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Home Compliance

Turning Crisis into a Catalyst: What the Pandemic is Teaching Companies and Compliance Teams About Innovation, Agility and Resilience

Disruption is a test, but it also offers powerful tools

by Jim DeLoach
May 3, 2022
in Compliance
flower growing between stones resilience concept

A strict focus on compliance can stifle creativity and innovation. But a work environment that encourages those traits is key to agility and longevity. The pandemic puts these attributes to the test, spurring business leaders to embrace change and disruption as powerful tools of competitive advantage. Compliance leaders and teams need to consider how they can sustain an ongoing role as partners in this process, writes Protiviti’s Jim DeLoach.

Agility is an important driver of success in a mercurial environment. For many companies, digital maturity and future readiness correlate with the ability to innovate. That is why business leaders must position themselves to help their organizations not merely survive but also compete and thrive.
What this requires is a strategic approach to cultivating innovation and enabling that innovation to scale, whether in good times or during a crisis. The pandemic experience reinforces this point. Below are nine lessons taught to us by the pandemic.

1. A crisis can be the ultimate determinant of who is resilient — and who isn’t

Sustaining operations during the pandemic was a challenge for many companies. Those that could embraced web-based and cloud-based collaborative applications to transform how their people work, team, meet and attend events — the workplace went remote. For sectors dependent on gatherings of people, the crowds disappeared.

Thus, the pandemic turned the fundamentals in many industries upside-down. But future-ready companies, with their digitally enabled capabilities to innovate processes, products and services, were prepared. Remote work, flexible work arrangements, click and collect, online channels, 24/7 video healthcare, online shopping, home delivery and automation in all its forms are just some examples of digitalization in action.

However, these capabilities weren’t new. “Born digital” companies had been deploying them for many years. Companies already using digital tools were able to embrace the new business realities imposed by the pandemic almost overnight with minimal impact. The only challenge they faced, in some cases, was an inability to cope with demand spikes and accelerated growth.

2. The pandemic spawned a startup mentality: openness to new thinking and a willingness to fail

In many industries, the pandemic introduced a window to innovate. For example, financial services is among several traditionally conservative sectors that are resistant to innovation. But over the past two years, even conservative organizations and industries have been willing to innovate. The pandemic forced many to rethink, even reinvent, how they do business.

A key element of innovation is having the latitude to fail. During the crisis, companies had no choice but to take risks to survive and thrive. For example, many accelerated their use of technology to do things they had never considered before. In effect, they adopted a startup mentality — a mindset organizations typically embrace when they’re at their most disruptive. There’s a willingness to fail, largely because there isn’t much to lose.

In normal times, executive management must set this tone as the organization strives to innovate. But patience is needed. Often, there is a perceived low return from failure in terms of career development. If that’s the case, executive management should be aware of it and monitor actions set in motion to change perceptions.

3. A crisis shines the same spotlight on innovation that should be there in less-turbulent times

When a business struggles, it’s easier to push through change, yet change is often harder for companies in good times. When operations cease, revenues are cut off and no one can work in the office — and it’s all-hands-on deck to reimagine processes, products and services. The elapsed time to innovate compresses from months and years, transitioning rapidly to days and weeks. It’s a matter of survival.

When times are good, there’s a reluctance to pursue change that can affect core revenue streams, shift the focus away from what’s working well and cannibalize existing products and services. While understandable, executive management and boards should not allow this hesitation to stifle innovation. In a rapidly changing environment, organizations should think big with bold, audacious, innovative goals.

For example, when Satya Nadella became Microsoft’s CEO, he shifted the organization’s focus, competencies and skills from the PC (Microsoft’s comfort zone at the time) to enable greater innovation in the cloud. What followed was the development and launch of the now highly lucrative Microsoft Azure cloud services business.

Large incumbents are often seen as laggards in innovation compared to smaller, nimbler born-digital competitors. But when a crisis manifests itself in a manner that affects shareholders, incumbents start thinking differently. Necessity becomes the mother of invention. Inflection points may not always result in immediate change, but they often lead to massive shifts over time. That’s why innovation should be a priority in both good times and bad.

4. ‘You can’t fight gravity.’

Amazon CEO Andy Jassy imparted this four-word bit of wisdom during an interview in 2021. Amazon’s original business model emphasized selling products it procured and stored. Twenty years ago, with its stock plummeting over 80 percent and eBay and other online marketplaces taking share, Amazon launched Amazon Marketplace following intense debate about whether to allow third parties to sell on the Amazon site. Amazon weighed the pros and cons and introduced Marketplace — and the rest is history.

As Jassy summed up the lesson: “If something is going to happen, whether you want it to happen or not, it is going to happen. And you are much better off cannibalizing yourself or being ahead of whatever direction the world is headed than you are howling at the wind or wishing it away or trying to put up blockers.”

Thus, executive management and their boards should be mindful of the trap of “fighting gravity.” How important was Amazon’s decision to innovate and change? Today, roughly half of Amazon’s retail business consists of products sold by over 500,000 third parties.

5. If everyone is thinking alike, then someone isn’t thinking

In a dynamic world, it’s important to challenge the status quo continuously and think outside the box on everything the company and its competitors do. In short, companies should strive to rethink industry business models and not merely copy their competitors. Just because every player in the industry does something a certain way doesn’t mean that’s the best way. Sometimes, innovations may be small, resulting in incremental process changes.

Other times, innovation entails thinking about how to do things differently. Innovation can also involve major transformations, resulting in fundamental changes in business models. With advances in technology primarily driving the pace of change, companies are forced to reinvent themselves.

With the board’s support, executive management should empower talented people throughout the company who have the curiosity to ask the tough questions and the creativity and persistence to constantly seek and achieve better outcomes. Continuous improvement and innovation is a mindset.

6. A strong customer focus is where it starts

Innovation stems from thinking about how to change the customer experience. This is about more than just monitoring the data and analytics around evolving customer preferences, needs and wants. It’s also recognizing that technological change is the primary driver of the pace of change in today’s marketplace. In essence, innovation is about preparing the organization to be an important part of the digital age. That is why the innovation process should consider how fresh applications of technology in the industry will transform the customer experience.

If the company doesn’t advance its processes, products and services, its competitors will. Worse, if companies have digital-skeptic tendencies and do “digital things” because they think they need to — and not because they want to differentiate their products and services — they’re not likely to succeed. Keeping up with the pace of change is a challenge every organization will face over the next decade.

7. An innovative culture is more likely to complete the cycle and get results

The process of coming up with ideas is relatively easy for many organizations. People always have great ideas about what can be done. The hard part is nurturing those ideas beyond the prototype stage to ultimate business reality. The full end-to-end process includes not only upfront ideation but also a process that filters, prioritizes, nurtures, and develops those ideas into an implementable design.

Change-enablement skills to act on that design to get measurable results are crucial. But more important, the right organizational culture and mindset are needed to ensure skills are continuously refreshed to sustain transformative innovation and reinvention as the world and technology continue to change. The tone for that culture starts at the top. With the board’s support, executive management should strengthen and nurture this culture and mindset so that good ideas are pushed around the track to the finish line.

8. A sustainable innovative culture should be aligned with the strategy

The organization’s innovation mindset and approach should be aligned with the growth strategy. As the market changes, the organization’s incentive structure merits careful review.

  • Does it reward innovation?
  • Does it accept failure?
  • Or does it reward people for focusing on what they’re doing today, rather than developing new ideas and approaches?

In other words, is the reward system incenting people to play it safe? Who is being rewarded and promoted — the people driving the business forward and creating the future, or those riding the wave that someone else created?

As for the company’s innovation plans and road map for the business, do they consider how customer preferences and pain points may shift in the foreseeable future? Dashboard reports linked to those plans should inform executive management and the board periodically as to progress. Robust data and analytics on customer preferences and behavior and other relevant external trends should be used to inform the innovation plan. The organization should strive to learn at the speed of change.

9. Diversity matters

Understanding the digital economy, emerging technologies and relevant megatrends affecting the industry and the ability to relate them to the business and its strategy are now critical boardroom and C-suite skills. To help guide the organization’s innovation mindset and activities, executive teams and their boards can benefit from greater diversity. For example, millennials tend to experience technology differently. Hearing from as wide a range of perspectives as possible is essential, as organizations will be giving a voice to and relying more on the perspectives of a younger, more diverse group of employees as they navigate changes in society.

Questions for executive teams and boards 

Following are some suggested questions that boards of directors may want to consider, based on the risks inherent in the company’s operations:

  • Do we have a vision on what role our business will play in the marketplace and how our value proposition will be framed, say, five years or more from now? Are we aligned on this vision and what needs to be done to get there? Does every leader in the business understand his or her role in helping the organization deliver on this vision?
  • What role does innovation play, and are we fostering a culture that drives innovation? Does our organization really know what it means to embrace risk, innovate, and accept and learn from failure? Do we receive a dashboard report on innovation and devote sufficient time to innovation matters?
  • Do we have a clear vision of how technology and analytics are likely to disrupt our industry? Are we realistic about the likely pace of change? Are there any obstacles in our way when it comes to driving innovation? If so, how do we deal with them?
  • How do we innovate without unintentionally or prematurely destroying our core business(es)? Is innovation left in the hands of a few rather than emphasized across all aspects of the business, including third-party partnerships? Are sufficient staffing and resources assigned to innovation projects with clear accountability for results?
  • Does our organization have any digital-skeptic tendencies? If so, how can we eliminate them? Is it clear what the organization needs to do to raise its digital maturity to a competitive level? If not, what are we doing to obtain that clarity? If we’re a “digital follower,” are we agile enough to pivot quickly so that we don’t fall behind industry leaders?

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Jim DeLoach

Jim DeLoach

Jim DeLoach, a founding Protiviti managing director, has over 35 years of experience in advising boards and C-suite executives on a variety of matters, including the evaluation of responses to government mandates, shareholder demands and changing markets in a cost-effective and sustainable manner. He assists companies in integrating risk and risk management with strategy setting and performance management. Jim has been appointed to the NACD Directorship 100 list from 2012 to 2018.

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