On regulation and opportunity

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There are a few ways to approach changing regulatory environments but Leigh Rust says only one approach works.

History shows us the business graveyard is littered with companies that failed to innovate. It seems size is no cushion. Think Kodak, Nokia, General Motors, Tower Records. Sometimes in business, change occurs organically – other times it can be thrust upon you. Adaption is one response, but innovation is always better. The building game has long bemoaned the negative impact of new or changing regulations on its operations. Sometimes seemingly minor adjustments to existing rules can send some businesses into a tailspin and others out of the game altogether. But far from being a disruptor, new or changing regulation should be seen as an opportunity to innovate.

Global business consulting firm Accenture recently released a report that identified three basic responses to changing regulatory environments. Firstly, there are the Innovators who create or adopt technology and new approaches to establish leadership in their industries, sometimes leapfrogging previous standard-bearers. Then there are the Integrators who share their knowledge or resources with other businesses to make their way in the new environment. Then there are the Improvers who watch the regulatory and business landscape before determining which way to tread.

I would argue there is a fourth group: the ‘I-Give-Ups’ who bow out of the game altogether and leave the others to jostle for their positions in the new-look marketplace.

Allow me, if you will, to share my own humble case study of innovation in the face of regulatory change. I have been director of my company Safetyline Jalousie for the past decade, providing high-end louvre windows to the construction industry. We had launched the business on the back of the best technology we could find at the time and, as a result, our windows exceeded the minimum required standards. The price point reflected performance and, believe me, when you’re trying to get a foothold in the market, that’s not always an easy sell to those sectors more concerned with budget than quality. We plugged on, pitching mainly to high-end builders and architects. We tried our luck with some of the big corporate players but, basically, our product was a bit too upscaled for what the regulations required. Our golden moment came around two years ago when it was announced the National Construction Code would be changing in 2019 to require windows to be double glazed to meet new energy efficiency standards nation-wide.

While some businesses saw the change as an annoying disruptor to their operations, it provided the perfect opportunity for us to innovate and prosper. We were out of the blocks while many of our competitors were still cursing the greenies. Safetyline Jalousie went global in the search for the best glass to incorporate into our Australian manufactured louvre systems and we found it in Japan, the world’s first commercially available vacuum glazing.

It meant we were able to provide double glazed louvre windows at an affordable price, about half of conventional double glazing, while far exceeding what the new National Construction Codes were requiring. Suddenly all those calls we’d made, those relationships we’d done our best to forge, those companies who didn’t want to go the extra mile at the time, were looking for the solution that we had ready to go for them. Not only did our window systems tick the box for making buildings more energy efficient when our windows were closed, having louvred windows meant energy-sucking air conditioning might not even be required due to the natural air flow qualities of louvres. It also led to increased market share in sectors where traditional louvres couldn’t be used before. I’ll spare you any further sales pitching but, basically, our glass provided architects, building designers and engineers with mandated double glazing, not only at about half the price but at about a quarter of the thickness of conventional products.

We became the only Australian louvre window manufacturer to incorporate glass using this technology so the new building code, cursed by many in the industry, was a massive shot in the arm to our business. What was interesting was that many other manufacturers in our game simply gave up and, less than a year after the 2019 NCC changes came in, we have emerged as industry leaders in our niche sector. It’s hard to estimate what the bottom line is likely to be at this stage, but Advanced Market Analytics research estimates the global energy efficient window market will grow by 4.45 percent by 2026, pumping an extra US$25 billion in the world market. I am very confident we have positioned ourselves to see a slice of that.

My advice to other businesses facing new or changing regulations is to view it as an opportunity. According to a classic OECD Report on Regulatory Reform and Innovation, the size of a business is no barrier to its ability to innovate. While the big corporates may have the scale and the budget to throw money at new technologies and approaches, often smaller firms are far more flexible in producing what the report terms “radical” or incremental changes. It notes too that often smaller firms have the advantage of working together.

The OECD, being what it is, sings the praises of competition in driving innovation and encourages governments to ensure regulatory changes drive competition rather than stifle it. That’s the theory anyway. The take-home message is you have to be thinking ahead of the game. Always be on the lookout for what new technology exists in your field, whatever it is. If your operation is too locked into outmoded products or systems, it’s much harder to transition when regulatory reforms are imposed upon you. Other advice is to be attuned to what regulators are talking about.

A report by international law firm Clyde and Co’s Australian office identified three emerging regulatory trends on Australian businesses and even if they might not apply directly to your operation, it’s worth noting what they are. After the Financial Services Royal Commission, it’s no surprise tighter corporate governance heads the list. Financial penalties are increasing significantly for bad business behaviour, both in civil and criminal matters. The Australian Stock Exchange is leading the charge on the second with its attempt to regulate organisational culture and putting more onus on board members to ensure businesses operate “lawfully, ethically and responsibly”. The third concerns matters of climate change. Regulators across all sectors are going greener (although, yes, it is a matter for debate whether government is always on the same page). Certainly, the adoption of green principles is what drove the National Construction Code changes in our case. Many savvy businesses have already instituted innovations in this area. Some have gone well beyond what governments and regulators are requiring, because not only are they catering to growing consumer concerns, they are pre-empting future regulatory requirements. Keep an ear to what’s on the agenda of regulators within your industry even if the reforms are likely to be years away. The sooner you get started on your research, the better placed you will be to position your business well before regulatory change is imposed.

Leigh Rust is director at Safetyline Jalousie.

Image credit Bill Oxford, Unsplash.

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