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Private business productivity choked by red tape
29 October 2014: Privately owned businesses are being choked by red-tape and overzealous rulemaking of their creation.
Private businesses regularly voice their concerns regarding government regulation. However, according to Deloitte Access Economics, the cost of complying with self-imposed rules created by the private sector is double that attributable to government regulations.
In a new report, Get out of your own way: Unleashing productivity, the fourth edition in its Building the Lucky Country series, Deloitte has calculated the cost of complying with rules and regulations at $250 billion annually across the private and public sectors.
That cost comes in two parts – the cost of administering and complying with public sector regulations ($95 billion) and the cost of administering and complying with rules organisations impose on themselves ($155 billion).
Notably, employees in private businesses spend more time on self-imposed rules in areas such as Human Resources (HR), Information Technology (IT), finance, legal and corporate governance than their counterparts in listed companies.
Examples of these self-imposed rules include:
- The retailer requiring head office staff to email the CEO and copy all head office personnel regarding their movements
- The transport business requiring drivers to drive to the depot to return their mobile phones at the end of each shift
- The wholesaler that provides senior employees with a platinum credit card for international trips but requires two levels of authorisation for the purchase of office stationery at home
- The services firm that requires staff to complete electronic and paper-based timesheets.
According to report co-author, Chris Richardson of Deloitte Access Economics, both the public and private sector can benefit from a new approach to managing risk.
“Where rules don’t exist, we create them. Where they already exist, we make more. They overlap, they contradict, they eat our time and they weigh us down,” he said.
“We’ve created a ‘compliance sector’ that employs more people than the construction, manufacturing or education sectors! Taking a long, hard look at the rules individual organisations operate within will reduce the cost and complexity of doing business in Australia.”
The chart below shows that employees of private businesses spend an average of six hours a week complying with self-imposed red tape; less than their counterparts in the public sector, but worse than those working for listed companies.
Deloitte Private Partner, Mark Allsop, noted that privately owned businesses are increasingly seeking competitive advantage by investing in cloud technologies, data analytics and talent, however, they often get in their own way and thereby fail to realise the full potential of these investments.
“Privately owned businesses are constraining their agility and productivity by entangling themselves in self-imposed rules, often to the detriment of their competitiveness,” he said.
“Entrepreneurs are often motivated to start their own business to set themselves free of rules and bureaucracy and embrace the autonomy and agility that comes with running their own business. However, as their business grows, they can unwittingly find themselves bound up in their own red tape. The treacle of red tape has a habit of sneaking up on the best of us.”
Time spent per week on self-imposed red tape by type of organisation
While there is no one-size-fits-all solution when it comes to breaking the burden of excess rule-making, it is almost always good common sense to:
- Undertake some basic cost/benefit analysis
- Trust employees to use their initiative and judgement
- Tap into technology to streamline decision making
- Treat time as a resource as valuable as capital
- Redesign rules to eliminate overlaps, redundancies and duplications.
Chris Richardson concluded: “There is a huge payoff to the profits of Australian businesses and the incomes of our workers if we simply get out of our own way. Doing so won’t just unleash business productivity – it will unleash Australia.”
Note: Separate media releases cover the red tape challenges from national and state perspectives.
The report and an infographic are available on request.
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