Why Data Compliance is Key to Successful Digital Transformations

Have you ever picked up the phone and heard an AI-generated voice first mispronounce your name and then try to sell you a credit card or loan? Welcome to India; this is just us all day, every day! And how many times did you wish that there were stricter data privacy laws in India to save you from such a menace? Well, know what—your prayers have been heard! Indian regulators have just unleashed a brand new digital data privacy law — the DPDP Act — and it has left organizations scurrying for cover. UI/UX’s are being redesigned, terms and conditions are being rewritten, and workers are being trained to comply with the guidelines. While we might still not be in a state of data compliance utopia, but it is a strong beginning. 

How Data Compliance Impacts Digital Transformation Projects

Indian organizations across industries have finally learned how to temper their digital ambitions with the required regulatory approvals. In fact, this is a pattern that’s playing itself repeatedly across the world. 

Even as organizations are embarking on large-scale digital transformation projects involving the most cutting-edge technology, they are rewriting their playbook for data compliance and data privacy. We are thinking about compliance right from the get-go because failing to factor in data compliance can have severe financial and reputational repercussions. 

A study by IDC estimates that global spending on DT projects will reach an eye-watering 4.5 trillion dollars in 2023. However, another research by McKinsey suggests that only 20% of companies achieve over 75% of their anticipated revenue gains from digital transformation initiatives. This shortfall can often be attributed to non-compliance issues.

What Happens Due to Non-Compliance With Regulations?

And there are examples galore of what non-compliance can do to a brand: 

• Equifax: A 2017 data breach exposed the sensitive information of over 147 million Americans, costing Equifax a hefty $700 million settlement and severely damaging its brand image.
• British Airways: A software patch resulted in a data breach affecting over 400,000 customers. The airline was fined an unprecedented  $232 million fine by the UK Information Commissioner’s Office (ICO).

There are multiple such instances from the business world of organizations getting a slap on the wrist or two for being on the wrong side of the data compliance regulations..  

With digital privacy and cybersecurity laws getting more stringent by the day to counter the ever-evolving landscape of risks and threats, the role of data compliance will only expand to cover more ground. 

So, let’s dive into the role of compliance throughout the digital transformation journey, its application in each phase, and best practices for digital leaders.

Data Compliance Through Different Phases of Digital Transformation

Compliance shouldn’t be an afterthought but an indispensable piece of an organization’s DT journey from start to end. 

1. Planning and Strategy

• The first and most important step is identifying the relevant regulations and industry standards impacting the planned DT objectives. For instance, a healthcare company digitizing medical records needs to adhere to the Health Insurance Portability and Accountability Act (HIPAA). Similarly, a lending organization in India would do well to adhere to the central banker’s code of conduct 
• Conducting a Data Privacy Impact Assessment (DPIA) to identify data flows and potential compliance risks. Studies from the Ponemon Institute show the average cost of a data breach caused by a compliance failure exceeds the global average by 10%. A DPIA helps mitigate these risks proactively. Similar pre-emptive assessments of the People and the Processes pillars of the organization will also help identify and avoid future pitfalls 

2. Design and Development

• Designing secure systems and processes that comply with local and regional data privacy regulations is a no-brainer. These checks and balances need to be applied to the real-world stakeholders too. Customers, employees, partners, and every stakeholder impacted by the DT initiatives must be covered. 
• Implement robust access controls, data encryption measures, and audit trails to ensure data security. Compliance and regulatory reporting needs should also be accounted for during system design and development. 

3. Implementation and Deployment

• Integrating compliance requirements into employee training programs for those involved in the digital transformation initiative ensures quicker adoption and higher compliance. Moreover, a strong top-down change management and communication program often ensures success at this stage.  
• While pre-deployment testing across groups is the norm anyway, a continuous monitoring system also needs to be instituted. Now, this ensures that there are no regular breaches in the system.  

4. Optimization and Maintenance

• Continuously monitoring regulations for changes and updating systems accordingly helps organizations stay on the right side of compliance, even post-deployment. Regularly reviewing and refining data governance policies to maintain compliance throughout the project lifecycle and beyond is equally critical. 

Historically, highly regulated industries like BFSI and Healthcare have been the most impacted by data compliance. However, as the lines between industries get blurrier by the day, regulations spill over, too! 

Think of it this way. A regulation meant for digital payments will also apply to a dating app that has a subscription service baked in, right?

Hence, digital leaders need to step up their game to ensure they conduct businesses in a compliant manner. While they need not always wear a regulator’s hat, they should consider following a set of best practices. 

Data Compliance Best Practices

Here are a few data compliance best practices that I have found to be effective, which can be a good starting point: 

1. Fostering a Culture of Compliance: Embedding a culture where data compliance is valued as a critical success factor across the organization is a great first step. This culture has to be invariably top-down for any kind of impact to be seen. 
2. Building a Data Compliance Team: Investing in forming a dedicated compliance team or partnering with specialists on an ongoing basis goes a long way in staying on the right side. 
3. Investing in Data Compliance Tools: Leveraging regulatory technology solutions that streamline compliance tasks like data encryption, user access management, and audit logging helps improve efficiency as well as reduce the cost of non-compliance.
4. Continuous Monitoring: Proactively monitoring compliance risks and conducting regular audits to identify and address any gaps is the final piece of the compliance puzzle. 

By prioritizing compliance from the outset, digital leaders can navigate the digital transformation journey with confidence. Integrating data compliance seamlessly throughout your project lifecycle fosters trust, safeguards data, and minimizes risks. This not only mitigates financial penalties and reputational damage but also lays the foundation for a sustainable and successful transformation that unlocks the true potential of their digital initiatives. 

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NOTE: The views expressed in this article are those of the author and not of Emeritus.