Many industries—banking, telecom, transport, and energy, to name a few—face an increasing level of regulation that often puts 30 to 50 percent of EBITDA at stake. Because companies that proactively engage with regulators are significantly more likely to achieve their preferred outcomes, McKinsey’s Strategy practice has developed an approach and a set of tools that helps clients develop and manage an external-affairs strategy and protect economic value. We help clients organize, set priorities, and mobilize to work collaboratively with government bodies, lobbying groups, and regulators.
Prioritizing regulatory issues
New regulation can put value at risk, but it can also create new opportunities through programs such as stimulus packages or government subsidies. A rigorous and quantified assessment of the value at stake from these risks and opportunities—over both the short and long term—is critical to prioritize an organization’s outreach efforts. We help our clients quickly identify and understand the key regulatory issues that may affect their industry, leveraging in-depth understanding of the profit pools in the industry as well as unique insights into the levers that government and regulators might consider implementing in their sector.
Proactively engaging stakeholders
To execute the strategy, companies must proactively engage with a broad range of stakeholders—regulators, consumers, media, and shareholders. We help clients identify critical stakeholders, understand their overt and obscure agendas and priorities, and map out each group’s influence within the decision-making process. McKinsey helps stakeholders move away from an “I win, you lose” mentality, instead creating a collaborative environment that is conducive to trade-offs and “win-win” solutions. We help clients translate their positions into messages that will be credible and compelling to the relevant audience, presented in formats ranging from detailed position papers to short “political” factoids.
Mobilizing the organization
Implementing an external-affairs strategy requires organizational momentum and drive, and top-management involvement is often critical to success. We help clients raise the profile of the corporate affairs/external affairs function commensurate with the value at stake. McKinsey has developed practices and processes to create cross-functional momentum around issues with significant value at stake. This includes allocating sufficient resources, recruiting the right talent to the team, and putting in place processes to ensure that stakeholder engagement actively supports the strategic priorities.
Selected tools and resources
We have developed three core tools to help our clients: The Regulatory and External Affairs Capabilities diagnostic, Stakeholder Analysis and Mapping tools, and a Value at Stake Decomposition.
Our Regulatory and External Affairs Capabilities (REAC) diagnostic is a proprietary, Web-based benchmarking tool that assesses and monitors a company’s capabilities for managing external affairs and engaging with stakeholders on regulatory issues. The survey takes only 15 to 20 minutes to complete. Responses are compared against a sample of roughly 1,400 global companies to identify gaps, prioritize improvement opportunities, and test organizational alignment on key regulatory and reputational issues.
Our Stakeholder Analysis and Mapping Tools help rapidly structure a negotiation strategy and surface important trade-offs and deal breakers. They help clients organize relevant information about stakeholders into profiles, and act as a repository of news, meeting documents, and other files so that the information can be quickly and easily shared across the organization. The stakeholder-profiling tool can be fully integrated into a company’s existing IT systems, for example, SharePoint, as needed.
Our Value at Stake Decomposition provides forward-looking insights into external issues in an industry, helping clients identify priorities within their regulatory agenda based on their relative financial impact on industry profit pools.
Recent examples of our work
- Following the financial crisis, a number of new systemic regulations were put in place to promote financial stability of the banking sector. We helped a large bank understand the implications of regulation on its business and identify strategic actions necessary to respond to the regulatory changes. For instance, we analyzed a range of options for reconfiguring the operating model to comply with regulations and operate more efficiently and created a “heat map” to prioritize and monitor compliance with specific new regulatory requirements. The new integrated view of the various regulations helped the bank reduce resources required for regulatory compliance. Additionally, by complying with the regulations, the bank may avoid further regulatory interventions and penalties.
- We helped a global natural resources company work with other industry players to mitigate the effect of proposed legislation which, over the next decade, would put several billions dollars profit annually at risk. We worked with the client to establish a fact base and assess the impact of alternative policy options. We helped the client plan and execute stakeholder engagement: identifying potential allies; drafting position papers to share with key influencers and policy makers; and developing agreed messages to enable a rapid response to government and media questions. As a result of the dialogue with government stakeholders, common ground was found and better legislation was enacted.