“Compliance is a path to innovation.”

By 1 January 2005, UK public sector bodies were supposed to have completed information infrastructure restructuring projects enabling them to comply with the UK Government's Freedom of Information Act, and private sector companies were required to support the International Financial Reporting Standards (IFRS).

By July, European companies listed in the US must complete similar projects to comply with the US's Sarbanes- Oxley (SOX) legislation, and by 1 January 2006, Europe's banks must be ready to meet phase 1 of the New Basel Capital Accord (Basel II).

Just complying with SOX is expected to cost companies $500,000 for every $1 billion of their revenue. Would this money not be better spent on innovative business systems?

Atle Skjekkeland does not think so. At last month's Information Age Effective IT 2005 Summit, the MD of AIIM Europe said: "Compliance is often seen as a cost issue, but it is also a way of looking at new technologies, a path to innovation." Regulation comes at a price, he concedes, but it has its own rewards: greater business transparency, security and, by dint of the need to invest in new supporting infrastructure, innovation.

Conservative companies might need the impetus of regulation to drive new investment, but can spending on the same mandated processes as your competitors really be called innovation?

Lastminute.com, whose success is founded on the innovative use of IT, clearly has it doubts. The UK company has already delisted from Wall Street rather than meet the cost of SOX compliance.

According to Sir Digby Jones, director general of the Confederation of British Industry (CBI), as many as 60 European companies are set to follow suit.



James Woudhuysen, Professor of Forecasting and Innovation at De Montfort University believes ‘red tape' counteracts inventiveness.

"There was a time when the unpredictability of innovation was regarded as exciting, not dangerous, but risk-conscious regulators dampen innovation."

"The conference was the first time I have ever heard the opinion put forward that compliance may promote innovation. It promotes a certain and often necessary amount of house-cleaning, but if you need a permit to undertake R&D or comply with guidelines for work fatigue syndrome the environment needed for inventiveness withers away."

"Compliance tends to focus on storing the past rather than innovating for the future: if time is spent ticking boxes then new generations of technology are not going to be top priorities."

Dr Mike Remedios, Global CIO of Lastminute.com, thinks compliance can promote process change, but it can also obstruct innovation in other areas.

"Dot coms have a tendency of working outside compliance and then including it as an afterthought. Instead of building it into the software development lifecycle as more mature companies would do, it is an unwelcome burden."

"One example is that the usability group at Lastminute.com had to comply with the Disability Discrimination Act and enable the colour blind to use its web site. They had to incorporate different shapes rather than just different colours: it stifled progress in other areas."

"Lastminute.com decided spending £1.5 million a year on SOX when it would not add to shareholder value was pointless. It was just a distraction and being listed in London was more than adequate."



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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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