Is Compliance Killing Corporate Innovation?

7 Strategies For Jumping Over The Compliance Hurdle

When large multinationals desire to innovate, I often hear that they consider compliance as a hurdle. In my view, compliance is never the real roadblock. More important is people’s perception on what the true compliance risks are and how they can avoid those risks. Read on if you want to jump over the compliance hurdle.

Regulations exist for good reasons. No one wants accidents with airplanes. No one wants patients dying during a clinical trial because of an unsafe pharmaceutical product. No one wants unstable financial institutions.

Companies want to protect themselves against risks. Especially lawsuits can have major financial consequences — both on the stock market and in the real market. So, companies set up a compliance department, install procedures, and develop compliance training. This is being done because… well because that is the way it has always been done. But that’s not the only reason.

People in regulated industries have a genuine attitude to protect the traveler, the patient or the investor.

When talking to people in regulated industries, I often find a genuine attitude that they want to protect the traveler, the patient or the investor. So, it is not only the organizational hurdle that organizations should overcome, but also people’s mindset that compliance is by default an issue for innovation.

Therefore I collected 7 practical strategies that demonstrate that compliance is more an aid than a hurdle for your innovation projects.

Build An Alliance — Internally And Externally

For your innovation project to succeed, you need a group of people that support your idea. When building such an alliance, your compliance and legal departments are critical stakeholders to involve from the very beginning. You’ll be amazed how open they can be on what is feasible, what not and on potential workarounds. You should know that this is also in their own interest. They rather assist you upfront to avoid that they need to clean-up your mess afterwards.

Compliance and legal departments rather assist you upfront than that they need to clean-up your mess afterwards.

You can also extend your alliance to external stakeholders. Engage in a conversation with those regulators to assess your boundaries, and to influence their thinking as well. Next to regulators, find ways to talk to your competitors. This can happen in a formal engagement or at informal networking events.

I see these external engagements happening in the pharmaceutical industry where — for instance — the US Food and Drug Administration has been very open recently on digital health, or where companies collaborate in a pre-competitive spirit, such as with TransCelerate Biopharma. Lastly, don’t forget about your suppliers. They can also help you to push the boundaries.

Reframe The Compliance Hurdle

In a regulated industry, many people believe that risks are dangerous. Risks are associated with safety or integrity. The result is that big corporates are often more stringent than the regulations require — just to be on the safe side. This is where they miss opportunities. In case an innovative idea violates a regulation at first sight, don’t stop there. Drill down to what the regulators actually want to achieve.

Big corporates are often more stringent — just to be on the safe side.

Take for example the airline industry. Aviation law prescribes that people must have a seat-belt on during take-off and landing. This is in the interest of travelers’ safety. Ryanair challenged that people should effectively be seated on a chair, or whether they could introduce a vertical chair and still have a seat-belt.

If you try enough to push the boundaries, it may work one day

So far, no airline authority has approved vertical seating. Nevertheless, it is a great example where a potential compliance violation is being reframed and the true meaning of the regulations is challenged. For Ryanair, it did not work that time, but that is not the point. If you try enough to push the boundaries, it may work one day.

Educate People About The Risks That Are Worth Taking

Before people can reframe potential compliance issues, they need to have a good understanding of the various risks. Not every risk is worth taking but some risks can be calculated. Innovative projects often incur financial risks as there is no guaranteed return on investment.

Your people need to have a good understanding of the various risks. Not every risk is worth taking, but some risks can be calculated.

For instance, every development of a pharmaceutical product is risky. If the returns of newly approved products remain significant, companies are still willing to take that risk. In other words, financial risks are worth taking when they incur large potential revenues.

To achieve a good understanding of the various risks, innovators need to be in a continuous dialogue with their compliance counterparts. Business people need to understand what risks are acceptable and which not, but also compliance people should have sufficient business acumen. Otherwise, they become a roadblock for innovation. In that context, I have seen at Johnson & Johnson (#mycompany) how rotational assignments between business and compliance departments shape a mutual understanding.

Walk The Talk

Storytelling is incredibly powerful for shaping an innovation culture. By identifying so-called “bright spots”, leaders can share stories where risk-taking was successful and did not compromise on compliance. But innovation is rarely a fairy tale. It is equally important to share what innovation attempts have failed and what you have learned from those.

“You take the risk, I take the blame.” (Paul Stoffels)

Because innovation is such a buzzword, many leaders consider it as the “Holy Grail” for their organization. These are meaningless words if leaders don’t walk their talk. Innovation will only flourish in an environment where failures and risk-taking are seen as essential for the innovation process. For instance at Johnson & Johnson, Paul Stoffels — the Chief Scientific Officer — stimulates such a culture by making himself accountable for the risks that his people take. That’s the spirit of a true leader.

Experiment. Then Experiment. Then Experiment Again.

Compliance risks only occur when you bring innovations in the real world. A common mistake is that people fall in love with an innovative solution and want to pilot it immediately. Pilots have a lot of drawbacks. They can last long and require lots of effort and money, but they also expose potential customers to unvalidated risks.

Experiments allow de-risking the potential compliance risks prior to testing the solution.

Pilots may have great learnings, but it is smarter to do first some experimentation and rapid prototyping. Experiments are cheaper, faster and allow de-risking the potential compliance risks prior to testing the solution in a real-life setting.

When you do an experiment, you are not testing the effectiveness of your innovative solution. Experiments test the most unknown and uncertain assumptions of your solution. In regulated industries, these assumptions are often compliance-related. Let me illustrate this with an example.

Assume that you want to get rid of your “read-and-sign” type of training for standard operating procedures, and you want to use a video instead. One of the unknown and most uncertain assumptions is if that will pass during a regulatory inspection.

If you fail during an experiment, it is a safe failure and you can try again, again and again.

Do you need to create the entire video, train all people in a pilot and then wait for the first inspection? No, you don’t. You can easily create a rough storyboard and use it as a basis for discussion with your internal compliance department. If your scenario does not pass their scrutiny, nothing happened. You failed, but it was a safe failure and you can try again, again and again.

Never Waste A Good Crisis

Smart innovation leaders recognize the right moment to launch innovative ideas. At times of crisis, visibility of the problem is high. Hence, only one phone call may suffice to bring all stakeholders to the table and discuss your innovative solution for this crisis.

Crises have the potential to catalyze innovation.

Most people will still remember the 2014–2016 Ebola outbreak in West Africa. Several 1000s of people died in that period. In the middle of this crisis, Johnson & Johnson began to work on an Ebola vaccine. Never before #mycompany has mobilized resources so rapidly to accelerate a vaccine candidate — supporting the initiation of multiple clinical trials across three continents in just one year. It proves that a crisis can catalyze innovation and hopefully prevent future outbreaks of the Ebola virus.

Break The Rules

You did not see this one coming, right? So far, I spoke about marrying innovation and compliance. Now I am suggesting breaking rules. If I compare compliance with religion, this sounds probably like blasphemy.

Let us look first at Airbnb and Uber. Their industries are regulated as well but they have broken numerous rules. These rules intended to protect travelers from fire hazards or car accidents. Still, it has not prevented them to become highly successful and even influence the legislation.

If you consider compliance regulations as something that will never change, you will never think outside of the compliance box. Regulations are never carved in stone. When the world is changing, regulations change as well (although we would always like to see it happening faster). Think again about digital health and how the US Food and Drug Administration created an action plan to speed up the evaluation process for digital health technologies, allowing them at the same time to better focus on high-risk products.

By asking yourself what will happen if you break the rules, you will no longer be locked into the compliance box.

Ask yourself now the following questions:

• What are the rules that I have made for myself?
• What do I believe that the rules are?
• Are those rules exactly the same as what is written in the regulations?
• Have other companies successfully stretched these rules?
• Last but not least: what is truly going to happen in case I break one particular rule?

Just by asking yourself these questions, you will no longer be locked into the compliance box. And remember: no rules are broken just by asking questions!

Post scriptum: maybe the CEO of Theranos should have better asked those questions upfront.

Compliance Does Not Kill Innovation. People Do.

Let’s get back to my initial question. Is compliance killing innovation at big corporates? Not in my opinion if you practice one or more of the 7 strategies that I described. People kill innovation because they believe that compliance does not allow it.

Regulations are never a reason to justify that you are not innovating.

Face it: compliance regulations are here for a good reason. They allow that people gain trust when flying airplanes, taking pharmaceuticals or investing their savings through financial institutions. Regulations are never a reason to justify that you are not innovating.

So, what are you waiting for? Jump over that compliance hurdle!

Credits

This story is the result of a roundtable conversation that I hosted at the Innovation Roundtable Summit in Copenhagen on November 8, 2017. Many thanks to everyone (incl. Franziskus Kath) who contributed with their innovative ideas!

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Disclaimer

This is a personal weblog. The opinions expressed here represent my own and not necessarily those of my employer. Moreover, this article does not represent any opinion about the activities my employer undertakes in this domain.