• The Economic Benefits of Standardization
THE FINAL REPORT of a research project titled “The Economic Benefits of Standardization” was recently released by DIN, the German institute for standardization, which commissioned the study in 1997 along with the German Federal Minister of Economic Affairs and Technology. Thousands of companies in Germany, Austria, and Switzerland were surveyed to determine the value of standardization to their corporations, as well as to the overall economy of the three countries.

Over 4,000 companies in 10 industry sectors were selected at random and sent a printed questionnaire containing 49 questions. The response rate was over 17%, rendering 707 completed questionnaires.

The study results below offer an insider’s perspective into the corporate thinking of business leaders in the three nations. This is, however, only a selection of the full report.

The following items were chosen for their appeal to business readers across the board, and are extracted only from Part A of the study, which concentrated on the Benefits of Standards for Business. Part B of the study covered the Benefits of Standards for the Economy as a Whole, and is not included in this article.

The full report is available in English on the DIN web site.

Benefits for Business

Strategic Significance of Standardization

“Companies are generally unaware of the strategic significance of standardization.”

Corporate decision-makers seem hardly aware of the strategic benefits of standards. This lack of knowledge on the part of decision-makers in companies means that the strategic potential of standards is not fully appreciated.

Meanwhile, the strategic benefits of standards are well understood by the individuals involved in standards, i.e., the technical experts who participate in standards development. Also, the survey showed that companies actively involved in standards work more frequently reap short- and long-term cost-savings and competitive benefits than those that do not participate.

Potential Competitive Advantage through Standards

“Having influence in the content of a standard is an important factor in gaining competitive advantage.”

Companies are motivated to participate in standardization because they gain an edge over non-participating companies in terms of insider knowledge. Early access to information is valuable.

The survey shows that companies can forward their interests in the standardization process. More than 50% are able to exert a great to very great influence on the substance of standards, 46% are able to prevent undesired contents from being included, and 48% are able to get desired contents included.

Cost Reduction through Standardization

“Standardization can lead to lower transaction costs in the economy as a whole, as well as to savings for individual businesses.”

The interviews with experts, who were representatives of major firms as well as of small- and medium-sized enterprises, revealed that the costs of developing company standards and industry-wide standards are not easily quantified.

However, the businesses surveyed rate the effects of standardization on transaction costs as positive, indicating that transaction costs drop considerably as a result of standards, since they make information available and they are accessible to all interested parties.

Effects of Standards on the Supplier/Client Relationship

“Standards have a positive effect on the buying power of companies.”

Standards can help businesses avoid dependence on a single supplier because the availability of standards opens up the market. The result is a broader choice for businesses and increased competition among suppliers.

Companies also have increased confidence in the quality and reliability of suppliers who use standards. In addition, standards are used by businesses to exert market pressure on companies further down the value chain, i.e., their clients. Thus, businesses can use standards to broaden their potential markets.

Standards and the Formation of Strategic Alliances

“It is clear that cooperation between companies in matters of standardization is advantageous since the resulting synergy can help reduce costs and increase profits.”

Industry-wide standards form a collection of harmonized technical rules. This “coding” of knowledge can help businesses cooperate and create strategic alliances. Respondents rated the effect of standardization on cooperation with competitors as positive.

Standardization encourages cooperation between businesses at the same stage in the value chain.

Standards and R&D

“Businesses not only reduce the economic risk of their R&D activities by participating in standardization, but can also lower their R&D costs.”

When a company can influence the content of standards to its advantage, the economic risk is lower. The businesses surveyed responded that R&D costs increase at a considerably slower rate when they participate in standardization than if they do not.

The expense of R&D is potentially reduced when the participants in standards work make their results generally available, and research need not be duplicated. Businesses must be convinced that the benefits of sharing the R&D results of other companies are greater than the risk involved in revealing their own results. //

Copyright © ASTM, 2001

Reprinted with permission from DIN, Deutsches Institut für Normung.