Leverage regulation as a burning platform to develop your organization

One of my all time favorite models of organizational behavior is the “A Garbage Can Model of Organizational Choice” from 1972 my Cohen, Olsen and March.

The model explains how organizational decision-making is rarely a perfectly rational process, but rather a question of matching challenges with solutions that fit a particular set of stakeholder agendas. For instance, the apparent need to cut costs may fill the agenda of a CFO who wants to centralize his organization. A terrorist attack may leverage the influence of those who favor military intervention, and a financial crisis may facilitate the introduction of more rigid regulation of financial markets.

Since the financial meltdown of 2008, financial institutions have faced a number of new regulatory frameworks (Mifid, Basel III, CRD IV, Solvency etc), some of the with deep implication not only on capital requirements and risk management, but also increasingly so on processes, organization structure, job descriptions, certifications and remuneration.

Compliance management programs consume vast amounts of resources and time, and is by definition frustrating for leaders of financial organization, and for employees who have to spend time on understanding increasingly complex regulation on top of their daily tasks.

But if designed in the right way, these programs can also be seen as an opportunity to introduce improvements that would have been difficult to legitimate without the impending need caused by regulation. As noted by Kotter and other thinkers on change, transformation comes so much easier when facing “a burning platform”

So when CRD-VI requires organizations to create transparent organization structures, and a clear link between job qualifications and remuneration, this can be utilized to initiate strategic discussions such as “given our mission and vision, how should we be organized?”, “what critical talents will we need to move towards our vision?” and “what are the gaps that we need to fill?”. In fact, one of the leading Nordic Banks are doing just that at the moment, reviewing the organization effectiveness, aligning their organization structure and strengthening their strategic workforce planning process. As expressed by a senior HR leader “without the regulative pressure, we would probably not have had the opportunity to work in depth with these issues”.

Likewise, when CEBS introduces new reporting standards suchs as FINREP and COREP, we can take the higher perspective of “what are the most important KPIs?”, “How should they be measured and how often?”, “How do we create a robust governance and reporting process for the future?”

Increasing regulation will continue to be a major challenge for financial institutions, but the thinking embedded in the garbage can model of organizational choice can help these institutions to enter a journey of organizational development that would not have been possible in it’s absence

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