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Company strategy and standardization

Company strategy and standardization

An entrepreneur operates at the interface of his own organization and his environment. He has a vision, sets goals and designs plans to mean something for his environment, based on the possibilities of his own organization, by supplying products and / or services that meet manifest (or perhaps latent) needs. Its products and services depend on its own production possibilities and on what others offer in terms of products and services. Depending on the extent to which customers are willing to pay for its products and services, its organization will grow, survive, shrink or cease to exist. In the Anglo-Saxon tradition, which is gaining influence in the Netherlands, generating as much money as possible for the shareholders is the main objective, in the Rhineland model business continuity is the most important. Internally, the entrepreneur primarily deals with the people with whom he forms the organization. The trick is to work well together, focused on the goals of the company.

Aligning between people – group – company – environment

Management is the art of goal formulation and transfer and of subsequently optimizing the alignment between people – group – company – environment. This alignment can be distinguished in:

social / societal alignment

This concerns alignment between:

  • the company and its environment (customers, suppliers, capital providers, government, media, etc.);
  • the organization as a whole and individuals or groups (for example project teams, departments, business units) within it;
  • groups among themselves;
  • individual people among themselves.

technical alignment

In traditional work, alignment problems are solved on site – the carpenter makes the wood for the frame to fit the construction site where the house is being built. In “industrial construction” the frame is made in advance, in the factory, on the basis of drawings with specified tolerances. It is transported to the construction site and deployed or deployed there. In industrial production, what one delivers to another must meet clearly agreed requirements in advance. This may include dimensions, modular coordination, tolerances, fits and the like, but also, for example, product information, environmental agreements, transport, logistics or quality of services. The tuning problems are solved in advance by model: thinking and acting are separate. Good “technical” agreements are needed for this.

alignment in time

The various successive actions in production must be properly aligned. The “output” of one is the “input” for the next in the chain. Elegant implementation techniques are important here, but also construction site design, network planning and the proper recording and transfer of work results. This concerns the short term time aspect. In the longer term, the entrepreneur must take into account, among other things, staff turnover, changed market situation, changes in laws and regulations and, last but not least, technical developments. The art of doing business is also to set the course in time when necessary.

These three elements, social, technical and time, are interrelated. For example, if a technical tuning problem has not been solved (example: a door that does not fit), it must still be solved (door refinement), which takes time, which may cause the agreed delivery time not to be met, which can lead to tension or arguments. As a rule of thumb, 80% of implementation issues can be traced back to previously unresolved issues.

Doing business is only possible on the basis of what customers ask for. These have their requirements and wishes. The entrepreneur translates these into objectives for his company. This leads to contracts with customers. Compliance with the contract must be audited: has what was promised and agreed actually happened? The audit report may reveal errors that may lead to improvement actions. These improvements in the company can in turn lead to more successful business, which closes the circle. From the way of doing business (approaching customers, negotiating, brochures, catalogs, demos, etc.) through, among other things, specifying requirements and recording the agreement in a contract, up to and including improvement actions in the company, it is all standardization ( record what you did, what the result was, what went wrong, what you are going to do now). After all, standardization makes activities / processes repeatable in a structured way. This ensures that the company does not lose time in inventing something that has proven to work well before and that it also learns from its mistakes.

Market development makes coordination even more complex. The markets are geographically expanding. The development time for new products must become increasingly shorter. The economic lifespan for products is decreasing. The influence of customers and legislation and regulations is increasing, including in the field of environment and safety. This also leads to partnerships: horizontal (in the industry) and vertical (in the production chain): co-design, co-maker, co-shipper. Within the company and across company borders, logistics and quality management are receiving more attention. The product range is often built up from modules with standard interfaces in between. As a result, the customer-order decoupling point can move closer and closer to the start of the production process: in the automotive industry, among others, production is still made to order despite mass production. The customer can wish and receive a red car, with yellow upholstery, sunroof, built-in navigator and telephone. The possibilities of telecommunication make the mutual exchange of information between companies more efficient, but also more anonymous. Because transport costs are lower, trade relationships (customers and suppliers) are spread all over the world. As the relationships become more anonymous, there is a greater need for certification: of products, but also of (supplying) companies. This must give “legitimate confidence” that the products or companies meet predetermined requirements.

Solve alignment problems with standardization

Alignment problems are now typically the kind of problems that can be solved with standardization.

Standardization is the development and recording of a limited number of solutions for coordination problems that arise now or possibly later, aimed at benefits for the participant (s), weighing their interests, and with the intention and expectation that a significant part of the intended users will apply these solutions repeatedly or continuously over a period of time.

In short, wherever in the central management issue of solving coordination problems (social / societal, technical and in time) the same coordination occurs repeatedly, standardization is desirable. In other cases, customization is better. The trade-off is always between standard and customization. We now discuss this consideration for the three distinct sides of harmonization.

Standard versus customization in social / community alignment

Alignment between organizations or groups is in fact aligning between people, because organizations consist of people. In the book Brave New World, Aldous Huxley outlines how people are standardized. But that’s fiction. They can, however, learn certain rules of conduct, perform standard actions and communicate in a standard manner. The need for this increases as there is less ‘informal’ solving, that is, within larger organizations and with more anonymous relationships with the business environment. Formalization limits individual freedom and that clashes with the human ideal of freedom. In the trade-off between control (through formalization) and freedom, the realization of the company objectives will have to be guiding, but in such a way that individual freedom remains. For more about finding the balance between freedom and control, we refer to the book Quality assurance without discomfort, a case about the ISO 9001 standard.

Within the own organization, it is mainly about defining processes and linking people to these processes by laying down responsibilities, authorities and tasks. The behavior of all those individual persons can thus become consistent with the goals that the organization has set itself. In addition to this formal side, this is also a matter of (business) culture in which the individual orientation of one person is better suited than that of the other. Moreover, as the cultural diversity in society increases, sooner (behavioral) standards are needed within the company. Business standards for people-to-people collaboration are best established in a combination of bottom-up and top-down. Then there is on the one hand support from the employees and on the other hand alignment with the company objectives and coherence in measures.

The alignment with the outside world primarily concerns the customers. ISO 9001 can help to clearly identify the requirements and wishes of these customers, to use them as input for their own business processes and, after delivery of products and services, to check whether it was really satisfactory. This standard is important for aligning with customers, other standards help especially in the field of communication. Also in an informal culture it is useful to lay down at least some basic agreements. The more distance from the customer, the more reason to apply (company) standards.

What applies to the relationship with customers, applies “in mirror image” to the relationship with suppliers. A good standard is not dictated by one side, but the result of consultation about how the parties want to deal with each other..

Aligning with other external parties, such as governments and capital providers, can also take the form of standardization. The relationship with official bodies, such as social security institutions, is especially standard, but the company itself has little influence on this. This freedom is much greater in the way in which it accounts (financially, but also in the environmental field, for example), but the clarity and mutual comparability of different reports is served by standardization.

Standard versus customization in technical coordination

There is technical alignment both within the company and in the production chain, and where there is “repetition” standardization is desirable, if not essential. This includes:

  • the choice of the portfolio of products and services, in relation to the choice of the sales markets. The more unity in the offer, the lower the costs, but with more diversity, more different customers (groups) can be served;
  • the specifications of these products and services, in relation to the own production possibilities and to the requirements and needs of customers;
  • coordination in the production chain, both within the company and in relation to suppliers, transporters and customers. This concerns the standardization and standardization of parts of products, coordination with production resources such as machines, the information flow throughout the chain, process management, quality, safety and environmental aspects and logistics.

Standard versus customization when aligning over time

When aligning over time, the first thing to consider is agreements on delivery times, so that the next party in the chain can continue with the output from the previous process. Often the same process is repeated, in which case standardization has taken place.

However, the core of the trade-off between standard and customization when coordinated over time is: how quickly does the organization proceed to changes in the existing working method? If everything is different every time, there is no standardization. Then there is only improvisation and the organization will probably quickly go down. If there is more structure, then the change demand primarily concerns the portfolio of products and services. How quickly does it change? Then it concerns the markets, the production possibilities, and so on. In many cases it will be desirable to innovate in one area while keeping other things constant.

A special effect, in relation to alignment over time, is that of the adoption of standards. Once a particular standard is available and used by some, others tend to use it as well. Then they can jointly get stuck on that choice once made. We will not get rid of the QWERTY keyboard, even though better ones have been devised.

Standard versus customization and business strategy

The corporate strategy indicates where the company is now, where it wants to go and how it wants to get there. The strategy therefore outlines what can remain constant over time and what needs to change. This concerns the products and services in relation to markets and possibly the relationship with market parties other than customers, and it concerns the own organization. In a “technical” sense it also concerns the products / services and production possibilities. Each time the question is:

  • What are our knowledge, skills and other possibilities?
  • Which portfolio of products and services do we want to deliver to which customers?
  • What do we want to do as standard, where do we opt for customization?
  • Where do we want to keep things stable, where do we want to innovate?
  • In case of standard / stable – do we determine our (company) standards ourselves or do we use external standards?
  • Do we see external standards as a given or do we want to influence their development?

The last two questions have to do with external standardization, for example through participation in committees. As a rule, reinventing the wheel makes little sense – it is usually wiser to benefit from external standards. However, anyone who leaves the making of those standards to the competition is not by definition in the lead. That can be a good strategy – follow, without the costs and risks of leading the way. However, it can also be a dangerous strategy. In any case, it should be a conscious choice whether or not to participate in external standardization. Such a choice is only possible if the areas of standardization that are most important to the company have been mapped out and then a choice is made, by connecting this inventory to the business strategy.

This contribution has been derived from Standaard of Maatwerk – Bedrijfskeuzes tussen uniformiteit en verscheidenheid (C.A.J. Simons and H.J. de Vries, Academic Service, Schoonhoven / NEN, Delft, 2002), § 6.1.