Why Standardization is a business tool

In his influential book “Competitive Advantage”, Michael Porter introduced the concept of the company value chain. He gave companies a model that enabled them to examine their activities and analyze how they contributed to Competitive Advantage and the Profit Margin, where margin = value created – cost incurred. 

Based on a process view of organizations, Porter’s model shows a chain of activities common to all businesses, divided into primary and support activities, with links between them. He explains:

“Competitive advantage [..] stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation”.

Porter did not mention standardization as a key element of one of these activities. Today we observe that without such thinking, many companies do not capitalize on the value they can get when using standardization as a pivotal part of R&D and product creation. Most companies have difficulty fitting such an activity into their value chain. Standardization in this situation only looks like a cost factor – which falls prey to minimization and scrutinizing.

In the heydays of manufacturing, when (internal) standardization would reduce the number of faulty products and improve production quality and consistency, big companies used to have a corporate standardization department, and the added value was shown through efficiency graphs. After that, the emphasis shifted towards quality, safety, regulation and norms, mostly developed in international SDOs.

In today’s age of digitization, end-to-end connectivity and the promise of an Internet of Things, the emphasis of standardization has moved to a competency and strategic activity that creates and harmonizes interfaces between products, thus ensuring that they seamlessly work together in a complete system. These interface standards represent significant business value: products without them or with wrong implementations will rapidly become obsolete. In addition, these interfaces enable new use cases, functionality and product features that open the way for market growth and differentiation. Just as no company would consider doing without an R&D or a marketing department, it should consider managing its standardization activities and drive R&D in creating standards-based products. To capture the true opportunities from the new standards, marketing should develop its competence in planning new propositions, new partnerships and new market messages. That’s exactly what some leading companies have done to excel.

They create a standardization team that understands the company’s value chain requirements, drives R&D and interacts with product creation and marketing to address opportunities coming from strategic standardization activities. Such a team has the skills to promote, defend and negotiate their company’s requirements and goals in the standardization alliances and feed the results into their value chain. Does such a team create a “competitive advantage” and “net value” for its company? Yes, absolutely, as we can testify from own experience. That’s why standardization must be recognized as a real business tool. Therefore we advocate that companies further professionalize their management approach and process and that they build a team of experts to drive standards-based innovation activity. We can provide business intelligence, strategy and process support as well as tools for measuring progress and success.

Attending our Standards-based Innovation Masterclass (SIM) is a good step in that direction and provides immediate return on investment. Check our website www.sim-masterclass.com. For questions, contact us at www.neovate-ip.com.

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