When I started working in my previous role as the head of IP Protection and License Compliance at Dolby Laboratories some eight years ago, we were cautious enough not to fall into the trap to jump right in, get going and do so without having a clear road map of what we wanted to achieve – and how.
There is beauty in boldness, of course. And every leader wants to demonstrate their abilities to get things done and achieve results. And, needless to say, it is very important and relatively easy to score some strategic wins early on. Look at some high-level data, talk to a few internal stakeholders, pick a handful of candidates with obvious compliance risks, and you should be off to a good start. Right?
But once those cherries are picked, what’s next? What I have seen at many companies – both as an in-house leader and a trusted consultant – is that they start throwing good money after bad. They lack a strategic roadmap and what started off as a bonanza, quickly turns into campaigning and a power tug-of-war as diverging priorities, perspectives and motivations take hold of a program that is extremely vital to the organization. The results can be crippling as critical audits are not launched, sales managers veto nominations, good employees leave, and your ROI results don’t support any additional investment in the program.
How to Avoid an Ineffective Compliance Program
A really good way to start thinking about the impact of your compliance program is by asking yourself – how will it impact Shareholder Value?
And before thinking about the impact itself, we need to define what Shareholder Value means for your organization from a compliance program perspective.
At a high level, Shareholder Value can be broken down into four categories:
- Revenue Growth
- Operating Margin
- Asset Utilization
Let’s take a brief look at each and think about what this means.
Revenue Growth – One of the most important tools that you will use are license audits. Audits are applicable in pretty much all contractual situations, as long as you have sound audit clauses. Performing audits drives revenue in two ways: 1) it increases recoveries (audit findings), and 2) it motivates licensees to pay closer attention to correct reporting going forward (call it the “halo effect”).
Operating Margin – A strategic setup of your compliance program will consider two main areas that you work with: 1) your people and 2) your operating systems. On one hand, it is important to run an ROI effective program, meaning that you want to maximize output per head. Equally important are your automation efforts and analytics capabilities. Maximizing both variables will drive higher margins and improve your bottom line.
Asset Utilization – It is clear that you are setting up a compliance program to protect your most important asset in the organization – your IP. Hence, your aim is to get as close to 100% yield of your licensing efforts. What’s equally important is to limit your bad debt write-offs for booked revenue through a comprehensive compliance outreach program.
Expectations – Finally, your compliance efforts will send a firm message to the market that you protect your investments, and that non-compliance will be scrutinized. This has a positive effect on multiple fronts: you are creating a level-playing field for your customers and those who have been reporting correctly will appreciate your efforts, while others will understand that they need to step up. Stakeholders will reward you for your efforts through higher share prices and the surplus in financial assets can be re-invested in R&D, or other areas, thus further benefiting your organization.
As you can see, establishing a comprehensive compliance program has many beneficial impacts on your company. The Shareholder Value approach is a great way to strategically position your program and help you with setting it up for success.
Let me know what you think. Thanks!