Pure Business Project

Project Overview - Understanding the Issues

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Appendix 1

4 Research Methodology

Phase One of the Project has adopted a methodological approach known as Developmental Work Research (DWR) to examine regulatory issues. DWR is a methodology based on principles of activity theory and has been applied in this project in order to reflect and support the evolving understandings about regulation as a social system that are developing internationally and within NZ. This methodology section provides a brief explanation of how regulation is becoming increasingly thought of as a social system and explains why a DWR - activity theory based methodology is appropriate for the Project.

4.1 Research Philosophy - Understanding 'Regulation' as a System of Activity

Although theoretical work with particular resonance for NZ is occurring in the UK, US and Australia^[13] there is little consistent agreement, both internationally and in NZ, over the definition of 'regulation' and there is considerable debate over how to usefully define what constitutes a small or medium business enterprise (SME)^[14].

Despite this, OECD countries are adopting some similar philosophical approaches to regulatory development and application. The two most important philosophical trends relevant to the Project and Research Plan are firstly, a trend towards general or 'aspirational' regulatory standards that allow enterprises to adapt compliance procedures to meet their unique and often changing circumstances. Secondly, increasing realisation that regulatory problems are commonly associated with application - in particular, the degree of discretionary decision-making inherently involved in the application of regulation - rather than from the existence of regulation itself. As a result, regulatory 'rules' have become less important than actual social interactions, namely, the practice and activities of regulators and the regulated (for more detail refer to Appendix 3 Project Overview and Management Plan).

However, the scale of regulatory activity also means that regulatory practices and conceptualisations continue to differ between government agencies, industries and individual SMEs - making it difficult for regulatory issues to be resolved in a manner that co-ordinates the impact that regulation has on SMEs. Within New Zealand, government is seeking to achieve effective regulatory change. Regulatory compliance costs have been recognised as a legitimate issue for business, and reflected in a number of government directives, and increasing emphasis is being placed on the need to use whole-of-government approaches to resolve regulatory concerns.

These circumstances suggest that there are opportunities to begin generating an activity-based understanding and practice of regulation with the NZ context. With sound knowledge about regulatory practice across agencies and SMEs being accumulated iteratively, using methods based upon principles of activity theory and DWR that can accommodate multiple perspectives. These methods and principles are described below.

4.2 Developmental Work Research

Developmental Work Research is based on a particular application of activity theory that has been developed jointly between WEB Research and the Department of Labour. The main principles of the DWR approach are explained below.

4.2.1 Activity Theory

Activity theory is a theory of learning, innovation and change in conditions of complexity where research can be used as a developmental tool (Engestrom, 1996). Activity theory views people as co-creators of their learning environment and agents of change with the power to act (Roth, Tobin and Zimmermann, 2001). Attitudes and behaviour cannot be adequately understood when separated from their practical context (Paine et al, 1998; Paine, 1997) .

Activity theory is itself based upon five key principles that are summarised below:

1. The 'activity system', seen in its relationships to networks of other systems, is the unit of analysis. The activity is collective, oriented towards an 'object' and mediated (e.g. by rules or cultural norms).
2. Multivoicedness. An activity system is always a community of many points of view, traditions and interests, both individual and collective. This multivoicedness is multiplied in networks of interacting systems.
3. An activity system is the result of historical evolution. What happens now can only be fully understood against its own history.
4. Contradictions are the basis of development. Contradictions are not problems or conflicts, but deeply embedded structural tensions between elements of the system. Problems or conflicts (disturbances) are signposts that indicate the presence of contradictions.
5. There is always the possibility of expansive transformation. These are shared and deliberate journeys towards whole new sets of objects and purpose.

Activity theory is particularly suited to the goals of phase one of the Good Regulation Project, because it enables researchers to understand the systemic connections between the activities of particular government agencies and particular SME owners and the collective activity that constitutes regulation and regulatory practice. This includes 'the community of practice' engaged in developing, implementing and complying with the rules and the 'tools' (including heuristics, practices) used in the 'activity system' that arises from the history, culture and practice of regulation in New Zealand.

4.2.2 Expansive Learning Cycles

The main aim of developmental work research (DWR), which is based on Activity Theory, is to facilitate 'cycles of expansive learning' among participants. In the case of the Good Regulation Project, this involves facilitating learning and change amongst SME owner/operators and people, groups and business units in government agencies that will ultimately result in an effective regulatory system and set of practices that enable SMEs to thrive.

A cycle of expansive learning depicted below (diagram 2) depicts movement through a cycle of expansive learning and involves participants being taken through a structured process that helps them to:

1. begin with the visible or obvious problems
2. uncover invisible problems that exist because of system interactions and contradictions
3. design new forms of activity (e.g. new rules; new tools; new mental models) to address these problems and contradictions
4. Come up with new actions that provide novel solutions to systemic problems and contradictions (e.g. implement the new rules; use the new tools).

Diagram 2: Managing Change using an Expansive Learning Cycle

(Adapted from Seppanen, 2000; Botha, Hill and Tarbotton, 2002)

As shown in Diagram 2, commonly people manage change and resolve problems by connecting the "obvious" problem (box 1) to the "obvious" solution to that problem (box 4). Using the principles of developmental work research involves making the problems that exist because of systemic interactions and contradictions visible (box 2); designing new forms of the activity system to solve these problems (eg new rules or tools - box 3); and arriving at new solutions (box 4).

4.2.3 Using integrated approaches to problem-solving in complex systems

The particular DWR methodology developed for this project blends activity theory and expansive learning cycles to create a deliberately integrated and holistic problem-solving approach that can be used to engage participants in a structured process exploration, analysis and redesign. Using an integrated analytical approach to examine regulatory problems is particularly important for the goals of the Good Regulation Project because to date, regulatory solutions have been generated by government in a relatively segmented fashion and have remained focused on particular 'domains' of regulation, i.e. those associated with commercial, social/human or environmental risks. Agencies tend to 'fall into' one of these areas, given their particular regulatory responsibilities; for instance IRD with commercial risk.

Domain-specific regulatory solutions have not always been highly successful from an SME perspective, not least because SMEs are subject to regulation from all three domains and segmented solutions often contradict one another when translated into practice - as illustrated in diagram 3 below).

Diagram 3: Segmented regulatory problem solving

Secondly, international and New Zealand experience shows that individuals and organisations may be caught in their own history and have difficulties developing solutions, particularly when the systems and organisations involved have overlapping accountabilities.

Consequently this project focuses deliberately upon the overall activity system associated with regulation and SMEs, rather than the individual actions of SME owners or government agencies, so that the overall system of activity is considered the key unit of analysis for research purposes.

4.3 Rationale for Using DWR Methodology

The SME Good Regulation Project defines regulation not as a set of rules, but as activities within an overall system of regulatory activity. DWR methodology is an appropriate basis for analysing the behaviour and practice of regulation because it allows the research to move from purely empirical and descriptive methods to 'an analysis of the inner structures and dynamic relationships that produce the observable phenomena' (Virkkunen, 2003). The methodology is constructivist. It is based on the assumption that there is no single 'truth', and that the purpose of the research process is to understand the different voices and perspectives of all the actors engaged in the activity being investigated (Ritva Engestrom, 1999).

Using an activity theory framework as part of a DWR methodology for this project involves analysing:

• the motivations of the different actors in the system (e.g. owners of SMEs, Ministers, policy analysts, and those who enforce regulations)
• their work practices (e.g. how government agencies establish and maintain communications with businesses using technologies such as the Internet, contact centres, conventional mail, as well as face to face contacts)
• the people and organisations with whom they interact and divide tasks (e.g. among government agencies; and between education and enforcement roles in occupational health and safety divided between the Department of Labour and ACC)
• How they perceive their joint activity and goals (e.g., do they think of regulation in compliance terms, or as fostering 'thriving enterprises', or both?)

Consequently, a DWR activity theory methodology contributes to the Project goals by:

• Surfacing the tacit, often undocumented, knowledge of those involved in the activity of regulation in New Zealand.
• Generating an open space for dialogue between agencies and SMEs outside their normal policy and operations' processes.
• Engaging both agencies and SMEs in a more robust analytical process to examine and understand the realities they each face in 'managing' the activity of regulation.
• Helping researchers and participants to develop a clear understanding of the issues that are associated with regulation.
• Giving the participating agencies opportunities to learn from each other and from SMEs about existing 'good practice'. In particular, the methods help to surface and share examples of good regulatory behaviour, systems, heuristics and tools - both within government and in enterprises.
• Using interactive consultative processes to communicate the overall goals and objectives of the Project to participants from government agencies and SMEs in order to facilitate and promote a sense of Project ownership amongst all stakeholder groups - especially the SMEs themselves.

The activity theory-based techniques that are being used in this project have been successful in other projects in New Zealand and overseas. Two examples of the successful application of DWR methodology in redesigning complex systems are:

• New Zealand's Formway Furniture in designing their award-winning 'Life' chair and redesigning their business structures and processes (Capper et al 2002; Hill et al 2003).
• Helsinki healthcare providers dealing with complex patient care problems (Engestrom, 2000).

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Footnotes

[13] The Centre for Analysis of Risk and Regulation, London School of Economics; the Kennedy School of Government, Program of Regulatory Policy, Harvard University; “Regnet”, Australian National University.

[14] The US and UK have FTEs of 250 or less for medium enterprises; in NZ MED uses 1-5 as Micro, 6-20 for Small and 21-50 as Medium.  These are used, along with financial turnover statistics as proxies of a definition, but their do not assist in determining what are the unique policy issues (if any) that exist for ‘SMEs’