The Impact of Standards on Business Performance

Standards can be thought of, in basic terms, as an attempt to create order and a means to foster productive investments of efforts/energy and resources. Management knows that the degree to which resources are allocated efficiently has tremendous impact on the overall performance of an organization.

The key behind this, and the way smart managers have been able to harness the power in the acceptance, implementation and even the development of standards as a tool, is found in measurement. Standards offer benchmarks against which an outcome of an action or process can be looked at and evaluated. Adjustments can be made to work method or process when the outcome fails to meet or conform to the adopted standards. In this way, business takes action to ensure its internal processes result in consistent outcomes and outputs.

“When a standard is adopted, it can be used to determine the variance between the actual measurement vs. the standard. Steps can then be taken to eliminate the variance. While a standard does not create or prescribe any actions, it helps to provide direction and focus for actions,” according to Dr. Bittthal Gujrati, Technology Partner.

Historically, standardization has always followed periods of great achievement and advancement. So it is no surprise that companies today are facing an increasing number of issues in the area of standards.

Dr. Gujrati adds, “when you look at business as a system, it is easy to understand that like any system, it requires feedback. Standards help provide this feedback to the business. This is especially apparent when an organization seeks out third party evaluation and registration of compliance with established and accepted standards.”

How and why business needs to become comfortable with and utilize the power of standards is becoming more and more evident. An article in the Oct. 16, 1995 publication of Business Week titled “Competing Through Standardization”, proposes to incorporate industry standards as part of overall business strategy by citing a successful case example from Ford Motor Company:

Ford is committed to using standards to eliminate non-value added differences in its products, and to differentiate itself from the competition. It seeks to eliminate costly redundancy and re-certification often required by governments, seeking one standard one conformance test, one accreditation and one recognition.

By standardizing on less than 20 of some 130 possible coatings on thousands of bolt types, Ford is saving millions of dollars. But it didn’t stop there. It developed a now-patented bolt that can’t be cross-threaded when inserted by machines – a new performance standard for Ford – eliminating other bolts and dramatically increasing quality and productivity.

“Standards development at Ford has become a competitive venture, fast paced, intellectually demanding, results oriented, and global,” explains Keith Termaat, strategic standardization manager. “Setting high standards is an essential principle – high standards for ourselves, for our company and for our customers.”

From Humble Beginnings

The development of standards, we learned as children and proceeded to take for granted through most of our adulthood, began with the acceptance of such conventions as a common language and widely accepted units of weights and measures. The standards for units of measurements, for example, ensure that a pound has the same weight in Virginia as it does in Colorado. Widely understood and accepted standards emerge from the struggles of consumers and marketers of goods seeking a fair and equitable unit of measure. The very beginning of standards worked to remove barriers to trade.

Applications

Standards have several levels. They can be mandatory and set in place by regulatory bodies within certain industries; they can be voluntary and widely accepted; or they can be industry-wide.

It is fairly easy to see why products in the medical industries as well as personal safety devices must have regulation driven requirements. Mandatory conformance to standards ensure that these products operate in a consistent and expected manner. We wouldn’t want it any other way. But the development of and adherence to voluntary standards are just as important. So important, in fact, that the federal government gave the responsibility of fostering such activities to the National Institute of Standards and Technology, (NIST). NIST, an agency of the Commerce Department, works with industry to encourage them to apply technology, measurements and standards.

Standards have had a great deal of impact on trade between countries and continues to have a growing influence in the development of and participation in global markets. The ISO 9000 quality system standards which have been gaining widening acceptance in Europe as well as the U.S., have been a great force in helping to harmonize the numerous European markets and open them up to each other as well as the other global players who aspire to penetrate these markets. More and more U.S. companies have committed a significant amount of their resources in becoming ISO certified to ensure their products can be accepted by the European community.

Implications

“What isn’t clear is whether we, or someone else, will get the economic advantage. Active participation by American business in the standards process in a strategic sense is critical to ensuring that we secure that advantage.” Notes Dr. Arati Prabhakar, NIST director, (Business Week, Oct. 16, 1995).

While the concept surrounding the establishment of standards to promote an excellence in quality and reliability in product performance is clearly seen as necessary, even critical for business growth and competitiveness, it should not be implied that all products and services be subject to further regulation and the implementation of mandatory standardization.

The U.S. has, in fact, devoted a great deal of effort to nurture the development of voluntary standards. Voluntary standards evolve and become industry accepted measures when industry leaders and consumers come to consensus naturally over time. These voluntary standards allow for innovation of value adding features and properties.

The American National Standards Institute (ANSI) coordinates the U.S. voluntary standards system and serves as the official representative to the International Organization for Standardization (ISO), among others.

In an agreement with NIST, signed July 1995, ANSI committed to furthering the balance between voluntary consensus driven standards development with government and regulation driven standardization on a national basis. NIST supports the federal government’s continuing movement away from regulations to reliance on voluntary standards.

Value adding is a concept, as mentioned earlier in the Ford example, which companies need to embrace to remain competitive. Using standards to eliminate non-value adding features to products, is an essential concept now being embraced by more and more businesses.

The best position to be in with regard to standardization is to stay actively involved. For some, this means participating in the writing and evaluation of standards development. For others, it is developing products/services or processes using new technology and innovation to set the standard.

Some of the problems encountered by organizations involved in standards are in dealing with cost and redundancy issues. Many companies having to comply with mandatory regulatory standards must undergo one or more registrations or certification from various third party entities so they can sell their products in the U.S. and to various countries around the world.

Standardization has impact on new product development, not just in how to develop, but what products can be developed which set the standards for the rest of the world to follow. It has become a strategic business issue.

Worldwide standardization of products, practices and systems continues to spur innovation, growth and market leadership in organizations which embrace standardization as a strategic tool for business management.