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A standards strategy measures up to global trade challenges

Mark BezzinaWith the recent explosion of ground-breaking standardised ICT protocols we are witnessing the ever increasing development of wealth-producing technologies and business models.  These business models exploit easily accessible and interoperable global networks, information and knowledge.   

Underlying these technologies and business models is the ubiquitous and somewhat ephemeral world of standards.  Standards support wealth creation by enabling the development of global production networks characterized by outsourcing, the de-verticalization of corporate structure, and new forms of “technological fusion” in which disparate technologies are brought together to achieve new products that exhibit novel performance characteristics and functionality.  The nature of this global techno-economic system places a premium on interoperability and creates a new level of demand for acceptable standards.  

Standards have also become increasingly important for the international economy and according to the World Trade Organisation underlie 80% of world trade in the exchange of goods and services. They form a fundamental part of bi-lateral and multi-lateral trade agreements. 

But what are standards? Standards are developed by buyers, sellers and sometimes other stakeholders such as regulators.  They ensure market efficiency and prevent market failure.  They dictate the authoritative rules and specifications by which a market operates.  They often establish a model or pattern for guidance, by comparison with which the safety, quantity, excellence, correctness, etc., of other things may be determined and validated.  Standards ensure inter-working, portability and re-usability. 

Some notable standards include DVD formats, SMTP, HTML, XML, MP3, MPEG and specifications for product components from computers to sky scrapers.  There are also standards related to services such as outsourcing and certain activities such as security, risk management and business continuity.   

It has often been said those who dictate the standards dominate the market.  And to some degree it is true.  As standards provide the rules by which a market operates, those who have a say in the development of those rules are in a good position to ensure that they are not disadvantaged by the rules.  Standards setters also deeply understand the rules and can use them to their strategic advantage. 

Conversely those who are not involved in the development of the rules may find their products and services suffering and becoming rapidly redundant and obsolete.  It then follows that the better organisations, industries and nations are at strategically using standards the more competitive and successful they will be.  

Australia has well in excess of 7000 formal standards and probably close to 100,000 informal standards.  There are approximately 34,000 formal international standards.   Australia is considered a leader in the development of national and international standards through our national standards body, Standards Australia.  It makes good sense to utilise this important institution and tap into its wealth creating potential. 

A recent Australian study conducted by the Centre for International Economics (CIE) found that:  Standards potentially have a variety of economic effects including increasing the scope for gains from trade, underpinning innovation and knowledge dissemination, reducing costs of production and increasing productivity, helping provide safety outcomes and assisting with risk management.   

In quantitative terms CIE suggested that if standards are specified as contributing to the stock of knowledge jointly with R&D expenditure, then a 1 per cent increase in this joint stock of knowledge leads to a 0.12 per cent increase in economywide productivity.  A recent Productivity Commission enquiry had similar findings.  

While it is widely acknowledged that standards are important to organisational competitiveness, risk management, efficiency and profitability few organisations actually invest the time to become strategic in their use of standards.  Many organisations think of standards as purely technical devices.  Such firms are easy prey for organisations that take a more strategic approach to standards and use them as competitive weapons. 

The European Union is an excellent example of a trade block and constituency who know how to use standards to benefit their stakeholders and facilitate better internal trade. There are many reasons why organisations don’t take a strategic approach to standards activities such as the pressure to deal with day-to-day emergencies and a lack of a clear framework defining how to use standards to reduce risk, generate value, efficiency and profitability.  Not much can be done about managers who like to invest their time dealing with emergencies rather than preventing them. 

While this strategy may seem straightforward, it may help to have some assistance with extracting the greatest benefit possible for an organisation from standardisation. 

This column by Mark Bezzina also appeared in ARN -- www.arnnet.com.au.

Comments

The E.U. a model? I don't think so.

This piece completely ignores the fact that many countries use 'standards' as a way to block international trade, protect their own failing industries and deny choice to their own citizens while impoverishing the global community. The fact that there's 7,000 Australian standards is surely an argument for reducing that number, not exploiting it to block competition and innovation.

The European Union uses 'standards' as a convenient figleaf for its authoritarian meddling in national and personal affairs and to impose trade restrictions illegal by any other means. Its heavy handed clobbering of the freedom individual culminated in the prosecution of market traders, for example, in Britain who preferred to sell bananas by the pound, rather than the kilo because that is what their customers preferred. The EU finally admitted defeat over that particular issue but the thousands of uneccesary regulations it has imposed on people in Europe has helped it become an extremely unpopular institution.

Of course there is a place for trading standards. A pound of sugar should be a pound of sugar and kettles shouldn't spontaneously combust but the authoritarian managerialism of much current politics only undermines freedom, hamstrings the market and feeds the egos of politicians at the expense of the long suffering electorate. Let industry, such as the computer industry, generate their own cross platform standards, there is no role for Government to decide what sort of DVDs we should buy. Let the market decide which standards are important and useful and which are not. The system evolves as a product of the peer generated commons and the last thing it needs is more arbitary government interference or 'strategic planning' by managers who produce nothing but turgid reports trumpeting their own indispensability.