Writing in the Globe and Mail, Macdonald-Laurier Institute Managing Director Brian Lee Crowley warns that too much government regulation makes companies complacent about threats of disruption from competitors.

This insulation lulls successful companies into a false sense of security that leads to crucial strategic mistakes, he says.

“Every deviation from this relentless focus on what customers actually want makes your market a tasty morsel for the disruptors and crony capitalism accompanied by regulatory capture cannot and will not save you”, Crowley writes.

An edited version of this column appeared in the Globe.

By Brian Lee Crowley, Oct. 16, 2014

Quick — what country in 2007 was responsible for roughly two-fifths of mobile phone production worldwide?

If you answered Finland, go to the head of the class.

But if you want actually to learn something, answer the next two questions. First, what share is it producing today? And why?

By 2013 Finnish telecoms giant Nokia had more or less collapsed and it sold its mobile phone business to Microsoft. Finns basically hardly make mobile phones, having once relied on this single industry and company to provide the lion’s share of their wealth creation.

It went from the “darling” of Europe’s high tech sector just a few short years ago to last week’s humiliating downgrade by the Standard and Poor’s credit agency.

How did it all go so wrong? And what might Canada learn from Finland’s downfall?

One obvious conclusion is not to put all your eggs in one basket, but it goes well beyond that. There was a time when economic change worked slowly enough that you could get a generation or two’s employment out of an industry before it was overtaken by innovation. Detroit dominated automobile manufacturing for many decades before its own complacency and the innovativeness of European and Asian producers came into play.

No more. Nokia allowed itself to believe in its own infallibility, and Finland meekly followed suit. But the forces of change are now so powerful and lightning fast that sometimes a single product release from a competitor can signal the death knell of a previously healthy company or industry.

Indeed the tech world is actively seeking out industries and sectors that are ripe for “disruption.” And as Nokia illustrates so powerfully, when you are reliant on a single market, technology or strategy you make yourself a tempting target for the disruptors like Apple and Android. There are no safe havens, no ways ultimately to insulate yourself from the economic dynamism that technological innovation unleashes, which is creative destruction on steroids.

Canada is rife with industries with their heads stuck in the sand, almost invariably because they believe they can shelter behind a friendly bureaucrat with a rulebook.

Examples abound in fields as diverse as telecoms, dairy, airlines, broadcasting, taxis and transport. Could there have been a bigger farce than the CRTC’s attempt to manhandle on-line content provider Netflix? The broadcast regulator strutted before the public browbeating the American company’s spokeswoman, demanding lists of their subscribers and wanting to know when there would be a Canadian version of House of Cards. The CRTC’s retreat in the face of Netflix’s total indifference was so total that they had to strike from the record of their hearings the company’s appearance. Joe Stalin would have been proud of this “rectification” of the historical record.

The ride-sharing app Uber is seen by many as heralding the demise of the taxi industry, which cannot happen soon enough for me. In fact, though, the real transformation is coming through its parent company Google’s vision of “transport as a service”. Making every car a cab, as Uber has the potential to do, is only a step on the road to the driverless car revolution that will transform everything you think you know about the function of cars, urban transit, and the density and management of traffic.  How will municipal martinets protect taxis from the onslaught of cars that show up at the touch of a smartphone app ready to take you where you want to go with no driver in sight to fine?

The real lesson of Nokia’s demise was that there is no substitute for being driven by what customers want, which is quality products and service at the lowest possible price. In its death throes the Finnish company chose to use the unpopular Windows Phone platform in preference to Android because it suited the company better. On learning that Nokia had chosen Windows, Google director Vic Gundotra took to Twitter presciently proclaiming “Two turkeys do not make an eagle.”

Every deviation from this relentless focus on what customers actually want makes your market a tasty morsel for the disruptors and crony capitalism accompanied by regulatory capture cannot and will not save you. In fact the false sense of security makes companies more likely to make strategic mistakes that make life easier for owners and executives at the expense of consumers.

Canada still has too many of these regulated corporate baronies, protecting Canadians from the horrors of American-owned planes and phones, cheaper cheese and superior urban transport. But the lesson of Nokia is that the consumer will cannot be thwarted in the long run and past success, as they say, is no guarantee of future performance.

 

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