The innovation paradox in governance driven regulated companies

Governance Jul 3, 2021

I have been attending a series of TPS seminars with Sensei Shingo-san from Toyota City, Japan. What is TPS you may ask? It is how the Toyota Production System works as a system. Also, known and codified as Lean. But, I prefer not to use the "L" word as it is a codification of Toyota practices where a lot has been lost in translation. One can never be Toyota, but one could learn from how they work.

During a recent case study discussion, we were discussing about whether innovation and regulated governance can co-exist.  A known pattern in regulated companies is that their innovation needs are muted down and controlled lest their teams run away with the "baby and the bath water".  That is a poor understanding of how both innovation works and governance works, and a sub-par response to regulation and regulatory expectations.

Often excuses given include:

  • We need to be careful. Otherwise people will make mistakes.
  • We are regulated and need to follow the regulations and therefore lock down our work with more rules.
  • Our innovation should be carefully managed, lest we do something wrong.
  • We are special. We do things our way only. And this works for us. So what are doing must be right.

In fact, the biggest reason for regulatory failure is overt control and excessive governance. And the best answer to better regulatory response is innovation if not anything else. And this is certainly a paradox. How does one innovate more to have better response to regulation?

Most work today is highly cognitive in nature. We are in the cognitive era of digital, network and software with newer technologies like social-driven media, AI, IoT, AV, robots, drones and clean technology being the future. These cant be governed the traditional way as things are constantly evolving. Evolving faster than one could understand.

The better way therefore is to broad base the understanding by engaging the teams that do the work in solving the governance problem. Teach them what the regulation is trying to achieve and help them come up with approaches that help evolve high self-regulation within the teams in the work that they do. The work that they understand better than anyone else around them, including the stakeholders.

Top down "do it this way" rules and clamp-downs based on archaic software development and cognitive work practices from fifty years ago are not the answer. Modern day governance is co-solving and co-evolving practices that are owned by the teams. Ownership leads to better compliance.

Team ownership leads to responsibility leading to better compliance

In Lean such approaches are doing by documenting and constantly improving what is called "Standard Work" by the people who do the work in collaboration with stakeholders who articulate what the regulations and standards are.

In software development teams that use techniques that support values and principles from the Agile manifesto using methods like Scrum, use standards like "definition of DONE" to adhere to standards that needs to be met (and often instantiated by a variety of automated tests and supported continuous integration and continuous delivery practices) - and such practices being constantly evolved and improved in iterative cycles.

And innovation is the key. Often innovation is misunderstood as "scope" or just product/customer facing features/products or services. Innovation is certainly there on the side of what is delivered to customer. But then there is micro-innovation:

  • Innovation in technology architecture and design.
  • Innovation to the process that is used to do the work.
  • Innovation in standard work and definition of done.
  • Innovation in test automation and continuous integration/delivery practices.
  • Innovation in learning new things that help improve all the above work that the teams are doing.

These are key to better self-governing and self-controlling teams to achieve a better response to regulatory measures. And in fast pace world of today, you need your teams to do this in order to succeed. Anything less means you are missing out.


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