INSIGHT: Are regulators enablers or inhibitors of Digital Business?

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 favourable.

More often than not, they perceive regulators as inhibitors to advancing the digital strategy of their organisation.

Sometimes, I even hear CEOs question how fair these regulators are, implying that there is an uneven playing field between established organisations and digital startups.

I recently asked myself, is this criticism fair or is it merely an excuse employed by established organisations 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 organisational or corporate legal structures are needed to remain competitive.

An organisation’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?

By Peter Sondergaard - Research Director, Gartner