The Grey Chronicles

2009.April.25

Innovation and Standardization



Innovation is a change made by introduction of something new. Nowadays, it is commonly accepted that innovation is a child of standardization. Krechmer (2006) observes “A balance between innovation and coordination is often achieved by market-sensitive standardization.”

Typical arguments for standardization goes something like this: business could not continue to optimally operate if it were unable to sell its products to all of its potential customers, not because of a lack of innovation or customer demand, but simply because the new product is not safe and reliable or does not meet performance expectations. Or this: In the absence of such measurement standards, the innovator may not be able to sustain a premium for his product in the market because he cannot prove its superiority. If the innovator cannot achieve a premium for his innovations, then the economic incentive for innovation may be lost.

Standardization is a voluntary cooperation among industry, consumers and public authorities for the development of technical specifications based on consensus. Protocol standards have been proved to work first in computers and telecommunications. By allowing greater freedom of choice, providing a forum for increased innovation and increasing competition, all of which ultimately resulted in shared increased revenues.

As more and more technology-savvy consumers demand products and services that are secure, accessible, reliable; translatable from one platform to another; and ensures security and privacy without imposing undue costs and restrictions; these same consumers want standardization for other products as well. Together consumers, non-governmental organizations, governments, industry, and standardization bodies are developing and applying standards that reduce risk and inspire confidence.

Standardization organizations are able to promote innovation transfer in several ways: (a) early definition of basic standards accelerates development activities; (b) definition of interfaces as precondition for interdisciplinary cooperation; (c) communication of technologies throughout industries accelerates implementation; (d) concentration of research and development on areas with future potential and (e) “export” of standards opens up global markets.”

Walter (2002) observes:

“Participation in the standards development process benefits companies, government agencies and other interested parties in a variety of ways. Stakeholders are able to work together to develop well-rounded and workable standards. By being involved in the standard development process, stakeholders have access to experts in the field and can collaborate to devise the best solutions for their industry. A strong standard can be an effective tool in helping to ensure worker and public safety, protecting the environment, creating a sustainable industry and promoting a competitive industry.”

Experts observe that there is, however, a global diversity in standardization because of policy considerations, regulators often prefer to work in treaty organizations such as ISO, IEC, CEN, CENELEC; legal implications, for companies, there may be issues related to intellectual property rights [IPR], perceived market dominance, etc; business strategies, national activities vs. international, formal vs. consortia, etc. and market dynamics, the stage of technology development and market locations influence venue choices as well.

Another school of thought posits that standardization limits innovation. Akiyama, Taro and Yuichi Furukawa (2006), moreover, asserts the possibility of an inverted-U relationship between intellectual property rights [IPR] and innovation (and resulting economic growth):

“Stronger IPR enhances the long-run rate of innovation when the protection is too strong. When it is too weak, relaxing IPR, conversely, encourages long-run innovation. . . Stronger IPR protection (a reduction in the rate of imitation) means that standardizers are safer from imitation, leading to an increase in the expected monopoly rent of standardized producers. While non-standardized producers are not affected directly by a decrease in the rate of imitation, stronger IPR increases the number of products that have been standardized, which equals the number of products that can be imitated. It follows that more production shifts to the South owing to increased imitation. Finally, less production remains in the North, so that more resources in the North can be devoted to R&D activity (innovation is enhanced).”

Thus, Underweiser, Ludwin and Ehrlich (2006) proposes a framework for understanding the progression of an innovation over time, from its inception as a result of research (exploration), through its broad adoption as part of a public infrastructure (exploitation):

“This progression [is] being driven by certain market forces including investment, standardization and regulation. . . At a certain point during this progression from exploration to exploitation, the value to the public arising from an innovation will exceed the value to any private rights holder. This public value is realized both in the form of network effects and in the use of the innovation as part of the infrastructure upon which further innovations may be based. Understanding the interaction between these market forces and the progressive stages of innovation may provide the basis for affecting the creation of an environment optimally conducive to innovation.”

Harting (2001) agrees:

“Innovation transfer holds exceptional significance in the successful market positioning of new technologies. In connection with the right strategy, innovation transfer strengthens a company’s market position and the bolsters national economic locations within the context of global competition, thereby advancing the progress of society.”

Swann (2007), an economist, explains furthermore how standards support innovation:

First, standards support the division of labour, and the division of labour supports certain types of innovation activity. Second, open standards can help to open up markets and allow new entrants and as the great Austrian economist Schumpeter argued, the new entrant is a powerful force for innovation. Third, the existence of generally accepted measurement standards allows the innovative company to prove that its innovative products do indeed have superior performance. . . And fourth, standards help us derive the greatest value from our networks.”

Therefore, without standardization, every innovative idea would ultimately come to nothing?


Notes:

Akiyama, Taro and Yuichi Furukawa, (2006). Innovation, standardization, and imitation in the product cycle model., Economics Bulletin. Vol. 6, No. 12. pp. 1-10. back to text

Harting, Dietmar (2001). The challenge of standardization as a platform for innovation transfer, Speech delivered at the IFAN Conference in Berlin on September 27, 2001. back to text

Krechmer, Ken (1981). Standardization and Innovation Policies in the Information Age, International Journal of IT Standards and Standardization Research, 2:2, 2004. pp. 49-60. back to text

Swann, Peter (2007). Standards, Innovation and Wealth Creation, Presentation at conference, Innovation and Market Access through Standards, German Federal Ministry of Economics and Technology & DIN (Deutches Institut für Normung), Berlin 26-27 March, 2007. back to text

Underweiser, Marian; Richard M. Ludwin & Marc A. Ehrlich (2006). Understanding the Innovation Cycle. IBM, 2006. back to text

Walter, John (2002). Standards Assist in International Competitiveness of Canadian Industry. Consensus — Special Edition. Canadian Standards Association, Autumn 2002, pp. 16-17. back to text

Disclaimer: The posts on this site does not necessarily represent any organization’s positions, strategies or opinions; and unless otherwise expressly stated, are licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Philippines License.

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1 Comment

  1. Thank you for the Information.

    Comment by Kallie Trilli — 2010.August.21 @ 22:56


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