Could radical innovation be stifled by operational resilience regulation?

29 October 2018

Recently, PwC Partner, Simon Chard, and I were musing on the dynamics between regulation, innovation and operational resilience. Specifically, how much regulation for operational resilience is sensible when we consider both the need to create ‘safe services to the public’ and commercially imperative innovation.

Operational-Resilience-Innovation-Regulation-PwC-Blog

The financial services regulators recently released a joint discussion paper called “Building the UK financial sector’s operational resilience”. This paper considers the future regulatory approach to operational resilience – that is, ensuring that customers of critical banking services do not experience unacceptable outages. We don’t have to think too hard about why operational resilience is a current priority of the regulators; when banks suffer unacceptable service outages, so do their customers.

Even though not all organisations are subject to regulation, all are subject to scrutiny from someone that matters. Shareholders, non-executive boards, audit committees and the general public have increasingly high expectations that operational resilience is designed into critical processes, so that the services they provide can’t fail to unacceptable levels. What does this mean for those of us who design services, processes and systems and run organisations ? What does it mean for those of us who value innovation – especially radical innovation - and commercial risk taking?

I have always tried to build new things with resilience in mind. When you’re innovating to deliver something completely new, a sense check needs to happen to determine how much resilience should be ‘designed in’. In most cases, there is a need to include it from the outset, but where radical innovation is an opportunity, there may be limitations on the desirable level of resilience created during development.

For example, the head of a major online innovation often called on me to support his message to the Board to build resilience into the development of a multi-million pound platform. This organisation genuinely values operational resilience and considers it a systemic requirement, however in this case, to build in any level of resilience during the early days simply didn’t make sense from a cost, design and innovation perspective. For highly innovative projects this isn’t an unusual approach. In this case, innovation was a priority and the usual requirement for operational resilience was paused. There were outages, and they were managed. They were painful when they happened, but a risk-decision had been made to enable innovation.

So what’s the dilemma here?

Important services must be reliable. As customers that’s what we expect, and in some industries lack of reliability isn’t just a commercial problem: severe lack of water or energy can impact life safety; severe compromise of financial services can impact economic safety.

But there’s always going to be a balance to be struck between innovation and operational resilience. Taking risk is a commercial choice, unless regulation or other forces diminish a leadership’s ability to decide to take it. Many believe that true innovation is impossible without risk, and commercially viable risk and innovation opportunities can be restricted by requirements to be ‘always operationally resilient’.

As the financial regulators consider the right way forward for the financial services market, I’m keen to know if these thoughts resonate with yours. With or without the additional dimension of regulation, how is the right balance between risk and resilience struck to enable radical innovation where it’s desirable?

Feel free to share your thoughts below – whether they are advanced in their formulation, in-progress or off-the-cuff.

For more information about Operational Resilience, Crisis and Continuity, please visit our website here. 

Charley Newnham | Enterprise Resilience Lead, PwC United Kingdom
Profile | Email | +44 (0)7930 402575

More articles by Charley Newnham

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