Decentralized Finance is a topic high on the agenda of policy contexts, across almost every region and country in the world. Decentralized Finance, and emerging technologies, more generally, pose several distinct challenges to traditional governance and regulation. These include, for example, the exponential rate of emerging technology developments, the blurring of industry lines and move to ecosystems, jurisdictional difficulties associated with cross-border regulatory frameworks.
While these are challenges for traditional governance and regulation, they must be considered more strategically from an organizational perspective. To advance decentralized Finance initiatives more sustainably, it is imperative that an organization-wide proactive approach is adopted, to anticipate and influence the future direction of regulation, through policy contexts.
The Idea of Sensemaking
As individuals, we attend to perceptual cues in our environments, which link to our values, assumptions, and our understanding of cause-effect relationships. Our perceptual processes are wired to a large extent unconsciously, and we thereby make sense of the world to a large extent with limited conscious awareness. In this regard, we see what we expect to see, because we attend to cues that align to our expectations, but not to others. However, when something occurs, that is not aligned to our expectations, sensemaking kicks in, where we consciously try to make sense of what is happening.
In organizations, people attend more to collective perceptual cues (in their teams, areas, and organization-wide contexts), which influence their view of the world in the same manner. It can therefore be said that our construction of reality in each context, shapes how we make sense of almost anything, through the lens of that context.
For example, a particular area of an organization may understand the idea of decentralized Finance and digitalization, as something that is driven exclusively in the business units, through the product houses.
If an organization-wide communication is released, referring to decentralized Finance as a key strategic imperative, and a call to action across the organization, that individual, along with others in the same context, may filter out the call to action and organization-wide elements of the communication. Alternatively, the messaging may induce active sensemaking by some in the area, where questions are raised more broadly, to reduce uncertainty.
Policy contexts comprise actors (such as policymakers, government stakeholders, organizations, NGO’s etc.) who have competing interests, values, and ideologies, to a greater or lesser extent, which are used to influence, shape, and “construct” meaning, around the way problems are understood and defined, and how they should thereby be solution for.
For example, a representative from a major Telco may argue that mobile money empowers the unbanked population to easily send money (mobile money) to their families and friends, abroad. On the other hand, a Fintech advocate of Central Bank Digital Currency (CBDC), could argue that CBDC enables the government to track and tax all cross-border transactions, where relevant.
The matter of cross-border transactions and mobile money applications is constructed as a solution to systemic finance industry issues in the first example, while portrayed as a transparency and tax issue for the government, in the second example.
Opportunities and Considerations for Financial Institutions
The implications are significant. Active sensemaking and awareness require a deliberate and systematic focus on tracking, interpreting, influencing, and anticipating the impact of future policy developments. This is critical for financial institutions, their industry and ecosystem partners, and their prospective partner base.
Practically, an initiative of this nature requires sponsorship across the C-Suite, as a start. It cannot be seen as anything less than a strategic priority which requires active contribution, involvement, and collaboration across the entire organization. It is essential that senior leadership across all Enterprise Functions and Business Units, are actively engaged from the get-go.
Based the dynamic nature of policy contexts, and the pace of developments in the marketplace, the design of communication, messaging, governance, and engagement mechanisms, within and across all relevant areas, must be fluid and agile. Active sensemaking must be elicited, challenged, and shared, to inform messaging within the organization, across partner bases, and to influence Policy contexts.
At an Enterprise Functions level, specialists in areas such Finance, Treasury and Risk, should work with business units and other Functional areas, in terms of assessing, quantifying, and anticipating organization-wide impacts, using stress testing, scenario planning, and other relevant techniques or means.
Clarity around potential impacts to business models, operating models, and digital roadmaps, is beneficial for the business to preempt future developments, and absorb associated changes, by scaling operations where necessary, and aligning business capabilities early on, where needed.
Information around potential impacts can also inform product development, and reduce overall product cycle times, by running several developments in parallel, to take account of alternative policy outcomes.
The rate at which emerging technologies is developing, and the uncertainty this brings for regulators, should be welcomed as an opportunity for organizations to innovate and experiment with new technologies, working hand in hand with policy makers, to share prototypes and finished products. This would enable regulators to better understand some of the practical implications and enable organizations to influence and build sustainable relationships. Key subject matter experts, across the organization, should be engaged to elicit messaging for policy contexts, and to present at various policy conferences or forums, where deep technical expertise on various topics is needed. This can also equip policy makers with the necessary knowledge required for regulatory frameworks.
Financial institutions require a dedicated capability to navigate policy contexts more precisely, and to anticipate and plan for future policy outcomes, in more exacting terms. This can give financial institutions, and their partners, the insight, agility, and influence needed, to proactively drive their digitalization strategies, and to thereby create a competitive edge in the marketplace.
Albert Einstein described insanity as doing the same thing repeatedly and expecting different results. That is essentially how many individuals, teams and organizations behave at times, without a deliberate effort to induce active sensemaking. This is the trigger needed to get people and teams moving. The actual direction is less important than the shared sensemaking needed to traverse a landscape, building the coordinates along the way.