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Regulators play a vital role in new innovative firms disrupting an industry

by wrich

Regulators have just as much of an impact on whether or not as firm is able to disrupt an industry, as the innovative products and services of the firm itself, according to new research from emlyon business school.

There are many firms that innovate and have the potential to become disruptive, however the actions of a regulator largely impact on the possibility of the firm disrupting an industry.

Regulators can utilise their powers to block such firms from entering an industry, or can incorporate these firms, by removing, adding or modifying regulation to suit their innovative needs.

These are the findings of research conducted by Nicholas Occhiuto, an Assistant Professor at emlyon business school’s Center for Work, Technology, and Organization.

Professor Occhiuto used the launch of Uber, the disruptive ride-hauling service as a case study into disruptive, innovative firms and the impact regulators have on their launches.

By utilising over 140 interviews and ethnographic observations, the researcher was able to analyse how regulators and lawmakers responded to Uber’s market and non-market strategies, in the highly regulated taxi markets of New York City, Chicago and San Francisco.

Through the research, Professor Occhiuto identified the original method regulators and lawmakers utilised – enacting blocking strategies, whereby they took measures to stop Uber from entering and disrupting the industry.

However, following Uber’s entrepreneurial corporate political strategy of becoming ‘too big to ban,’ regulators and lawmakers shifted to an incorporating strategy, whereby they added or modified existing regulations to align with Uber’s practices.

The researchers identify three very specific strategies that regulators used in order to incorporate Uber; horizontal venue shifting – where regulation is shifted to a different regulator; vertical venue shifting – where regulation is shifter to a higher authority; and reinterpreting existing regulations – where existing regulations were altered for Uber.

Professor Occhiuto says,

“Many firms with innovative strategies or products and services look to enter a market incredibly bullishly, launching in a sector or region and loudly making themselves known to customers, competition and regulators too. Often this can ruffle many feathers, and regulators may see this as an opportunity to block said firms. However, my research shows that regulators can also work to enable disruptive firms and adapt regulation to their organizational goals, and make the market disruption a lot easier for the firm.”

The results of the research showcase the hugely important role that regulators and lawmakers have in the launch of innovative firms and whether or not they are able to actually impact and disrupt on an industry once they launch.

For innovative firms looking to launch in a new market, the researchers suggest it is wise for start-ups to pursue a non-market and corporate political strategy that engages with regulators and lawmakers, as opposed to simply focusing on ruffling feathers and disrupting the industry through innovation.

This research was published in the journal, Socio-Economic Review.