Standards Make Markets
One day, I was looking out of my office window and I saw this:
The ship is the world's largest container ship. The 4 minute video, How a Steel Box Changed the World: A Brief History of Shipping, explained how the inter-model shipping container, standards ISO 668:2013 and ISO 1496-1:2013, changed the world.
This 10 minute video, How Container Ships Work, digs into the details the efficiencies realized from using shipping containers.
Standards are a set of technical specifications that provide or intend to provide a common design for a product or process. Standardization can be across organizations or even within an organization.
The Harvard Business Review article, The Globalization of Markets, the author asserts that "well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable-and low priced. Multinational companies that concentrated on idiosyncratic consumer preferences have become befuddled and unable to take in the forest because of the trees. Only global companies will achieve long-term success by concentrating on what everyone wants rather than worrying about the details of what everyone thinks they might like."
Just creating a standard will not make a market. The standard must solve some problem.
This video published by OMG, Dr. Soley Narrates Object Management Group’s History in Interoperability Standards, helps you understand the benefits of standards. With standards entire ecosystems can be built. Standards are about making better systems that make the world a better place.
Here are some details from one example from the past which shows what can be achieved by using standards: the Universal Product Code or UPC. This is less about the UPC code itself and more about the Universal Product Code system.
A 1999 PWC study concluded that UPC codes save retailers in the US $17 billion per year or more than a trillion dollars over three decades. Another study quantified the savings at 6.59% of retail revenue.
"Today, more than 1 million companies employ bar codes in 141 countries, and the UCC estimates that 10 billion bar codes are scanned daily worldwide. A 1999 PriceWaterhouseCoopers study estimates that in domestic retail sales bar coding annually saved companies and consumers $17 billion. Overall, it's believed that the UPC has saved consumers, retailers, and manufacturers more than a trillion dollars over the past three decades."
Barcodes improve the efficiency, safety, speed and visibility of supply chains across physical and digital channels. GS1 is a international not-for profit organization that promotes bar codes and points out, “Business is easier when you speak the same language as your customers, suppliers and partners.”
Obtaining the benefits of such standards is a “chicken or the egg dilemma” type of an issue as pointed out by the creators of the UPC:
“With the standards for the UPC's format and visual representation set, the really hard part began: persuading everyone in the grocery industry to use it. According to an analysis by the ad hoc committee's consultant, McKinsey & Company, manufacturers had to mark at least three-quarters of their goods with a bar code in order for the technology to be cost effective. At the same time, at least 8,000 supermarket locations, about one-quarter of the total in operation, needed to install scanners.”
The beneficiaries of such standards will be everyone. The losers if such standards are not created will likewise be everyone in terms of higher costs, less effectiveness, and less efficiency.
This time the stakes are even higher. A 2017 PWC study concluded, “Global GDP will be 14% higher in 2030 as a result of AI – the equivalent of an additional $15.7 trillion. This makes it the biggest commercial opportunity in today’s fast changing economy”. With other industries creating robots, driverless cars, and other such innovations; it only makes sense that professional services to become as efficient and as effective as possible.
Global open industry standards can make artificial intelligence perform better. XBRL International's Open Information Model (OIM) and Object Management Group's Standard Business Report Model (SBRM) are two important standards related to accounting, reporting, auditing, and analysis. Those global open industry standards have uses far beyond just financial reporting.
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