New article examines how firms should respond to new regulations to improve innovation performance

The link between regulations and innovation is puzzling. Some researchers claim that consumers would have access to more services if there were less regulatory rules. Others suggest that regulations, such as those aimed at protecting the environment, might lead to incremental (at times even disruptive) innovation. Does regulation cause uncertainty, additional cost, and delays? Or are regulations essential for innovation? What is clear is that the literature on the subject establishes a relationship between regulations and innovativeness. Nevertheless, this relationship is not uniquely defined, as the literature seems to say that regulation is both good and bad for innovation.

New research, conducted in part at the House of Innovation, focuses on two specific variables that relate to regulations and innovation: flexibility and complexity. According to established research, these variables have the potential to mediate the quality in company performance following a new regulation.

A single case study was conducted upon 100 developed and launched services by a major Danish financial services provider to evaluate rates of success in the face of these two variables. The results show links between high flexibility and low complexity in firm response for improved innovation performance.

These findings are important because they yield implications for managers. According to these results, managers ought to be attentive to how their company responds to coming regulations, planning well ahead and working across business units to find innovation benefits. Accordingly, benefits will come to those firms that focus on compliance and innovation potential, while at the same time applying a low complexity and high flexibility regulatory implementation.

The researchers recognize that this study should be extended to cover more firms and sectors across other geographies. It could also address other industries where regulations are interwoven into product and service development.

Researchers

Eric Bentzen
Copenhagen Business School, Denmark

Åke Freij
Freij Insight, Sweden; Stockholm School of Economics, Sweden

Claus J Varnes
Copenhagen Business School, Denmark