The power of unwritten business operating rules – and how they can bring your company down

Business operating rules put their mark on a company’s business processes. They heavily impact how management and employees deal with day-to-day operations. However, we notice that a large number of organisations haven’t made these rules explicit. That is: these rules remain in many cases unwritten. And therefore they are difficult to monitor, impossible to align with organisational targets and as a consequence the impact on the organisation is poorly understood.

Business rules are every organisation’s foundation. When our consultants ask executives and their direct reports to write down the organisation’s business operating rules they are presumed to live by, quite often nothing appears on paper. Thanks to how people unconsciously perceive the operating rules, such organisations don’t fall of a cliff straightaway.

Complexity benefits from unwritten business rules. Employees have an incentive to create complexity to provide a place to hide when not knowing the rules becomes a negative to their performance. They can then blame ‘circumstances’ when targets have not been met, since executives can’t test the validity of their claim due to complexity and lack of rules. And believe me, you don’t want your company to be ruled by and be dependent of unwritten rules.

If strategy needs to change, how can you be sure your business units will be able to change their unwritten business rules accordingly to execute the strategy? Nobody knows exactly what rules need to change, since it is far from clear what the rules are. Many times failed execution will then be blamed on “circumstantial factors“. Unfortunately these factors can’t be checked.

Executives therefore have to make the business operating rules of their company explicit. And back them up with hard data. A convincing argument will take away the opportunity to create complexity. As a result, accountability increases and understanding improves of the way your company executes its business model. This reduces operating risk and enhances underlying business performance.

Aart Willem de Wolf is managing partner at R&G Global Consultants.