In progress Different routes towards standards and their impact on innovation

Reference:
ERIM PhD 2013 RSM LIS 01 KB_HdV

Abstract

Standards and innovation are two concepts that at first sight appear to be at odds
with each other. However, there is clearly a relationship between the two as
technological advances influence the development of new standards which in turn
have an impact on further innovation activities. Based on existing research, this
relationship appears to be complicated with some aspects of standards supporting
innovation while others are a hurdle for it. However, existing literature only offers
some ‘puzzle pieces’ on this relationship with a coherent picture still missing.
The proposed PhD projects consists of two parts: The first part concentrates on how
standards are developed and integrates different views on this issue to better reflect
how such processes work in reality. This part aims to develop a dynamic framework
of standardisation and identify under which conditions what standardisation strategy
is most promising for firms who aim to have their preferences included in a standard.
The second part of the project aims to answer the question how different standards
within this framework impact on innovation. Here, the project will explore how these
standards can support or hinder new product development and business model
innovation and how companies and parties involved in standardisation can maximise
the positive effects and minimise obstacles.

Keywords

Standardisation; Innovation; De-Facto Standards; Formal Standards; Regulation; New Product Development; Business Model Innovation

Time frame

2013 - 2017

Topic

Standards shape technology (Egyedi, 1996) and are a prerequisite for growth in international trade (Swann et al. 1996; Temple & Williams, 2002; Blind and Jungmittag 2005; WTO, 2005). Standards stimulate innovation, and make an annual contribution of £2.5 billion to the UK economy (DTI, 2005) based on an econometric approach developed for Germany (Jungmittag et al. 1999, Blind 2004) as well as applied for other European economies (Blind and Jungmittag 2008). Most standards concern the inter-operability, quality or safety of products, processes or systems, but increasingly standards are also used in service sectors (Blind, 2003; DIN, 2002). `Standards battles´ can have an enormous impact on the competitive position of (groups of) companies (e.g., Bekkers, Verspagen & Smits, 2002; Grindley, 1995; Kleinemeyer, 1998; Shapiro & Varian, 1999a/b) or countries (e.g., Delaney, 2001; McIntyre, 1997; Otsuki, Wilson & Sewadeh, 2001; Takahashi & Tojo, 1993; WTO, 2005).

Standardization is the activity of establishing, with regard to actual or potential problems, provisions for common and repeated used, aimed at the achievement of the optimum degree of order in a given context (ISO/IEC, 2004). A solution laid down in a standard is intended and expected to be used repeatedly. Therefore, there is something `static´ in standardization as the solution is `frozen´ during a certain period of time, until developments make it necessary to choose another solution: then the old standard makes way for a new one. During this period of frost, the emergence of new solutions that solve the same problem for which the standard was designed are hindered. In this way, standardization indeed hinders innovation as defined by Schumpeter (1934): `the commercialization of all new combinations based upon the application of new materials and components, the introduction of new processes, the opening of new markets, and/or the introduction of new organizational forms.´ So, according to this definition, innovation is more than an invention: it is a commercialized invention. Standardization may affect or support this commercialization.

The solution laid down in the standard need not be the optimal one and "lock-in" effects may force developers of related products to conform to the standard and inferior technology can extend over long periods of time. The tendency for modern technologies to have systems structures increases the economic importance of this lock-in phenomenon (Tassey, 2000). According to Tassey, also customer demand for backward compatibility with existing technology hinders innovations. Other negative effects may result from multiple standards for the same technology, poorly designed standards, and poorly timed standards (Tassey, 2000). Nevertheless, Tassey provides arguments for the increasing importance of standardization in terms of its impact on innovation, productivity, and market structure. Blind (2004), however, concludes based on time series econometrics that standards are no serious obstacles for innovation, the relationship tends to be positive though it cannot be proved that standards have a strong positive influence on innovation activities and successes. Swann (2000) mentions that it is true that standards limit the amount of variety but the existence of a system of standards helps the consumer to know what it is (s)he is getting, and encourages competitive entrants who can assimilate the necessary technological knowledge from the codified standards. However, there will always be a subset of innovative producers who wish to innovate away from the standard, because that allows them an opportunity to raise their margins by price discrimination based on product differentiation.

Other authors emphasize the positive impact of standardization. Katz and Safranski (2003), for instance, state that the key for survival of a firm´s innovation lies with the conversion of this innovation into a standard, or the adoption of a standard once it is identified. In case companies cooperate in innovation projects, common standards expand the total size of the market and can even be vital for the emergence of that market (Shapiro & Varian, 1999) whereas in case of only one innovative company with strong market power, IPR protection will be better for that company but at the cost of the innovativeness of the sector (Blind, 2004). Technical standards may affect the rate and direction of innovative activity, compatibility standards may stimulate innovation (David & Steinmueller, 1994). In the early design of innovative products and further along in the commercialization phase, standards - and in some cases the failure to standardize - play a role which coincides with the strategic concerns of the firm (Mansell, 1995). Swann (2005) found that standards serve as a source of information for innovation and in that sense stimulate innovation but often the same respondents also mentioned that standards or regulations (unfortunately, the two were taken together) may constrain innovation. The positive effect turned out to be linear: the more standards the more information. In the case of constraints, there is no linear relation: as the number of standards increases, the standards are less likely to constrain but as the numbers get `too large´ then standards are more likely to constrain.

The overall picture is diffuse, different studies point in different directions: standardization hinders or stimulates innovation or there is a trade-off between these. Current research on the relation between standardization and innovation has focused on the macro-economic level rather than on the company level and has hardly addressed the management perspective. From a company´s point of view, standards can make the difference between product success or failure. Therefore, during the process of product innovation, a company has to make an inventory of existing standards and investigate how these can be used for the product to be developed or may impact the product. In some cases, there may be a need to change existing standards or to develop new ones in order to be successful. Typical examples are standards to provide compatibility with other products, standard specifying a test method to be used to demonstrate the product´s quality or safety, or standards.

In the case a company needs a standard not yet available, it has the choice between developing their own company standard or cooperating with others to draft a common standard (De Vries, 2006). Joint standards development can be done in industrial consortia, branch of business organizations, professional associations, governmental agencies or, last but not least, formal standardization organizations (De Vries, 1999). In this project we focus on formal standardization but without ignoring the other ones. Three levels of formal standardization can be distinguished: national, regional and global. In many cases, companies can get involved in standardization at the global or regional level via participation at the national level.

Blind and Gauch (2006) identify different roles of specific standards in different phases of the innovation cycle starting from the relevance of terminology standards in basic research, over measurement and testing standards to compatibility and quality standards being relevant for introducing a new product into the market. This taxonomy is based on the perspective of researchers in public and private research institutions. A more differentiated approach focusing on the innovation process from companies´ perspective is still missing. However, standards are very relevant for innovation management of companies ranging from screening relevant standards in a comprehensive technology foresight or watch, over standards in the context of IPR management to the involvement in standardisation to open up international markets. In summary, we have various types of standards and several functions in the innovation process which poses a big challenge to develop an efficient standardisation management in the context of companies´ innovation management.

Supervisory Team

Knut Blind
Knut Blind
Professor of Standardisation
  • Promotor
Henk de Vries
Associate Professor of Standardisation
  • Copromotor
  • Daily Supervisor