In the minds of many, growth signals success. It represents new opportunities, new or expanded customer relationships, and higher profits. Growing businesses are often able to enter new markets, uncover fresh revenue streams, maximise their economies of scale to out-compete rivals, and even potentially become “big” enough to have considerable influence over legal and regulatory frameworks.

Emerging industries and evolving regulatory environments – for example fintech, cryptocurrency, alternative energy, electric and autonomous vehicles, cannabis, food supplements – have already experienced and continue to experience phenomenal growth. This can be both organically, as customer interest peaks, and through horizontal integration as competitive forces drive consolidation.  In a recent Morae study of high growth companies, all participants reported growth of at least 20% with an expectation of continued or increased growth ahead. Such high growth exacerbates the challenge of managing compliance, legal and other risk obligations.

Even in mature sectors such as consumer goods, manufacturing, pharma and financial services, while organic growth is generally stable, these sectors are still punctuated by occasional growth spurts, notably through market consolidation — both horizontally (merging with similar sized and maturity organisations) and vertically (acquiring smaller or less mature competitors).

While growth is usually a good thing, it can also be a destabilising and even disruptive force for individual organisations and their markets. It can affect all aspects of a business and place considerable pressure on staff, resources, and finances. Growth is not without risks and should be carefully planned and managed.

The key question is, “Is the business, and each of the departments within it, ready to grow?”

Below are three key growth challenges for compliance, legal and risk professionals, as identified from our recent benchmarking surveys. We include insights into how best to manage each based on Morae’s industry expertise, the results of recent client work and other learnings.   

The three key challenges of growth

  1. Balancing growth and control

Businesses are basically comprised of revenue-generating and non-revenue-generating functions. This simplification highlights product, marketing, and sales functions as the engines of growth, with legal, compliance and risk as (vital) cost-centres to support that growth hand in hand with managing risk for the business. In balance, these stakeholders collaborate and cooperate to manage business expansion and customer growth with little fuss. But in a high growth setting, there is a risk that the engines of growth outpace the control functions, such that growth outstrips the level and capability of current controls. Out of kilter, the front office can rush to expand products, services, and even markets leaving the back-office struggling to catch-up and in some cases never catching-up.

For example, front-office growth can lead to an increase in customers to be onboarded and screened, or increases in contracts to be reviewed, agreed, and then managed, or expansion into new markets or territories where the back-office staff are less familiar with the laws and regulations. Most will agree, greater risk is inherent.

The key to ensuring investments in the front-office can be supported by appropriate investments in the back-office is to understand the elasticity in the current risk and control mechanisms (including the level and skills of staff in those functions), capacity to accommodate growth and any development of control activities needed to support expansion.

In our experience compliance, legal and risk departments should:

  • Ensure that all legal and regulatory obligations are fully mapped, aligned to a clear view of key risks and controls, and maintained with a visibility to how key risks and compliance are managed.
  • Establish a single view of critical business processes (especially those that if they fail are likely to create the largest impact on services and customers), including acceptable performance tolerances for key elements of those processes and a framework for monitoring performance and identifying failures or near-misses.
  • Maintain a complete population of mapped controls and associated indicators, including data on volumes of controls and records of incidents, to stress test and forecast the impact of growth.
  • Create a robust approach to resource planning, recruitment, and allocation so that headcount can be optimised to address emerging challenges, including the back-office ability to carry out their own analysis and activity to ramp-up staffing.

Considerations for Global vs Local

In situations of rapid growth, consideration should be given to global versus local organisational structure and operations – what is the right approach to centralisation versus local jurisdiction autonomy?

A strategy based on centralisation of standards and controls has advantages for a global organisation but can create challenges in local jurisdictions, especially where there is a need to demonstrate local mind and management. Some regulators demand that local regulated entities have robust governance and control at a local level.

Companies expanding into new territories or globally enjoy economic leverage to invest in shared infrastructure, standards, and methods. Economies of scale in shared services can also be significant. On the other hand, it can be increasingly difficult to be locally flexible and adaptable when there is a singular, global approach. Processes for developing strategy and allocating resources can struggle to cope with the increasing diversity of markets, customers, and channels. Global risk management processes may not always prove to be the best way to deal with risk in markets where global organisations must move quickly to lock in early opportunities.

Global organisations benefit from geographically diverse operations that provide a natural hedge against the volatility of local growth, country risk, and currency risk. However, pursuing emerging-market opportunities can take organisations to markets with unfamiliar risks that may be difficult to evaluate at arm’s length.

Through recent benchmarking surveys, Morae confirmed there is no “one-size-fits-all” approach to organisational structure for Legal, Compliance, and Risk departments, especially for those handling the realities of rapid growth in emerging markets.

That is partly because the opportunities and challenges facing companies vary, depending on their business models. But striking a balance between “global and local” needs is critical for companies experiencing rapid growth.

Examples of approaches that have enabled other organisations to find and maintain a balance include:

  • Clarifying and documenting the split between global and local accountabilities and confirming expectations.
  • Considering the regulatory expectations for specific local entities to have local operations, controls, and governance.
  • Staffing local entities with “mini” group functions to give focused local support.
  • Establishing regional hubs, to provide a global perspective but with a local focus.
  • Ensuring that any need for global oversight is proportionate and fit-for-purpose, empowering local entities to work within guiderails rather than constant escalation for decisions or approvals.

Companies experiencing rapid growth in new or volatile regulatory environments are forced to respond quickly, and responses can often conflict with rigid planning protocols. It can prove challenging to deliver agreed plans and maintain business as usual where external influences are not fixed. So, the ability to spot, pivot and respond quickly to change is vital to navigate these choppy waters.

Maintaining an aligned operating model

An operating model is the blueprint for how to organise and deploy people and resources. It serves as a bridge between written strategy and real performance. Every organisation has one, even if it is not explicitly and deliberately documented. Many operating models evolve by default over time, rather than by explicit planning and choices. This can lead to unnoticed gaps or weaknesses, cracks that can become exposed when the model is put under stress. The importance of an effective operating model is thrown into stark relief in high growth scenarios. There are several reasons for this:

  1. Headcount. Growth of course requires additional investment in resources, and key amongst these is greater headcount. Knowing the right number of individuals and skill sets needed is an art and a science and understanding current capacity leads to informed headcount decisions. Studying productivity and workflow can also aid with headcount decision-making but an additional important consideration is into which areas to recruit? Not all vacancies are the same. In teams with limited resources, managing the workload can make or break growth plans. It’s not just about managing the volume of recruitment needed to support the number and variety of new roles or types of talent demanded by the expanded business. The resourcing needs during a high growth phase may also require more organisational design, business analysis, or change management skills, for example. High growth organisations can struggle to acquire these important – albeit temporary – skills.
  • Accountabilities. Having sufficient staff is half the battle. It is important for the organisation, as well as individuals, that there is total clarity about accountabilities and relationships. Increased headcount can test boundaries between functions as staff seek to add value, but step out of lanes and create friction, confusion, and chaos. Boundaries are especially tough because they tend to shift in growing organisations, as tasks become increasingly distributed across an ever-expanding array of roles. Being clear about interfaces and hand-offs between functions is key, ensuring that there is minimal overlap and duplication of work but a supportive and collaborative network. It goes without saying that there can be challenges in maintaining the prevailing culture with so many new recruits – but such cultural challenges are too many to detail here.
  • Third parties. For many organisations, high growth requires the support from third parties and other suppliers – managed service providers or alternative legal service providers. These “extra hands” can add important scale and/or enable high volume and lower value work to be delivered by a managed service, freeing up more costly staff to focus on higher value work. We see great value in leveraging third parties and suppliers in key areas such as Compliance Operations, Legal Operations, Contract Management and more. There are of course risks in using external parties. Supplier selection, due diligence, contracting, and supplier management create new risks to manage.

There is a lot of academic research into the effects of alignment on organisational performance.

One study found that 51% of the difference in organisations’ performance can be explained by alignment, with another 38% delivered by consensus – in other words people aligning behind a common goal. Another study found that by aligning business goals and IT goals, as just one example, the level of overall performance was lifted by 20%.

When growth is generated by inorganic M&A, there is an obvious and well understood impact on operating models. Bringing together organisations requires deep exploration of both operating models. The three points above may remain relevant, but a wider exercise is highly likely to consider them as well as others. The challenges of M&A integration efforts are different and can be summarised as:

  • Effective Due Diligence. Due diligence is a critical first step in M&A planning: Do you know what you are looking at? Do you understand it? What are the risks and red flags? Is it worth it? It is important that due diligence is focused and covers key ground. We recommend that clients think deeply about due diligence planning to ensure that the activities are laser-focused on the big issues that could derail a transaction and not on matters better left to integration planning. Due diligence and integration planning should of course be done in parallel, but they should also have clear and separate aims.
  • Integration and managing change. One of the most cited motivations for performing M&A is the ability to achieve synergies. Be clear that achieving synergies is not just about identifying them. It is about understanding how to implement the changes: there will be big decisions about staff cuts, for example, which look easier on paper than in practice. And it is important to note that uncertain times can create anxiety and stress, with a direct impact on both productivity and work quality.
  • Keeping momentum and engagement. The issue which underpins all integration challenges in mergers is maintaining momentum. While carefully addressing planned or emerging integration issues, it can be easy to overlook or take for granted the day-to-day operations of the company. The integration effort must happen in addition to ‘business as normal’ (BAU) not instead of it. This demands setting a range of KPIs (key performance indicators) from the outset, both for the business and the integration process, and for leaders to clearly communicate prioritisation expectations to those whose workload includes both BAU and integration support.

Leading companies and organisations achieve successful and sustained growth because they define a clear purpose, supported by high levels of shared understanding, commitment, and focus. Lack of alignment creates friction. Friction can create performance risks, weaken outcomes, create tension, and lead to unnecessary waste and cost.

In the book The Progress Principle (Amabile and Kramer), researchers found that the strongest organisations were those which created an environment both operationally and structurally aligned and which nurtured employees “inner working lives” to enable them to make progress in meaningful work. Strong links were found between vision, strategy, goals, structures, and activities and these instilled a sense of achievement empowering their people to achieve more and more.

Leveraging enablers to underpin success

Technology is an increasingly crucial element of delivering growth. Effective use of technology can act as a ‘force multiplier’ improving the day-to-day efficiency of doing work, or reducing or removing manual work, and creating greater scale and capacity without the need to increase staffing.

Workflow Management

Some companies are increasing the use of workflow solutions (such as ServiceNow, MS Power Automate, and in legal work Asana, Bighand and Onit) to standardise ways of working and drive consistency, but also to enable clearer and better visibility about the flow or work. This can help them take earlier actions to address bottlenecks, work that has stalled, and to take steps to better plan for future work volumes. Embedded in most of the modern workflow tools are automated approval pathways, further supporting efficiencies by reducing hand-offs for validation or approvals. They also support the need to create and retain golden source materials for legal and regulatory purposes.

Self-Service Portals

Self-service in legal, compliance and risk is not new but remains an under-utilised tool. Empowering and enabling other stakeholders to research, or check, policies, standards, or rules means that business can be sure that staff are following the internal and external requirements without the need for time consuming referrals to the back-office. The use of chat-bots and AI-assistants are allowing other organisations to provide additional legal and compliance support and knowledge right to the desk of all staff – with no need to increase the burden on current back-office staff, nor the need to increase the overall headcount.

Document and Knowledge Management

In high growth companies and organisations, the number of documents and information can increase exponentially. This proliferation increases the importance of effective document and knowledge management. Modern document management solutions both manage huge volumes of documents and data. They can even automatically discover valuable knowledge hidden within unstructured data and documents by way of extraction software that uses artificial intelligence to find the right information for the context. According to iManage (a leading provider of DM technology): 68% of knowledge workers describe “the information contained in digital documents and files” as the most important thing to their business, further emphasizing the importance of effective DM.

Process Automation

Many organisations use robotic process automation (RPA) to support colleagues at the front end of the business to minimise administrative tasks and maximise time spent with end customers. Successful application can reinforce a company’s overarching culture of customer centricity which is more important than ever. We see that the use of other technologies to reduce manual work are also a feature of successful high growth organisations, such as using DocuSign for approvals.

Dashboard Insights

Using data analytic tools, such as Microsoft’s Power BI, and optimising technology to generate insight can improve the quality and granularity of decisions that affects internal operations and external customer experiences. In addition, creating intelligent and effective reporting creates visibility, ensuring the right information gets to the decision-makers at the right time and in an efficient manner. Artificial Intelligence and Machine Learning are super-charging data analytics. AI-enabled single search engines can uncover historical insights and expertise, with the engines also adapting and becoming more powerful every time they are used.

Information Governance

But before data can be effectively analysed, it first needs to be defined, captured, and catalogued. The explosion in technology use challenges data governance, as it increases both the sources of data and the data flows within and between systems. Gaining clarity on the type and source of data, new or changed, and understanding data flows is the key first step towards effective data management, governance, and security.

Key questions to consider include:

  • Is there a robust data privacy risk framework? Is there a single view of the data held, or likely to be held? Is there consent to control and process data? And is there a robust mechanism for subject data rights? Are there effective controls over data access and retention?
  • Is there a clear and complete view of the data held? Where is the data held, and how does it flow? Is there a clear end-to-end view of how data is processed and controlled, including the use of third parties?

And policies, processes and frameworks are good on paper but do staff understand and deliver the attitudes and behaviours needed to operate these in practice? A culture of mindful compliance is crucial to success!

Collaboration Tech

Often organisations that are successful in managing high growth have found that improving collaboration can be achieved by making good use of collaboration tools like MS Teams and other O365 applications or implementing document management systems. Especially under high growth conditions, the ability to effectively collaborate within and across functions and teams brings people together to share information quickly, solve complex problems, rapidly generate new ideas and work productively – all very necessary to support growth plans.

Summary

For many, growth signals success. It creates new opportunities, brings in more customers, and generates higher profits. But it can, unless very well planned and managed, create disruption and distraction that instead leads to worse not better outcomes.

The challenges of growth can be many and varied, but in our view the three key challenges are: Balancing growth and control; Maintaining an aligned Operating Model; And Leveraging enablers to underpin success. Above we have explored these challenges and offered a perspective on actionable steps to reduce the impact of growth. For some organisations, the challenges of high growth are, and will continue to be, an area that requires continual management attention and considered and well executed action.

Morae enables digital and legal business transformation for law firms, legal departments, compliance functions, and financial services firms. We help improve our clients’ performance by improving strategy, creating processes, deploying resources, implementing technology, and using data.