4 tips for finding innovation in highly regulated industries

Innovation is often considered the lifeblood of any business, but for companies operating in highly regulated industries, there may be a perception that innovation is extremely difficult (if not impossible).

In reality, this rarely happens. Highly regulated industries such as healthcare, finance and energy often introduce radical innovations that can lead to better outcomes for society as a whole. This is most often because innovative organizations have a solid collaborative framework in place—a structure that defines communication, expectations, workflow, and more, while keeping regulations in mind.

By building a strong collaborative framework, those operating in highly regulated industries can find innovations that move their businesses – and perhaps even the entire industry – forward.

1. Understand regulatory compliance and innovation

When creating a collaborative framework, it is important to understand that regulatory compliance should not be viewed as a restrictive method of punishment. Yes, you have to deal with more constraints than in other industries, but regulatory compliance often fosters innovation in itself as companies find ways to grow within this framework.

With multiple parties understanding the existing regulatory climate, collaborators can come together to find ways to leverage technology, business models and other new solutions to support compliant innovation.

I recently had the opportunity to talk about this topic with Adam J. Sulkis, an associate vice president at State Street Bank and a PhD student in business administration at the Swiss School of Business and Management, whose dissertation focuses on promoting FinTech innovation in light of the current regulatory framework.

He explained: “In regulated industries, innovation cannot develop in isolation. Strong leaders create collaborative frameworks that bring together diverse perspectives to address regulatory challenges and deliver meaningful progress. We see this today in the FinTech space, where new technologies such as NFTs have emerged and require existing regulatory frameworks to be refined or reworked to properly accommodate these new offerings. Bringing together the perspectives of different stakeholders is essential to closing regulatory gaps, creating legitimacy and protecting investors. Regulations drive future innovation.”

2. Seek to engage with internal regulatory teams

As part of the process of building a collaborative framework to drive innovation, organizations operating in highly regulated industries should emphasize building strong relationships with their internal regulatory teams. Complying with regulatory changes is most often cited as a top priority for in-house legal teams, and any innovation efforts will be under scrutiny.

For this reason, the collaborative framework should include the involvement of internal regulatory teams early in the process. Asking them to get involved in the early stages, before a significant amount of time and money is invested in the idea, can help you get the necessary feedback that will ensure the end result is on track.

Engaging these stakeholders early in the innovation process also helps create a unified, rather than adversarial, environment between the internal regulatory team and other groups. Involving them can actually help push ideas in a new direction.

3. Track your competition and broader industry trends

In addition to their own internal innovation efforts, leaders in highly regulated industries should closely monitor new developments along with others in their industry. This may be at a company-specific level or looking at broader trends in the industry as a whole.

Looking at how your competitors achieve (or fail to) achieve regulatory compliance when introducing new products or services, how they maintain compliance with existing products and use new technology, and how they resolve complaints and other issues can help you determine own strategy. Tracking and assessing such events can be particularly beneficial when done in collaboration with your internal regulatory team, as it can help you understand which strategies to implement and which to avoid in light of competition regulatory actions.

Tracking your competitors can also help you generate new ideas within your own collaboration, helping stakeholders recognize gaps that exist in the market where there is room for compatible innovation in your industry.

4. Provide regulatory support for external partnerships

External strategic partnerships are often one of the most effective ways for companies in highly regulated industries to collaborate. In the moving industry, for example, it is not unusual for commercial truck lines operating on a national level to actually rely heavily on an extensive network of partners at the state and local levels so that they can operate in compliance with state licensing laws while still serving a nationwide customer base. In such cases, external partnerships are designed with regulatory compliance in mind.

Regardless of the specifics of external strategic partnerships, the collaborative framework must make partners aware of regulatory issues that will have a direct impact on the partnership and its outcomes. Sharing knowledge can help streamline work between partners by ensuring that both parties are in sync with the project’s vision, goals, and constraints.

Finally, preventing miscommunication and wasted effort resulting from non-compliant practices will help your organization and its external partners maintain positive, lasting working relationships.

Transforming regulation into innovation

Contrary to what popular thinking would suggest, taking constraints into account can actually help improve innovation and creativity. By developing a collaborative framework that enables your team to work creatively within the regulatory constraints of your industry, you will unlock its creative powers and develop new solutions. By considering industry regulations in both internal and external collaborations, you can find innovations that move your company forward.