This is the third article in a series on the role of the standardization function in a company’s value chain. In the first article, we advocated to create a standardization function and make it explicit in a company’s value chain. We observed that the few companies to utilize standardization as a business tool have created significant value to their operation. In the second article, we addressed the tasks of the standardization work and its most logical position in a company’s organization. Now it’s time to talk about what specific value a well-functioning standardization team brings. We focus on the interface standards that are (mostly) set by industry alliances and on the competitive advantage that skillful participation can bring to companies. Let’s leave aside both the standardization effects at the industry level (like cost reduction, market harmonization, choice, consumer confidence, etc. because they benefit any company) and the ones of formal standardization; we’ll return to those in another article.
One benefit of participating in standardization is the higher RoI on R&D costs. Sharing the innovation efforts reduces the investments for each of the participants to develop a complete technology or solution. In doing so, the participants also increase their chance of ending up with what will become the dominant design of the industry.
The next two effects, providing direct and longer-term benefits, result from the innovation leadership that participation displays.
A direct benefit of this is that a company can influence the direction of the industry innovation in a favorable manner and – by being first – can create new markets and have early access to them. If orchestrated well, standardization efforts then translate directly into higher turnover.
The indirect, longer-term, benefit comes from the recognition of innovation leadership by the industry, by supply partners and by customers. Leadership in an industry often makes it easier to find business partners and shape business alliances.
In the eyes of the customer, such leadership recognition will lead to a better innovation leadership position and higher brand image, which often results in lower price pressure, and better channels and shelf positions.
Lastly, the digital transformation may lead to a shift of functionality “control points” in the value chain. Standardization of the interfaces then consolidates such value shift from one part of the chain to another, which impacts business on both sides of the interface.
While these benefits impact business performance, a good standardization team also beneficially impacts the IPR assets and exposure of a company.
Whenever the licensing terms have been set by the standardization body as RAND, reasonable and non-discriminatory, some fee must be paid for every product that complies with the standard, and this infringes its essential IPR.
Having essential patents based on a company’s technology will contribute to the standard and lead to a financial advantage. Whether a company only reduces its payments to others or even becomes a net collector of license fees depends on its IPR share and its market share. Both cases offer a competitive advantage.
Neovate has the know-how and models to support companies in creating the business case for any of the above forms of added value through standardization. Once we have case approval by company management, we can help with setting up the standardization team and equipping it with the latest skills and processes. Understanding of company and alliance dynamics, organization management experience and hands-on involvement in alliances are key ingredients to our unique skill set.
Attending the Standards-based Innovation Masterclass (SIM) is a good step for standardizers to become acquainted with these aspects and provides immediate return on investment. Check our website www.sim-masterclass.com. For questions, contact us at www.neovate-ip.com.