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July/August 2008
ProVocative

Standards and One Multinational Corporation

An Interview with Robert Noth, Manager of Engineering Standards for Deere & Company

Through experience and expertise gathered from committee meetings to boardrooms all over the world on behalf of Deere & Company, Bob Noth discusses standards, standards development organizations and the international marketplace.

 

Deere & Company has embraced standardization as an essential part of its business strategy. How and why are standards essential to your firm and its business?

In an industry that historically — in the U.S. at least — has not been heavily regulated but is subject to the tort law system, John Deere and other players recognized early on that to demonstrate our social responsibility and to protect ourselves from lawsuits, it was in our best interest to work together and develop design and performance standards to reduce risk in equipment use.

The equipment we provide is inherently risky. It’s heavy machinery with many moving parts for working outdoors in lots of different terrain. Because of the hazards to operators, bystanders and the general public, there has always been a concern about safety.

As early as the 1930s and 1940s the industry got together to develop standards that apply to our products through such groups as the American Society of Agricultural and Biological Engineers and SAE International, and then we complied with them so that our machines met consumer and societal expectations and kept current with technology. We wanted to make sure that our machines were as safe as possible while avoiding unnecessary government regulation. We felt we (Deere and the industry) were better able to effectively and efficiently address the problems than the regulators. That was the primary reason, and we believe it’s still valid.

Another reason to participate is the economic benefit. While we design many unique systems, components and parts that add value and differentiate our products from those of our competitors, there are also many of what we call enabling components — fasteners, belts, fittings — that can be produced to standards and be readily available “off the shelf.” Contributing our knowledge and experience to develop standards for the various parts, components and materials utilized on our machines made good sense because the more standardized components and materials we use to deliver reliable functionality, the less we, and our customers, have to pay. So we have a long history of sending our hydraulics engineers to work on hydraulic standards, electrical engineers to electrical-related standards and material engineers on material standards to ensure that we would have access to components and materials rigorous enough to meet our needs in our chosen markets around the world.

How does a company that has decided to employ standardization as a business strategy manage its approach to standards differently from one that has not?

Let’s say you have 100 people spending some percentage of their time in standards development venues around the world. You can calculate the salaries, hours and travel expenses, which in total amounts to an investment in standards development. As a manager, you expect some return on that investment. If you take a narrow view and expect a “dollars and cents” return on that investment to show up on the bottom line on a quarterly or even annual basis, it is unlikely you’ll participate in standardization.

In addition to collaborating with other stakeholders to achieve a consensus agreement, the process of developing standards involves building relationships, managing risk and gathering intelligence on where the market, your competition and your suppliers are going. These benefits are not something that can be measured quite so empirically. You have to cultivate the idea that you’re investing in standards development for these aspects as well as bottom line improvement to feel comfortable that the investment is paying a return. I think most often that’s the difference between companies who do and don’t participate. When we look back 10 or 15 years at some of the successes we’ve had, we can attribute much of that success to the relationships we’ve built and the credibility we’ve earned from just being there.

Also contributing to the situation is the difficulty of putting a value on something that could have gone the other way. What would it have cost us if we hadn’t succeeded in revising a particular standard? From a pure accounting perspective, we’ll never know. When you’re working proactively on a future state, one side of the cost-benefit equation is always speculative and unknown and is therefore subject to skepticism. Management has to be willing to acknowledge and accept the less measurable aspects of participation as adding value.

Management of companies using such an empirical approach, or a small- or medium-sized company struggling to survive and grow that doesn’t believe it can afford to participate, have a harder time seeing bottom line value in the more indirect and longer term benefits. As globalization impacts more and more product markets, however, more companies are seeing that they’re missing out by not participating.

Another scenario is that many companies think that because they’re paying dues to a trade association, that group will represent their interests effectively in standards development. In some cases that can work out but not always. It takes effort to ensure that it does. The trade association has to balance all of its members’ interests, and its position on a standards issue might not completely align with those of your organization. That’s where you get into questions of whether the organization is customer- or staff-driven. You have to remain sensitive to the conflict between what the customer wants and what the organization thinks it needs to survive. If you don’t define your expectations and regularly assess whether the trade association is meeting those expectations to your satisfaction, you could end someplace you don’t want to be.

Deere serves customers in more than 130 countries and has operations in 28 countries. What issues does Deere face in dealing with such a variety of consumer and regulatory demands? What are the keys to success in working with regulators?

Tractors, combines and other agricultural equipment are tools used by farmers to improve the productivity of their operations. Historically, farming has been a primarily regional endeavor with different crops grown to meet the demand for food driven by the soil, water and climate conditions in the region. Farming methods evolved from region to region and crop to crop based on a variety of factors, some cultural and some economic. To a greater or lesser degree every country developed standards and regulations for agricultural equipment to reflect their local practices and experience. So what we now have is a complex picture of both customer and regulatory requirements that we have to understand and deal with if we want to successfully distribute our equipment in those markets. For our company, the agricultural equipment business faces the biggest challenges in this regard, but the same holds true for our construction, forestry and turf care equipment products to a slightly lesser degree.

Meeting customer requirements is always critical for business success, but meeting government-imposed requirements is also necessary and becoming more of a challenge as the market becomes more and more global. The process of making equipment designed for one market suitable for sale in another is called homologation. You must review the applicable regulations and standards acceptable in the target market and then modify the product to be acceptable for sale there. Often this requires testing and certification as well. Homologation is both time-consuming and expensive given the size and complexity of today’s equipment.

To address these differences and the costs involved, we decided some years ago to work as best we can to establish a portfolio of standards and, to the extent possible, the regulations and testing requirements that cover all the various aspects of each specific type of product we make, whether tractor, harvester or earthmover. That way, we can demonstrate compliance to governments and show them that what’s safe and effective in one market is safe and effective in other markets as well. While there are different demands and different levels of economic acceptability, the more we can harmonize the requirements and develop a globally acceptable portfolio of standards for building a machine the less homologation we have to do. That benefits both us and the customer because it keeps the cost of production lower.

Over the years our industry has evolved and so has our approach to standards. Today, we have a very pragmatic approach, doing the bulk of our work in the politically acceptable international arenas such as the International Organization for Standardization (ISO), the International Electrotechnical Commission or even the Organization for Economic Cooperation and Development, depending on the subject or technical scope. That has made it a little easier for us to deal with the regulators and the powers that be in various markets.

Those of us in industry know that the quality of the content is more important than the label on the standard. Our product “bills of material” and specifications still use standards from ASTM International, SAE International, ASABE, ASME International and the Institute of Electrical and Electronics Engineers, just to name a few, because they’re the best technically and most appropriate. Yet from a political market access perspective, it remains a much harder sell to convince some governments that an SAE or ASME standard should be accepted internationally rather than the same content in ISO. We don’t have a problem with any standards development organization achieving global acceptance, we just can’t wait for that to happen before we can do business.

We made a lot of progress in the early 1990s and early 2000s on globally acceptable minimum requirements, but with philosophical differences in, for example, the insistence of the European Union on their own specific best available technology approach to standards and with China, Russia and Brazil sometimes choosing to set their own specific requirements, often for reasons more political than technical, we’re actually seeing it start to slide the other way. That’s disturbing. We’re seeing the progress we’ve made start to unravel a bit as there seems to be more interest in fragmenting the market and taking more regional or national approaches.

Some requirements are so drastic that you lose the ability to develop a global platform you can affordably customize to local requirements. The real issue for us is the capital required to build tractors, engines and harvesting machines. If you’re only going to sell a few hundred units and it’s going to cost a lot to sell those because of the unique differences demanded by governments, the cost to the customer goes up. So does the likelihood we’ll decide we can’t afford to be in that market.

In your speeches, you have said there is a philosophical difference between “standards as business and standards for business.” What are these differences and how do they impact the standards developer-industry relationship?

John Deere makes equipment. Our equipment products are the core of our business. Standards are a means to facilitate that end. And what we want are standards that define the performance expectations for our products and their various subsystems and components so that when we comply with them they help us obtain market access or lower our costs of fabrication by making the materials and components we need generally available in the marketplace. That is what I mean when I say “standards for business.”

Standards development organizations are manufacturers too. They make and sell standards. Standards are their product. That is what I describe as “standards as business.” As SDOs compete for market share and revenue with other SDOs in the same space or the same technology, these “standards wars” become a distraction and meeting the needs of the industry customers becomes a casualty of the war.

Obviously, these conflicts create strain in the relationships between industry and SDOs. On a higher level, the very fact that these conflicts exist often undermines the credibility of the whole standards system in the eyes of chief executive officers and other industry executives who have control over industry participation in standards. That is the bigger risk in the long term.

There is often passionate discussion in the standards and trade community about what constitutes an international standard and the place of market-determined de facto standards in the library of international standards. How do you feel that this ongoing conversation helps or hinders what the marketplace might need? What, in your view, should determine whether a standard is international or market-relevant?

As I’ve said in many presentations around the world, it’s ultimately the adoption and use by relevant industries that are the telling factors as to whether a standard is international or not. The market determines whether or not you are in fact “international.” You really can’t self declare. The political endorsement of a particular brand of standards more often impedes commerce and trade rather than enhancing it.

Sometimes I think there are too many industries that remain silent about this situation instead of standing up for what they think. For example, all global paint experts have decided that ASTM is where they want to set their standards, and everybody in the world who makes paint is aware of and utilizes ASTM standards. Most people who are buying that paint are specifying to ASTM standards. It seems illogical to deny that ASTM has a claim to international acceptability but yet that is what is happening. ASTM can point to this example but their claim is viewed as self-serving. The voices of industry users would be more powerful if you could get them to speak out.

Another challenge is that it’s very difficult to measure how many people are utilizing the standards. The only way to tell is by reporting who the customers are and sales volumes, something most organizations keep close to their vests. We can estimate, but that leaves a lot of room for doubt. The traditional approach is to count national adoptions, which is relevant under the European system, but not on a global basis.

In the U.S., for example, we don’t nationally adopt very many standards at all. There’s no need to. Nobody wants to spend the money to go through the overhead of nationally adopting something that companies can use without that cost. Companies obtain the standard and then integrate the requirements into their processes and product specifications. What else do you need? This is an example of “standards for business.” Spending money for national adoption may facilitate “standards as business” by changing the revenue flow, but the beneficiaries are not the people who have to fund the adoption. Unfortunately, I don’t see a resolution to the dilemma very soon.

Every product, every service out there has some form of standards that covers its features, from very basic materials all the way up to market access standards with focus on health, safety and environmental requirements or expectations. Most industries understand that they can opt to use or not use the standard but they don’t have the unilateral right to change the standard. If you want to change that standard you’ve got to go to the owner of that standard, put in your proposal to change it and provide justification for why you believe the change is necessary. Then you need to be prepared for the ensuing discussion in order to achieve a consensus. You have to be prepared for the fact that you may or may not succeed.

In 1513, the philosopher Niccolò Machiavelli said, “It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than the creation of a new system, for the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who would gain by the new one.” In that regard nothing much has changed in 495 years.

 

Robert W. Noth is manager of engineering standards for Deere & Company. Noth, who is current chair of the board of the American National Standards Institute, has responsibility for overseeing the development, deployment, utilization and administration of standards affecting the Deere product line worldwide. This includes responsibility for the development and implementation of strategies and processes that effectively avoid redundant and/or unnecessary parts and components from entering Deere’s products and product support system. His duties require national and international interaction with standards developing organizations, trade associations, regulatory agencies and other organizations whose activities affect Deere products.