At the recent Investment Summit, the prime minister set out a challenge to regulators: prioritise mandates that will stimulate economic growth and make Britain the most attractive place to do business. He pledged to make regulation ‘fit for the modern age’, with a promise to scrap regulations which hold back the economy.
This pledge will naturally be received differently by businesses, regulators, and consumers. What is clear is that in recent times we have seen a rise in scrutiny of organisations in regulated sectors and of regulators themselves. Regulation is undoubtedly a complex matter and influenced by different market dynamics, competition, differing products and services, and of course the need to demonstrate fairness and protect those that are vulnerable.
When done properly, regulation can be a driver of growth through competition and innovation – particularly where it helps to raise standards of the lowest performing organisations, without overburdening the higher performers within a sector.
We recently surveyed consumers and businesses to understand their attitudes towards various regulatory bodies across the UK. Consumers overwhelmingly (73%) want regulation to better protect their interests. 80% also support stronger powers for regulators to sanction companies which fall below acceptable standards of customer service.
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Further to this, businesses themselves say they benefit from the certainty and level playing field which regulation can bring.
It’s clear that regulators play a vital role in maintaining standards and protecting the public. However, have regulators in recent years been too focused on this goal, to the detriment of growth? Some may believe so, but in fact the two need not be mutually exclusive at all.
Growth through a consumer-centric approach
Regulation is often seen as a rigid set of rules that organisations must adhere to. This need not be the case. Regulators who take an outcomes-based approach are seeing the benefits in their sectors.
The FCA’s Consumer Duty is one example of this. Rather than strictly leaning on metrics and box-ticking, the regulation instead focuses on outcomes for customers and instilling a culture of customer excellence. While too early to assess the long-term impact, this approach does appear to have encouraged organisations to think more deeply about their customer experience and be accountable for it, rather than solely focusing on hitting more transactional targets.
So far, so good, but how can outcomes-based regulation promote growth? For one thing, by fostering a more customer-centric business culture, businesses will benefit from increased consumer confidence and loyalty.
Furthermore, research carried out by the Institute of Customer Service this year found that UK businesses were losing as much as £6.8bn per month, due to staff spending an average of 3.3 days per month dealing with customer issues. Keeping complaints to a minimum by providing good service the first time around is a major factor in addressing this considerable drag on productivity.
The benefits to organisations who focus on customer service is in fact tangible; research undertaken by the Institute of Customer Service last year found that companies with better than average customer satisfaction ratings see an average EBITDA of 20.3%, in stark contrast to 10.5% for those who performed poorly.
Shifting the focus to customers – recommendations for business and regulators
To move the dial, regulators and businesses must work together to develop regulatory principles that prioritize customer experience, encourage innovation, and promote responsible corporate behaviour within their sectors – and the government should strongly encourage them to do so.
This requires both regulators and the sectors they operate in to adopt a service culture approach. First and foremost is a robust definition of what good customer service looks like for the sector in question. For example, in an increasingly digital world, considering multi-channel journeys is critical – not just from a design perspective, but also with a view to understanding customer behaviours and preferences.
Regulators and organisations alike should also find ways to strengthen the customer perspective in strategy and decision-making. For businesses this should mean customer service discussed in the boardroom, while regulators should consider how to improve their own processes for gathering and making best use of customer insights as well as consistent measures.
Perhaps most importantly, regulators should revise and develop their rulebooks with a focus on influencing organisational culture. This includes giving greater visibility to organisations’ customer service and customer satisfaction performance, publicising examples of excellent customer service practice and the benefits to customers and organisations and using meaningful financial incentives and penalties to influence board priorities, especially in sectors where competition is limited.
By embracing outcomes-based regulation and fostering a culture of customer-centricity, government, regulators, and businesses can create a regulatory environment that benefits both consumers and the economy. The sooner we adopt this approach, the sooner we can reap the rewards.
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