Wednesday, October 29, 2014

Deloitte Access Economics. Yes, we are drowning in red tape. This is the reason

 kvd pointed me to this story with this comment: Hope it doesn't spoil your day to have such a complete affirmation of what you've been banging on about for years :)

I have not been able to find on-line the original Deloitte Access report on which this story is based on-line. However, this quote from the linked story will explain why the report has attracted so much coverage:
 Australian companies are drowning in their own red tape, wasting valuable hours of employee time and costing the economy billions of dollars.
In what it believes is the first assessment of red tape in both Australia's public and private sectors Deloitte Access says government regulations cost about $27 billion a year to administer and cost businesses $67 billion a year to comply with.
But it says red tape imposed by businesses themselves costs $155 billion a year - $21 billion to develop and administer and $134 billion a year to comply with.

he suggestion that businesses own red tape costs more than Government red tape has been the attention attracter, with a stated one staff member in eleven is now employed in compliance of all types. The data actually needs to be treated with some care, that's the reason I wanted to check the original, but it's still interesting. This Deloitte graph actually captures part of the picture I have been trying to paint to explain why, in my opinion, current business practices have so reduced management efficiency with consequent direct and indirect costs.

The reduction in back office workers has saved direct costs because of the sheer grunt of the computer systems that have replaced them. But there have been indirect costs created as well through cost shifting, This comes about because the costs saved tend to be measurable, that's why the changes were introduced in the first place, but the costs incurred are not.

As a simple example, consider the changes that have taken place in HR systems.

The processing functions once carried out by support staff have been computerised, leading to savings in processing staff. At the same time,  responsibility for certain activities have been passed to line staff. They have to enter the details for themselves and do the processing, reducing the work time that they had available, Their managers are in a similar position for they have to do checking and approval functions that once did not exist, were informal or were carried out by some-one else, Then there are the compliance staff who have to do the checking and pick up the mistakes that need to be corrected.

So the cost equation that I am talking about are the costs savings of the new system in terms of reduced HR staff costs that are directly measurable minus the extra staff costs created that are not. In this mix, the remaining HR staff move from a support and compliance role to a compliance role, ensuring as best they can that the new systems work. Since the focus is on directly measurable costs, an imbalance occurs.

The rise of compliance workers in organisations to the point that they now exceed the proportion of the workforce that was once occupied by back office workers is indeed part connected with the rise of Government regulation. However, and this is where the Deloitte Access study is helpful, it is more connected with management and organisational changes within organisations including changes in decision rules.. Here there is a chicken and egg problem in that the cultural, technological and organisational changes that facilitated Government regulation making do exactly the same outside Government. You can't blame Government in total.

I spoke of decision rules, something I have written about a fair bit. Every step in a decision chain adds time and costs. We have more decision points now, more things on which decisions have to be made. It should not surprise that costs have gone up, effectiveness down. That is how we do things now.    


Noric Dilanchian said...

Jim: That makes two of us "banging on" about this for years, nee decades.

My last article focused exclusively on the topic was titled "The legal compliance complex". It contains links to prior writing.

Jim Belshaw said...

Thank, Noric. Will bring it up in the main post tomorrow,

Evan said...

Years ago I had a friend in HR.

He once wrote an impassioned letter to the relevant government minister along the lines of (I'm paraphrasing):

Your concern for OH&S is commendable.
Your desire for us to be innovative and try new things is great.
We can't do both!

Scott Hastings said...

I wonder how much of compliance these days is "risk management", not just in the narrow OHS sense but more broadly.

Jim Belshaw said...

I think that you are right to wonder, Scott, and right to put "risk management" in inverted commas. That's another thing that I have been banging on about. Evan's comment captures the problem; you can substitute other things for OH&S.