Innovation in Regulation

A year ago, GSL hit the list for financial audit by Disability Services. Oh the joys of doing business with government within a highly regulated industry. Now don't get me wrong, money was coming to GSL for a specific purpose and we take seriously that it should be spent and acquitted accordingly. I understand and agree that regulation is needed.

Among all the other challenges for a lean start-up, planning a financial tracking system that stands the test of time is tricky. In 2011, we had no idea the trajectory or speed at which GSL would take off. Bigger, more established, entities have historical operating data to inform their planning. So, as with everything else, we did the best we could. We contracted an external book keeper and accountant firm to help us with compliance, and ensure transparency.

And then we grew, and grew, and grew ... and with growth came growing pains. Procedures kept breaking, our operating system kept breaking and at the beginning of this year, Nettie and I declared our organisational structure was broken. People within GSL were asking for change to stop.

My feeling is that GSL is something that is needed. If it's not needed then GSL would never have started or gained traction; it's origins stem from a well established market. So here's the quandary: stop or keep going? Everything indicates we should stop. People are exhausted with all the change, and if we're not about our people then what are we about? But, are these the only two options?

Side stepping this question for a moment, I come back to the financial audit. We were found to be in breech of our service agreement in three areas. The first was in relation to financial viability. Now this stings a little because a month before we were notified of the audit I had advised our Regional Director that GSL was in financial difficulty. We were supporting three clients with high and complex needs and could not operate viably under Disability Services price benchmarks. In effect, it was Disability Services benchmarks that was causing our struggles. In the NDIS financial environment that others have found tight, we have strengthened. I accept the auditor's findings, I just find an irony in the circumstances.

The second breech was in relation to our systems. I own this one. My background is clinical, and Nettie's is HR. Both of us are money savvy, neither of us are money oriented or driven. In our quest to separate grant funds from GSL trading money, we decided to operate a dual financial system. Grant money went into accounts in a bank separate to the bank and accounts we used for general trading. We set up two separate online financial management systems and then we proceeded to issue invoices to grant accounts for payment of services in arrears. This left us with funds in the grant accounts to manage separately to our trading funds, in accordance with our service agreement. It was an onerous procedure. In our lean start-up model, in an industry that operates on a very small margin, we did not dedicate the administrative time or expertise to the procedure. The result: our system got messy. The auditor's recommendation is that GSL strengthen it's financial reporting systems. I accept this. Last July, in the midst of our financial woes we decided the same. We recruited, and now we have our very wonderful financial team who are whipping us nicely into shape.

The third breech was in relation to mismanagement. Again, in the context of our messy system and the auditor's recommendation that we improve our financial reporting system, I'm not surprised there was error. It's just that this error represents 0.00427% of the total funds we received, managed and returned. Don't get me wrong, no error is OK in terms of managing tax payer funds, but if we can get our operating error rate this low in some of our other business practices, I'll be dancing.

GSL operates in a highly regulated industry, meaning legislative compliance, standards compliance and auditors will be a part of our life. I respect this. People with a disability can be vulnerable and tax payer dollars are valuable. Compliance management is costly. When I put on my 'social entrepreneur' hat, I am looking for ways of doing things different and better. We need margin for mission, and the financial margin in this industry is regulated by NDIS, so we need to operate lean. A cost of doing business is compliance, so this makes the margin even more lean. We are asked to be creative and innovative, and to shave overheads so money is spent more on clients than on an organisational structure. Not a problem, we can do this!

My focus and interest is on the 'how'. This is lean entrepreneurship on steroids. I am not one to shy away from a challenge, but this one needs unconventional solutions.

At the beginning of this year, Nettie and I decided we couldn't continue with GSL in it's current form. This brings me back to our people asking for change to stop. I don't actually think they are asking for growth or change to stop, I think they are asking for control and understanding to start. This we can do. If they develop a system, they'll understand it and are more likely be motivated and feel a sense of control.

Settling on a model has been hard. One of the clever CEO's at Toyota says we shouldn't adopt other people's models, we should do the hard work to develop our own. I agree, and this is what we have done. We have crafted a model that will support and enable independent ventures to operate autonomously in response to community need, nestled in a lean start-up administrative structure.

Everyone in GSL has a thousand ideas on how things could be better for the clients and families we serve, but as Rudolf and I have learned, entrepreneurship is fraught with financial risk and is not for the faint-hearted. Intrepreneurship is a much safer environment to test ideas and deliver innovation.

Our model is not too dissimilar to Jos de Blok's Buurtzorg approach. Our operating systems are being built on a manifesto of autonomy over authority, respect over control and alignment over standardisation. This will provide a context in which people are able to job craft with confidence. I believe our people are asking for control and understanding, and my hope is that we can deliver this through our new model.

I am happy with our direction, but the letter I received from the Office of the Director General outlining the outcomes of the financial audit has prompted further pondering. We are soon due for our Human Service Quality Framework audit, and there are audits pending against the National Quality and Safeguards Framework. I look to the suggested lists of documents we are asked to produce as indicators of standards compliance for these audits, and they do not fit our manifesto or operating system. I refuse to write a document as a paper exercise for audit - time is far to expensive and precious. In our new model, quality and standards are foundational; standardization is something of the past.

We have been asked to innovate and we are - our governance is distributed and each venture will operate autonomously. I believe our people will be happier, our clients and families will benefit and GSL will live to tell the story. Financially, my hope is that we will thrive. De Blok's model is achieving an estimated 40% cost savings. We don't need this much, so it will only be passed on in reduced pricing. Win, win, win.

GSL is not the only provider transforming into a more agile version of it's former self. Providers in our sector were asked to innovate, and we are stepping up. We look different, we operate differently and, now, I think it may be time to ask of those what was asked of us: innovate.

I predict there will soon be a mismatch between the operations of regulator and sector provider. We are now lean and agile. We will not have all the plans and documentation government may believe to be indicators of sound business practice.

  • Do we have a strategic plan? What's the point? We have purpose, we operate on directional goals. We know where we want to be in 30 years, and we know what we need to achieve in 6 months. Anything in between is a little unpredictable. If it's good enough for Google, then it's good enough for us.

  • Can we produce minutes for every meeting? No! Who has the time? No-one wants to write them, and no-one wants to read them. We keep meetings to a minimum and record the decisions and actions in a format relevant to the group. Spotify use sticky notes on a visual board - maybe this is something we can try?

I could continue but I think you get my point. Time is money, and money is precious. We are optimising and this means a break from tradition and convention.

I am by no means a rebel or trouble-maker, but I will stand my ground. I believe that if GSL hits friction with regulators, it may be a sign. Not a sign that we are in breech or that we are non-compliant, but an indicator that we are actually moving in the right direction.

Post a comment. I would love to hear your thoughts on this one.

#officeofthedirectorgeneral #audits #regulation #disabilityprovider #hsqf #sectorinnovation

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