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The impact of regulatory compliance continues to resonate across the CIO landscape on business and technology frontiers alike. Enterprises of all sizes have felt the strain on their resources of the Sarbanes-Oxley Act (SOX), the Health Insurance Portability and Accountability Act, and other government mandates. And the unpleasant truth is that the age of regulation has just begun.
I envision a future in which government agents tap into your enterprise to assess your information management practices and compliance level. So how can you insulate your organization from the disruptive effects of regulation?
This CIO Habitat report represents the views of 184 executives (67% from midmarket firms and 33% from large enterprises) within some 17 vertical markets that include aerospace, health care, retail and transportation.
Our research reveals intriguing differences between midsized and larger enterprises' responses to compliance mandates. Many midmarket companies, for example, have turned their more constrained resources into a surprising advantage. In contrast to larger firms, they are establishing transparent processes that will ultimately yield regulatory economies of scale. Midmarket CIOs also have an advantage over larger firms in that they generally understand what is going on within their IT departments. Large-company CIOs are frequently out of touch with such day-to-day happenings.
Bracing for Compliance Costs
So with all your concerns as a CIO, why should long-term compliance costs be foremost? Because the costs of regulation will become as important as the cost of your products.
Economist Thomas Hopkins, dean of the Rochester Institute of Technology College of Business, estimates that the cost to the economy of federal laws alone exceeded $843 billion in 2000 -- or more than $8,000 per household.
Midmarket CIOs were less prepared than their large-company compatriots to comply with new regulations (see Figure 1). Of course, midmarket IT shops have always run lean, so there has been no surplus of resources to dedicate to the challenge. Large enterprises were also further along in automating IT and implementing software (such as portfolio management systems) to aid their preparation. Yet this initial large-enterprise advantage was diluted by the misguided adoption of resource-intensive regulatory strategies, such as adding staff and hiring consultants.
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