Is Governance Scar Tissue Slowing Down your Business?

Any business older than five years is likely to have faced the challenge of responding to changes in their business operations, a result of dealing with the impacts of market/industry changes and regulations.

Normally businesses make the required changes as quickly as possible to minimise business interruption.

However, over time, the business becomes hindered by the level of changes implemented on the run – the scar tissue.

As each challenge/change arises the usual business owners’ response is to deal with the challenge in isolation, fix it as quickly as possible and move on. After all, effecting and implementing change in any organisation is time consuming and distracting from the true purpose of operating and running the business.

The downside of not managing change

However, by not considering the broader impacts of each change on all parts of the business, the scar tissue thickens.

I’ve seen organisations that operate in a heavily regulated environment (e.g. financial services and mining/mining services) where the outcome of poorly managed changes has resulted in decision making in one section of the company disadvantaging another part of the same business.

Although the financial services and mining/mining services industries are extreme examples due to unequalled levels of regulatory change over recent years – most businesses have faced and dealt with fundamental change and as a result there is some degree of scar tissue.

Whilst the “scar tissue” itself won’t stop a business operating, the amount of management time that is wasted due to inefficient processes and conflict between functional parts of the business will put additional strain on the business and the owners/management.

The easiest way to proactively manage change is to adopt a project management focus.

Two simple steps for project managing change:

  1. Assess what new risks the change brings and how existing risks may be altered. By understanding the risks (both new and old) changes can be made to improve the control environment and reduce/mitigate impacts to other parts of the business.
  2. Identify opportunities that the change brings. Seek to leverage opportunity from change (procedural, operational or regulatory) that can deliver a strategic benefit to your business.

How SMEs can manage change?

Project managing change is not always easy for SMEs as it takes resources away from the daily operation of the business.

An alternative is to regularly review the risk and governance frameworks and systems that are being used in the business.

This review will highlight where there are blockages or duplication within the operating framework of the business.

I’ve found that what are relatively simple ‘fixes’ to a company’s business procedures, can clear the way for quicker decision making. It can also lead to increased staff engagement and a culture of continuous improvement developing almost overnight. After all, staff have known about these shortcomings for ages but never felt empowered to raise them!

As part of a review of the risk and governance frameworks I performed for a client I have seen a business owner move to provide staff with the power to put forward their views on what other procedures need tweaking.

The changes that these employees identified – but were originally too ‘afraid’ to raise – led to improvements that generated a streamlined business operation and created expense savings that ultimately translated to profit.

In my discussions with business owners I liken their original business idea to the healthy heart of a teenager – over time and without proper attention the business idea becomes more like the heart of an overweight middle aged man – less likely to continue beating effectively.

But the difference in the two comparisons – a business has the opportunity to remove the scar tissue and continue on!

Our guest blogger, governance specialist Philip Anthon, is Principal of Governance Worx Pty Ltd, a leading consultant on governance, risk and compliance issues. Philip is a director of an ASX listed mining company, chairman of a number of compliance committees and has been a director of various fund management organisations.

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