Monday, November 14, 2016
Elephants can dance, but can they win a dance competition ?
The company let’s call it A was the posterchild of the industry; they had grown faster than the market, had better margins, and a product portfolio that gave them higher traction with customers. The war chest thus created was used to acquire business interests and market expansion globally; the stock market rewarded them with benchmark beating valuations with a rare possibility of anyone catching up. The promoters kept tight control over the business and expenses with close trusted advisors – part of the inner circle.
Investments in manufacturing excellence fueled the growth, quality was a way of life which enamored them to their customers. Practicing frugality in other areas, they perceived COTS to be uneconomical in comparison to home grown solutions. Thus they built a reasonably large team to recreate the wheel for every process, automation with custom built solutions for all areas of the business. While the industry adopted globally accepted best practices and solutions, company A justified its decision to stay different.
Industry faced regulation in growing degrees making it mandatory for everyone to adopt technology based solutions for compliance. Auditors expected electronic trails and information as tamperproof evidence of process adherence. Major part of the industry prepared for and over a period of time gained compliance; the cost of deviation was adverse impact to business, and customer dissatisfaction. Industry norms demand compliance, so do adherence to country specific laws which is treated as a part of doing business.
While major part of the industry simply bought solutions from existing providers and got done with it, company A tasked the IT team to build the necessary systems. Step by step the solution was built to specifications signed off by the business teams based on downloaded information from regulatory websites and second hand experience. Since they were building the basic minimum functionality, where technology was lacking compensating manual controls were put in place, deemed adequate for audit purposes.
Faced with an audit during the phase of construction, company A demonstrated the scope of work and the fact that they were building everything required to make the process compliant. The auditors cognizant of the effort, accepted the input as work in progress and signed off on the timeline, to be reviewed during the next audit. Step by step functionality was put in place albeit slower than anticipated with parts of the business used to freedom and flexibility finding it too complex to adapt to the new way of working.
Increased regulatory activity and deadlines with harsher penalties for non-compliance put the industry on alert specifically in some of the large markets. Cost of non-compliance was denied access to consumers until remediation fixed the gaps and there was enough evidence to demonstrate end-to-end process non-repudiation. The increased complexity of the new laws put the laggards in a precarious situation, especially ones who had custom built solutions which required longer time to validate.
Vendors and consultants offered help to anyone willing to accept the problem and assist in putting together a compliant solution. Many global solution providers who had not explored niche markets by virtue of their size and cost of doing business, sensed a tactical opportunity to gain market share and grow the business. Leadership teams swooped down on the big targets including company A. Having survived the economic ups and downs with their own solutions, company A reluctantly agreed to the meeting.
The CIO who was brought on board post the last large acquisition to drive technology led efficiency and transformation; coming from one of the leaders in technology adoption, he was seen as a good catch. The CIO with long industry background was aware of the problem and informed that they were on the way to solve the problem in the next 12 months – the deadline to be compliant. He did not believe that there was a need to press the panic button; deadlines do shift when it comes to regulatory requirements.
After a couple of attempts at elevating the issue, vendors decided not to waste any more time in their quest to gain the business of company A. The CIO guarded the rest of the company executives to the upcoming challenge who were known to throw around their weight to get things done eventually, attempting to second guess the inner circle. The sycophant environment and the belief that we are too big to fail made them vulnerable to the upcoming date, their size made it almost impossible to breast the tape in time.
Company A scrambled to the finish line partially ready, the business impact was significantly larger to the investment, attitude and inertia cost them a few notches in market standing. The CIO was fired for not elevating the issue and preparing the business; he had not taken the initiative nor involved other CXOs. Dip in profits and dividend crashed market capitalization, they had to fight hard to stave off an unfriendly takeover bid. Elephants can dance was a turnaround story, repeating history is not easy.