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How to stimulate innovation with standardization?

How to stimulate innovation with standardization?

The content of this document has been taken from the ETSI publication ‘Understanding ICT Standardization: principles and practice’ by Dr. habil. Nizar Abdelkafi Prof. Raffaele Bolla Cees J.M. Lanting Dr. Alejandro Rodriguez-Ascaso Marina Thuns Dr. Michelle Wetterwald

Standards can hinder innovation if standardization is not adequately managed over time or if the standard causes a lock-in effect. For example, the keyboard example (QWERTY vs. DVORAK) shows that people find it difficult to change an established standard and switch to a better solution.

Nevertheless, the positive contribution of standards and standardization to innovation far outweighs the negative effects.

Standards and standardization can make an essential contribution to innovation as a process and as an output. The analogy between tree pruning and standardization perfectly illustrates how and why standards can support innovation and growth. Just as pruning increases the fertility of a tree, standardization supports innovation-driven growth by channeling and concentrating the energy that companies spend on developing a particular innovation. A business landscape without standards would lead to energy being distributed over many possible evolutionary paths, leading to a great waste of resources, layoffs and slower progress in general.

Standards and standardization can have a positive effect on both the stimulation of the innovative concept and the exploitation of the innovation.

The figure below classifies the possibilities for stimulating innovation according to two dimensions. The first dimension distinguishes between two aspects: invention and exploitation. That is, standards and standardization can support invention by inspiring people and triggering new ideas, or can facilitate the exploitation process by pushing commercialization and sales.

The second dimension concerns whether the innovation opportunity is derived from the company’s work with standards or participation in the standardization process.

The quadrants in the figure show the innovation opportunities, revealing how invention and exploitation can be concretely supported.

Efficient and target-oriented innovation

Standardization increases the effectiveness of R&D activities and enables the transfer of innovations from one sector to another. Standards can be a guideline for the innovation process. They enable efficient and targeted innovation. The efficiency of innovation projects depends on input sources such as time, material, energy and money. Standards can positively influence these factors, reducing the costs of generating innovation.

The use of standards in development processes increases productivity and supports targeted innovation. In addition, quality standards in highly innovative technological areas ensure reliable documentation and traceability. Both are essential for the approval of a new product. In less standardized areas such as nanotechnology, establishing standardized testing methods supports comparability between products, making developers of new products aware of the requirements to be met.

Differentiation and quick updates

Companies can achieve a competitive advantage, depending on how well and how quickly they can fulfil the requirements of a new standard. Standardization creates opportunities for the development of differentiated products. This can take place when the company synchronizes its R&D process with the standards development process and when it differentiates its products and services through the development of customer-tailored (but standard-compliant) portfolios.

Standards represent state-of-the-art knowledge and define the requirements that apply equally to all stakeholders. Hence, it is paradoxical to consider standards as a means of differentiation. Nevertheless, the standard represents the foundation upon which companies can develop their unique selling points. In effect, by knowing the requirements of the standard solution, which can be fulfilled by virtually all competitors, the company can select the areas in which it can be different. In these areas, it can develop specific capabilities, particularly core competencies, thus differentiating itself from the competition. Not only standards, but also the standardization process, can support differentiation. The information advantage that participants gain during the standardization committee can be exploited within the R&D process to achieve product differentiation.

Exceeding the requirements of standards

Standardization and standards can drive innovation if the company sets the standard as the minimum requirements to be achieved and then tries to do better than what the standard actually recommends. Good standards specify requirements and leave some degree of freedom. Knowing the basic requirements within the standards, companies are even able to develop new solutions.

For instance, one company producing equipment for security gates at airports uses the related standards as a starting point. Let us say that the standard proposes that people traversing security gates should not be radiated with more than five radiation units. The company sets a target to produce equipment with much lower radiation units, whereas most of the competitors produce equipment with five radiation units. Thus, knowing the basic requirements, which are documented in the standards, companies are able to develop "out-of-the box" solutions.

Besides the general need of increasing competitiveness, going beyond standards may be justified by other reasons like special-purpose customer requests, marketing reasons, previous experience or hedging against uncertainties

Standards can lead to new business models, such as test labs, consulting firms and certification organizations. Business models describe how an organization creates value. Business model innovation refers to the process of renewal or design of business models, and standards can represent the backbone of this process. Test laboratories, consultancies and educational services can use standards as a core element of their business models. Test laboratories, for instance, specialize in the application of standardized procedures.

By integrating new standards in the value proposition, they can address the requirements of new customers. As such, standards constitute an integral part of the business model, since the decision of which standards to include in or eliminate from the portfolio determines the cost structure (e.g. additional investments) and potential sources of revenue.

Some consultancies would never be able to do business without standards, because they entirely build their business models around standards (e.g. quality standards). For instance, in technology areas where it is difficult to get a good overview of the relevant standards, entrepreneurs launch new start-up companies in the field of standards to provide advice for companies that need consultancy services in the area. 

Innovation impulses can result from the update of an existing standard or after a new one is introduced. When standards are changed over time, companies get an incentive to comply and make their products fit the new version of the standard. The development of a completely new standard can also drive companies to adapt their products. Hence, this process is likely to result in innovative solutions. Changes in standards can only be transferred to innovations if certain conditions are fulfilled.

  • First, acceptance of the change inside the company should be high.
  • Second, the company should be capable of integrating the standards in its innovation process.

Thus, the change of standards released by national or international standardization bodies can be a source for innovation. It also provides a strong incentive to companies to actively participate in standardization processes.

However, the updates of standards can be perceived as a burden for the company because of additional development efforts. For instance, one company in the biotechnology field stated that the change of standards could put the company in a position where it needs to update already produced products (stock), and this leads to extra costs that are not welcomed by the company.

Innovation communication

Companies should actively communicate their innovation capabilities. In general, companies that participate in standard-setting processes signal know-how and high competence to the outside, which is especially important in the Business-to-Business (B2B) field.

For instance, producers that participate in the standard-setting process can achieve compatibility of their products with market requirements and make their customers more confident in the company’s solutions. Customers benefit from this because they incur no risk of the product becoming obsolete after the standard has been released. In general, innovation communication with standards helps companies to build trust with their customers, especially in areas with rapid technology development.

A company in the field of nanotechnology continuously informs its customers about its activities in the standard-setting process, in order for the customer to know what the company is doing. The customers, on the other hand, are quite happy to receive this up-to-date information. Consequently, innovation communication positively contributes to the diffusion of technology.

Absorption of innovation

Standardization committees are an important instrument for increasing the absorptive capacity of companies. Absorptive capacity describes the ability of companies to transfer and apply novel and useful external knowledge.

Companies that are in contact with their peers during the committee meetings can absorb important technical knowledge and can even identify new markets. Thus, companies that participate regularly in standardization processes can leverage this innovation potential. These companies see the process as an important opportunity to gain relevant knowledge that supports innovation.

A company that produces devices that switch off electric current to protect machines and people from electric shocks noted that not only was the development of standards important for the company, but also the discussions with committee members that led to the identification of new application areas for the company’s own products. This company was able to scale up its businesses from about 20 people in the 70s to about 700 employees currently with the help of standardization.

Note that innovation diffusion and absorption are two sides of the same coin. As the knowledge is revealed within the standardization processes, diffusion occurs, if the companies that participate in the standard committee absorb and adopt the innovation. In addition, the diversity of the participants in the standard committee supports the diffusion process, as people with different backgrounds can see new areas of application of an existing technology or product.

Read the full report here.