Today begins a week of double themed blog-posts. First, I am back with an homage to Sherlock Holmes. The second theme will be innovation in the compliance department. I will take some recent concepts explored in the most recent issue of the MIT Sloan Management Review and apply them to innovation and development of your compliance function. I hope that you will both enjoy my dual themed week and find it helpful. Today, I consider digital strategies in compliance.

Holmes and Watson were introduced to the world in 1887, in the short story A Study in Scarlet and I I begin with the that first novel as an inspiration and introduction today. In it we find the following exchange between Holmes and Dr. Watson:

Watson: When I hear you give your reasons, the thing always appears to me to be so ridiculously simple that I could easily do it myself, though at each successive instance of your reasoning I am baffled until you explain your process. And yet I believe that my eyes are as good as yours. 

Holmes: Quite so. You see, but you do not observe. The distinction is clear. For example, you have frequently seen the steps which lead up from the hall to this room.

This dialogue serves as a by-word for innovation in compliance, which is that the information is always present, but it is not ‘observed’ by the frontline business folks either because even though it is available to them they do not know how to access or even correlate it, or a corporate compliance program has not communicated it to them. Both the solutions today speak to these twin failings.

I want to consider the issue of how a Chief Compliance Officer (CCO) or compliance practitioner can develop a digital strategy to help increase the value proposition for a corporate compliance program. Today’s blog post is based upon the MIT Sloan Management Review article entitled “How to Develop a Great Digital Strategy by Jeanne W. Ross, Ina M. Sebastian and Cynthia M. Beath.

Interestingly I discovered there are two general ways to consider a digital strategy. One is a Customer Engagement Strategy, recognizing that in the compliance realm, your customer is your internal employee. The second strategy is the Digitized Solutions Strategy. It is not simply operational excellence which drives your strategy, as the authors noted, “increasingly, operational excellence is the minimum requirement for doing business digitally, not the basis for a sustainable competitive advantage.” I found a CCO should consider both strategies as I believe they converge into one in the compliance function.

Customer Engagement Strategy

The bottom line of this strategy is to engender passion around doing business ethically and in compliance. Here you are trying to connect your compliance function to your employees’ experience. Of course, this is what the Department of Justice (DOJ) would call operationalizing your compliance program. They present several ways to do so, which I believe directly translate into the compliance experience. First offer digital mechanisms to bolster your employees’ interaction with compliance. Second, apply data analytics to identify the most effect approach for employees to engage in doing business ethically and in compliance. This is through the most effective forms of compliance function outreach by putting tools in the hands of employees. Finally, by leveraging social media to develop communities to create circles of employees to support any compliance function initiative. Here you can think of the example of Louis Sapirman, CCO at Dun & Bradstreet (D&B), who regularly engages in internal company tweet-ups to publicize, engage and communicate about compliance.

Digitized Solutions Strategy

A Digitized Solutions Strategy deals more with marketing, yet this is another area in which the CCO or compliance practitioner must engage. This digital strategy seeks “to integrate diversified products and services into solutions, to enhance products and services with information and expertise that help solve customer problems, and to add value throughout the life cycle of products and services. Over time, digitized solutions can transform a company’s business model by shifting the basis of its revenue stream from transactional sales to sophisticated, value-laden offerings that produce recurring revenue.” This is very dense business-speak for what a compliance function does.

As a CCO you should have a clear digital strategy to develop an integrated portfolio of compliance offerings. Your employees need this clear strategy, so they can implement these compliance initiatives into their sales and marketing strategies. If you want to impact employees, you must give them the compliance tools to assess risks and manage them, all the while using the information to do business more efficiently and, at the end of the day, more profitably. This type of approach was laid out by Ernst & Young (E&Y) partner Vincent M. Walden, in a Fraud Magazine article, entitled “Profit & Loss-of-One”, where he detailed a digitized process he worked with General Electric (GE), through what he called “digital twins”.

The basic difference between the two strategies is that the Customer Engagement Strategy focuses on how a corporate compliance program can better engage with, communicate to and be a more fully engaged partner with the business unit. Through the Digitized Solutions Strategy, a corporate compliance function is working to put the tools in the hands of employees to more fully operationalize compliance in an organization. I see this as a seamless process.

Whichever strategy your organization might choose, there must be an operational backbone of compliance which would include such things as “access to a single authoritative source of information for key data about finances, customers and products; reliable end-to-end global supply chain processes; or back office shared services.” The authors caution that if your organization is too siloed, it will not be able to deliver “reliable operations and thus will not be able to compete digitally.” I would add this is more detrimental to an enterprise compliance initiative.

The authors conclude by stating that to succeed in the digital economy, “companies must offer a unique value proposition that is difficult for both established competitors and startups to replicate. Such a value proposition stems from a digital strategy that is focused on either a set of digitized, integrated offerings or a relationship that engages customers in ways that competitors can’t match. Without that, you might create a flurry of innovations, but you won’t deliver value-added applications of AI, biometrics, drones — or the next important digital technology.” For the compliance practitioner, this means you must have a robust set of written standards around your compliance function, including policies, procedures and internal controls to lay this innovate technology upon.

Tomorrow I will consider how GE, with the assistance of Vince Walden and his Ernst & Young colleagues, was able to bring such a Digitized Solutions Strategy to its employee base and it is truly an innovation in compliance.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

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