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Are Regulators Enablers or Inhibitors of Digital Business?

by Peter Sondergaard  |  May 13, 2015  |  2 Comments

In my conversations with CEOs and CIOs, it’s become increasingly common that they mention the regulator of their specific industry. (And the mention is rarely favorable!) More often than not, they perceive regulators as inhibitors to advancing the digital strategy of their organization. Sometimes, I even hear CEOs question how fair these regulators are, implying that there is an uneven playing field between established organizations and digital startups. I recently asked myself, is this criticism fair or is it merely an excuse employed by established organizations to delay their digital transformations?

Same playing field, different game

Uber is often cited as an example of the new digital businesses that are transforming entire industries. It is also held up as an example of this alleged uneven playing field — namely that certain digital businesses don’t have to comply with the same regulatory requirements as established companies.

Other examples are PayPal and Apple Pay. In the electronic payments market, they are often portrayed as being able to compete outside certain aspects of the regulatory frameworks that govern traditional banks.

And lastly, Amazon, which uses tax-efficient locations to compete against established national or state-based retailers, operates under different rules than brick-and-mortar retailers.

What Uber, PayPal, Apple Pay and Amazon have in common is that they exploit digital technology to the maximum, including the ability to enter adjacent markets and thereby not be regarded as a true industry player from a regulatory perspective.

The role of the regulator

Before considering what CEOs and CIOs should do, we have to ask the question “what is the role of a regulator?” Obviously, this varies by industry, country and prevailing political sentiment but, generically, a regulator is a public authority or government agency responsible for supervising and policing some area of human activity.

There’s a big challenge with this definition, though. In this digital era, where the fast-evolving nature of digital business and the pace of technology are both in the hands of consumers, regulators are painfully slow to reacting to change.

Same playing field, same game

As CEOs create a digital business strategy and implement real change as a result of that, they need to plan for new competition from areas not necessarily impacted by the regulatory framework they currently work under. In some instances, this may indeed prevent them from competing on equal footing in the digital industrial economy. They must, as a result, consider whether different organizational or corporate legal structures are needed to remain competitive. An organization’s long-term survival may require that it create a separate entity that legally can compete on an even playing field.

Today, a bank that creates a new payment service will be regulated by laws that have an old definition of what a bank is. Not so for PayPal or Apple Pay. This creates a whole new competitive headache for banks.

So, what are you doing to stay one step ahead in this digital industrial economy, where competition may come from an unlikely competitor not covered by the same regulatory framework?

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Category: symposium  

Peter Sondergaard
Former Executive Vice President, Research & Advisory
25 years at Gartner
29 years IT Industry

Peter Sondergaard was an executive vice president and member of Gartner’s operating committee. He led the company’s Research & Advisory organization until August 2018.

Thoughts on Are Regulators Enablers or Inhibitors of Digital Business?

  1. David Clark says:

    Peter – interesting – I reckon it depends entirely on the regulation framework. In the UK Gas and Electricity industry OfGem have crafted a framework which is actively geared towards rewarding innovation. The good companies get this and act accordingly the bad ones don’t – and quote the regulator as impeding their progress – in reality they’re using it as a weak excuse for their own weakness and fear of true “digital” disruption – in my opinion

  2. Regulators in health care, however, too often protect the interests of the regulated industries over the safety of patients and promising new disruptors. The FDA CDRH is notorious for this, shutting down health information and risk predictors such as 23andMe, while giving installed devices which are harmful for those who do not methylate well – such as mercury-containing dental amalgam – a free pass. Time to clean house.

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