By Andrew Kakabadse
The Communication for Better Regulation and Better Results, published last May, was a real step forward in the European Union. But it needs completion by taking account of the receiving end. Greater attention needs to be given to the corporate requirements and experience of addressing multiple stakeholder agendas in highly competitive markets. Better regulation will be achieved only if one captures also the nature of business strategy and leadership and the role of regulation in all this. This requires that one starts with innovating the consultation processes.
Better EU regulation requires many things : greater coherence across Member States, more effective scrutiny and coordination across the policy cycle and evidence based, cross-sector impact assessment of regulatory and policy decisions. Equally and aptly it requires stakeholders engagement and following this mechanisms for sensitive and meaningful consultation, to start with for problem definition, because this in turn influences the problem solution development. Over time and with experience, this will lead to effective collaborative governance, a democratic necessity in today’s societies with their complex intertwined problem. From the perspective of EU Institutions, public authorities and civic society share the critical concerns of better regulation which should not only regulate access to and functioning of markets, but also stimulate innovation and development, both not enough emphasized.
However the most glaring deficit, besides the need for culture change to reach all parts of the Commission, is evident – the Commission continues to look, like many governments, at one side only of economic reality : there is no mention of how business strategy is formed and executed. The reactions of the receivers influence whether better results are achieved. Attention needs to be given to the processes of corporate strategy generation and to the leadership of strategy execution so as to ascertain the relevance and attention given to addressing regulatory issues in the boardroom. In effect, the whole point of strategy is to realise competitive advantage and differentiation, for without this the enterprise cannot survive, and regulation affects this directly.
Hence it is necessary to show the link (or not) between strategic understanding and regulation and from this creating the mechanisms to harness regulation and strategic thinking and execution. Is regulation an integral element of corporate strategy or not ? This critical relationship requires scrutiny as well thought through strategy and effectively led strategy execution are the fundamental building blocks of sustainably realising competitive advantage. In so doing attention must be given to examining the soft side to strategy and coming to an understanding of the executive capability to focus on soft strategy as a lever of differentiation.
Therefore, examination of regulation is needed in conjunction with the board room mindset toward the significance of soft strategy. In contrast to hard strategy, product and service enhancement, merger and acquisition considerations and generally tangible asset based decisions, soft strategy focuses on the non-tangible aspects determining the corporate future. Included are reputational enhancement, brand development and risk minimisation. In mature and ever more competitive markets, it is soft strategy that is shaping the boardroom debate. The particular relevance of public policy and regulation considerations, the degree of alignment of thinking on competitive advantage and differentiation at senior levels, the level of dynamism in markets which require a reshaping of the elements of competitive advantage and the degree to which government and regulation are sensitive to such dynamism, require simultaneous scrutiny.
This is absent in Commission efforts till now. In effect it captures the better regulation issues from the perspective of government but not from the corporate point of view. But it takes two to tango and to work towards better regulation. Needed is to study both view points to ascertain the relevance of regulation in strategy consideration, the operational and opportunity costs of not doing so and what would then be recommended as ways of realising collaborative governance. This how competitive advantage and economic growth can be stimulated in Europe.