Abstract
The inherently multidisciplinary process of standardization and its outcome, standards, are fascinating and complex subjects since it involves issues ranging from technological, organizational and economic to legal and sociological aspects (Hesser and Inklaar, 1997). Standards have been with us for over 5000 years, starting with the first alphabets and measurement systems and centuries later by national coin-based currencies. In the 19th century there was an enormous struggle with dozens of railroad gauges throughout Europe and the USA, that cried out for standards. This was also an issue as regards electricity (voltages, net frequencies, etc). Only in 1865 the International Telegraph Union (which became the International Telecommunication Union (ITU) in 1932), founded by twenty countries, addressed this problem. And just after the Second World War in 1947, the International Organization for Standardization (ISO) was established (Hesser and Inklaar, 1997; Spivak and Brenner, 2001). In the following section a literature study is presented on both standardization and standards to identify key characteristics and benefits & risks as far as relevant to this thesis. Basically three types of literature (journals and books) have been studied related to: 1) Information System (IS) management, 2) General management and 3) Standardization and standards. The first category included primary IS journals (MIS Quarterly; Journal of Management Information Systems; Communications of the ACM) and secondary IS journals (including Computer Standards and Interfaces; Database for Advances in Information Systems; Knowledge, Technology & Policy) which were reviewed on the subject of IT standardization and IT standard usage. The second category consisted of top management journals such as Academy of Management Review, Harvard Business Review, Sloan Management Review and California Management Review whereas the third category included more popular journals (like Information and StandardView). ‘Standard’ books on this subject were included also, for instance the ones from Verman (1973), Cargil (1989) and De Vries (1999). Rationale was to determine the current “state of the art” on standardization with special focus on IT standardization and its effects on business performance in companies.
TopIntroduction
Historically speaking, standardization was seen as a means of reducing costs by decreasing diversities to make economies of scale possible. By standardizing across technology (e.g. platforms, applications), data (syntaxis and semantics) and processes (e.g. billing, procurement, vendors) organizations can reduce the complexity of their operations. This can lead to higher efficiency because such standards can result in e.g. timesaving, enable reuse, or allow reduction in replications or support staff. But the “optimal” level of such standardization in organizations is dependent on a lot of factors that should be addressed by the management of those organizations.
Apart from these efficiency aspects there are the effectiveness gains too. Standardization can make organizations plan better for future changes with greater flexibility to support new functions and improved scalability of existing functions. Other effectiveness incentives include improving the quality of business processes or improving their competitiveness. Apart from to these benefits there are drawbacks such as switching costs when converting from one standard to the other.
Economics research on standards adoption and competition between standards, considers two main streams in which standards affect the usage of new technology:
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Network effects (Farrell and Saloner, 1985; Katz and Shapiro, 1985);
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Switching costs (Von Weizsäcker, 1984; Farrell and Shapiro, 1988).
Network effects1
describe a positive correlation between the benefits of individual users and the usage of standards. Direct network effects include:
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Economies of scale (Chandler, 1990; David and Greenstein, 1990);
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Externality (Katz and Shapiro, 1985; David and Steinmueller, 1994; Liebowitz and Margolis, 1994);
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Compatibility (Katz and Steinmueller, 1994);
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Bandwagon effect (Farrell and Saloner, 1988; Frohlich and Westbrook, 2002);
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Path dependency (David, 1985; Arthur, 1989; Liebowitz and Margolis, 1995);
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Free riders (Weiss and Toyofuku, 1996; Schoechle, 2004).