Weighing in on the Value of Standards

Weighing in on the Value of Standards

This piece was originally published in the October 2016 issue of electroindustry.

Kevin Connelly, Senior Program Manager, NEMA



Companies from diverse sectors of our industries devote countless hours to standards development in areas such as electric vehicles, medical imaging equipment, wiring devices, and industrial controls. These sectors are as likely to cultivate evolving innovations as they are to protect mature technologies. It leads one to ask why do all industries with products at such different points on the development curve allocate precious resources to developing standards? In a word: value.

All industries, emerging or established, derive value from standards. Contributing factors might be weighed differently in each industry, but in the end, standards provide worth beyond their cost. A contradiction arises, however, when weighing standardization against innovation. Don’t standards promote homogeneity, and isn’t homogeneity the antithesis of competition?

 Standardization and Competition

In the early stages of technology development, the usual approach is to develop a proprietary product and to establish a strong—if not near-monopolistic—market position.

For example, a company that develops proprietary technologies does not want to grant outsiders access to the inner workings of its system; thus, the ability of users to operate and improve that system would be challenging. On the other hand, with an accessible open standard, those same users might be better equipped to deploy a something that might further enhance the underlying product. Eventually, the initial approach to developing proprietary products is likely to give way to competition and the recognition that developing a common standard(s) would better suit all the parties by stimulating the growth of the industry at large via a higher performance level.

An especially telling example of not having reasonable standardization led to disastrous consequences.

At the dawn of the twentieth century, many fire equipment manufacturers tried to use branded hose fittings and connections to leverage their businesses. One of the greatest fires in U.S. history burned out of control in Baltimore, Maryland, in February 1904. Despite a willingness to help on the part of fire departments from units in the District of Columbia, Philadelphia, New York, and elsewhere, those firefighters realized on arrival that their hose couplings were incompatible with Baltimore’s fire hydrants.

There are no estimates of how many people died or even how much damage occurred, but it is unequivocal that the absence of standardized equipment contributed to the scale of this conflagration.

While the Baltimore fire is a drastic example of the cost of interoperability (i.e. nonstandard) failure, determining economic costs is difficult. According to Gregory Tassey, senior economist at the National Institute of Standards and Technology (NIST), the economic costs of a lack of standardization in technology-based markets can be very high. In a 1999 NIST report, Mr. Tassey estimated that interoperability problems associated with sharing product and engineering data imposed annual costs on the U.S. supply chain of about $1 billion.[1]

Safety Pays

Fundamental to standards is safety. In the electroindustry and medical imaging industry, safety is performance criteria number one. Solid data supports its business value. A study by the U.S. Department of Labor[2] outlined the business value of workplace safety. It found that improving workplace safety and health may result in significant improvements to an organization’s productivity and profitability.

While there are many studies that support different aspects of workplace safety, two excellent real-life stories exemplify its importance. One of the most famous involves Paul O’Neill, former U.S. Secretary of the Treasury and former CEO of Alcoa; the other involves Jim Koch, founder of the Boston Beer Company.

Mr. O’Neill’s implementation of safety policies at Alcoa is the stuff of legend.[3] In his first step as CEO in 1987, he announced to the assembled investors that worker safety would be the company’s highest priority. One year later, the company’s profits hit a record high.

Mr. Koch tells a very similar story in his book Quench Your Own Thirst. He purchased a brewing company in Cincinnati in 199 and immediately introduced worker safety programs. Within six years, productivity tripled.  Granted, it is difficult to prove causation, but the correlation to outcome in these two examples is compelling.

Once it is established that safety pays, the best way to create a uniform approach is by setting a standard. Is safety possible without standards? Of course. Misters O’Neill and Koch didn’t need standards to tell them that safety pays, but they certainly used them to implement their programs.

If a particular standard doesn’t exist, many manufacturers will still build a safe product. Without a standard, though, confidence in an industry suffers. Take, for instance, elevators. The first safety code for elevators (ASME A17.1) was published in 1921. The industry had a common concern about safety incidents from what it called “less than scrupulous” manufacturers ruining the reputation of the entire industry. Everyone on the committee expressed concern about competing on a level playing field with new manufacturers in the industry, who either didn’t care about safety or didn’t have the knowledge to implement it correctly. An industry that has such high visibility in safety cannot afford to have a safety incident—or, even worse, more than one incident.

Quantifying Value and Ubiquity

Hard data to quantify the value of standards is hard to come by. Standards cover a wide range, from quality management to product safety to interoperability. Even if data did exist, it would be hard to imagine that it would universally apply to all standards.

Instead of trying to quantify the return on investments, it may be best to conclude with something familiar: the growth of WiFi[4]. In 1985, the Federal Communications Commission allotted part of the wireless spectrum for what would eventually become WiFi, a technology that allows electronic devices (e.g., smartphones, personal computers, and video-game consoles) to connect to a wireless network.

Fairly quickly, as might have been expected, two manufacturers decided to take a proprietary approach. Equipment from one could not interface with equipment from the other. Neither became popular.

It wasn’t until the standard for WiFi, IEEE 802.11b,[5] was published in 1999 that the technology was able to take hold. When Apple included WiFi in all laptops that same year, WiFi quickly became the ubiquitous and irreplaceable system that we know today.

Although this example relates to a relatively new product, industries with more mature technologies find many of the same values.

In the wire and cable industry, for example, the Insulating Cable Engineers Association (ICEA) produces five to seven new standards per year over the last several years. ICEA creates standards for the same reasons as manufacturers in emerging technology. In some cases, it is a matter of interconnectivity. In others, it is a case of helping the customer properly select, install, and use cable. ICEA believes that better use of its standards would save customers a tremendous amount of money since they might be selecting the wrong cables for the usage.

Regardless of whether the industry needs to develop a standard for acceptance of technology, to promote safety, or simply to provide necessary performance information one thing is certain: standards provide value. Variance may lie in the contributing factors to the value. But whether it is interoperability, safety, standardized information, or a combination of these contributing factors, standards always provide value.

[1] Gregory Tassey, “Standardization in Technology-Based Markets,” https://www.nist.gov/sites/default/files/documents/director/planning/researchpolicypaper.pdf

[2] https://www.osha.gov/dcsp/products/topics/businesscase

[3] https://www.youtube.com/watch?v=tC2ucDs_XJY

[4] “Wi-Fi” is a trademark of the Wi-Fi Alliance.

[5] Information Technology—Telecommunications and Information Exchange between Systems—Local and Metropolitan Area Networks—Specific Requirements—Part 11: Wireless LAN Medium Access Control (MAC) and Physical Layer (PHY) Specifications: Higher-Speed Physical Layer in the 2.4 GHZ Band

Read the October 2016 issue of electroindustry magazine.

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