Your Regulatory Strategy IS Your Innovation Strategy

As the Internet penetrates more and more aspects of day-to-day life, issues of regulation have an increasingly significant impact on innovation outcomes. With everyone sharing considerable amounts of personal details online with a variety of companies across different industries, new questions emerge: Who should control and have access to this data? How should governments intervene?

Senior Fellow Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute, points out that although digitization promotes innovation, potential regulatory issues may impede it. Different regulatory demands across the globe complicate the situation further. Consequently, companies in all sectors must integrate their public policy strategy with their innovation strategy in order to better confront potential regulatory hurdles down the road.

Mandel discussed these challenges in an interview with the Mack Institute. A transcript follows below.

More than ever before, innovation strategies are affected by the regulatory environment, and not just the regulatory environment in the U.S. but the regulatory environment in Europe and Asia, as well. What we’ve been studying, for both individual industries and also for the business sector as a whole, is how regulation affects innovation and how regulation can be changed in such a way as to encourage innovation. We’ve looked at sectors like pharma and medical devices, and we’ve looked at tech, which is increasingly impacted by privacy and data protection regulations. We’re also looking at new sectors, such as the automobiles, which is being affected by the Internet of Things, which raises whole new sets of regulatory issues that didn’t exist before.

So far, the Internet has just affected the 20 percent of the economy that’s primarily digital – entertainment, communications, finance and so forth – but we’re moving into the area of the Internet of Things where all these other industries, like manufacturing, public services and healthcare, are going to be digitized, as well. On one hand, there’s an enormous opportunity for innovation. On the other hand, this raises all sorts of regulatory issues about privacy, security and data protection. Who controls what data is very important for deciding who are going to be the winners and who are going to be the losers here.

If you’re a company that’s involved tangentially or directly in the Internet of Things, all of a sudden, you have to realize that the regulatory policy and your public policy has become a part of your innovation strategy. Now that’s not an easy thing, necessarily, for companies to understand, because they’ve usually kept their public policy separate from their innovation policy. But what we’ve seen in recent years is that the companies that have been most successful are the ones that have been able to sort of integrate their public policy with their innovation policy.

“Companies that have been most successful are the ones that have been able to sort of integrate their public policy with their innovation policy.”

One of these is Uber. Uber, as everyone knows, is an on-call taxi and car service that in many cases, actually violates the rules, or perhaps violates the rules that govern taxi services in certain areas. But they went ahead, and they’ve had a strategy of basically gaining public support for what they do to sort of overcome the regulations. Their regulatory policy was completely integrated with their innovation policy.

These days, big data is on everybody’s mind, and we know that big data is extremely important for innovation in terms of figuring out patterns and figuring out what companies can do that will help consumers while making money at the same time. Big data has also raised privacy issues and the issues of data protection, especially in Europe. One of the things that companies have to do is understand how to meet these regulatory desires without actually impeding their innovation. Part of that involves engaging with the regulatory process more directly so that regulators understand that sometimes the rules that look like they make sense actually get in the way of doing something that’s good for consumers.

Regulation is usually thought of as a very boring subject. It’s thought of as a boring subject in business schools and by politicians, and nobody really cares that much about it. Unfortunately, it has become one of the prime determinants of innovation success these days because there’s so much interaction between different parts of the economy. There are very few areas where people don’t care anymore about what’s going on.

From this point on, if you don’t have a regulatory strategy or a public policy strategy as a company, then you don’t have a good innovation strategy.

Further Reading

“Obama‚Äôs Corporate Tax Blunder”

“The BEPS Effect: New International Tax Rules Could Kill US Jobs” (PDF)