The Power of Innovation to Challenge Regulation

Innovation doesn’t happen in a vacuum. And it helps to have a conducive environment within which business innovation can take place. In fact, the nature of the environment can be crucial to the ability to initiate innovation, crucial to the progress of the development and implementation of innovation, as well as to the outcomes and potential for success of innovation.

There are different ways to perceive what the environment is around business innovation. From one perspective, the relevant environment could simply be the business entity itself. From another, narrower perspective, it’s a department within that business particularly when the department is given some autonomy within the organisation. The full context of the entity-as-environment or department-as-environment includes the culture of the entity or department, and the policies and practices implemented within the particular entity or department.

From another view, where innovation is occurring on a grander scale and with industry-wide scope and influence, the relevant environment could be viewed as being as broad as the industry itself. The environment then encompasses, for example, the structure of the industry, the number, types, and sizes of entities active within the industry, and the economic conditions affecting the industry, among other factors.

And this industry-wide perspective of the innovation environment might also include, importantly, the nature of any government regulations that apply within the given market, as well as the manner in which regulations in the relevant jurisdiction are applied and enforced. Industry regulations, by their very nature, may have the potential to restrict businesses’ innovational endeavours, especially if the regulations are excessively stringent. And, viewed in reverse, innovation — through new technologies in particular — can be a force that contradicts and challenges, and at times undermines, the very boundaries that regulations, at least by initial intent, are meant to ensure do not get traversed. While regulations can require actions of compliance by industry participants they can also impose barriers to action for those same industry participants (and in both cases often for the purposes of consumer or employee protection). Innovation can act as a challenger to the status quo of an industry, defy the way an industry has worked in the past, present new and efficient processes, and in so doing challenge the relevance of existing regulation.

Innovation within an industry, then, has the power to challenge the industry regulator and raise a myriad of questions for the regulator. Are the existing regulations as effective as they once were? Are the people who are intended to be protected by the regulations still adequately protected? Do the regulations achieve what they are intended to achieve? Do they need to be implemented in a new way? Do they need to be modified? Added to? Or substantially changed? Replaced? Or abandoned completely? Are the earlier regulatory needs no longer relevant? Are there new regulatory needs, perhaps brought about by the technology itself? By the changes in the industry that innovation has triggered?

Where change is rapid and/or extensive, innovation has the power to keep an industry regulator on its toes.