everyday lives. Lobby governments and ministries to require the same level of compliance from all new market entrants, wherever they originate from.
- Build new business on top of compliance, like new digital information services that let consumers monitor your compliance in areas like data management, treatment of animals, package recycling, etc. on a continuous basis. Create new innovative ways of doing business or new types of industry partnerships. Make sure compliance is not just empty talk, but also tangible actions that lead the way and build a happier future society.
For large corporations meeting the bare minimum requirements doesn’t always suffice, given the increasing international competitive pressure. They can and should turn their strong compliance into a competitive advantage.
Smart companies won’t settle for the ordinary. Instead, they grasp new and emerging commercial opportunities that following the law and complying with regulations might create for them. They communicate openly about all the good things they do in society, without anyone asking about it and before something bad happens in the industry, thus mitigating the risk of disruption that new market entrants might potentially bring in the future.