Introducing a New Taxonomy of Strategic Reactions to Regulatory Shocks: What We Have Learnt From the Sulfur Cap Regulation Case

ABSTRACT Regulatory changes often constitute disruptive moments that require strategic responses from affected organizations. Literature often conceptualizes these changes as regulatory shocks that affect strategic development and require specific attention and understanding. Previous attempts to categorize strategic responses have been based on conceptual typologies; however, we argue that empirically derived models for explaining strategic responses are currently lacking. The purpose of this study is to fill this gap. By employing an inductive multiple‐case study research method, we propose a taxonomy of adaptability strategies applicable to regulatory changes. The findings are encapsulated into a taxonomy of 4Cs, highlighting different responses codified as Circumvent, Comply, Combine, or Conceptualize, which are linked to organizational idiosyncratic characteristics. In this respect, we aim to enrich the growing body of literature on the role of idiosyncratic resources, dynamic capabilities, and institutional forces in strategic adaptation to regulatory changes. The managerial implication of this study is that the developed taxonomy provides strategy decision‐makers with a roadmap to address regulatory shocks based on their firm's internal resources, dynamic capabilities, and legitimacy concerns.