economic benefits of standards

Reinhard Weissinger*

Economic benefits of standards

Abstract: This paper summarizes the results of a projectundertaken by the International Organization for Standar-dization (ISO) to assess the economic benefits of standardsthrough case studies in over 20 countries worldwide. Themethodology has been developed in 2009 by ISO in coop-eration with Roland Berger Strategy Consultants and con-tinuously refined to determine and quantify the benefitsthat result from the use of standards for standards-usingorganizations. The paper starts with an overview of howthe case studies have been organized, followed by anintroduction to the methodology and concludes with asummary of the main findings.

DOI 10.1515/pik-2014-0015

1 Background

Various studies have been undertaken over the lastdecades to identify the benefits of standards, in particu-lar with regard to economic criteria. Such studies rangefrom listings of “functions” of standards (e.g. varietyreduction, process optimization, consistency in commu-nication etc.) to studies that applied different methodol-ogies towards measuring the economic impacts of stan-dards. Many of these studies were oriented to analyzingthe macroeconomic benefits of standards and resultedin some quantitative contribution of standards towardsthe GDP or productivity increases of a national econo-my [1].

Different from these studies, the ISO methodology isoriented towards identifying and quantifying the microe-conomic benefits of standards, i.e. the economic contribu-tion the use of standards makes to company profits or thecosts/revenues of an organization.

This article gives an overview of the Methodology andsummarizes some of the main outcomes of the case stu-dies.

2 Case studies implementingthe ISOmethodology

Since 2010, ISO and its members have undertaken com-pany case studies to apply and test the methodology inover 20 countries worldwide. The selection of the compa-nies for the projects was made by the ISO members in thevarious countries. The only requirements were that thecompany had been a user of standards at least for a num-ber of years and that themember body had a good relation-ship with the company, to make sure that key staff in thecompany would be available for interviews and discus-sions with the project team. Table 1 shows the spread ofthe case studies over twelve different industries andtwenty-one countries [2].

It should be mentioned that in one case study, a wholeindustry sector, the global automotive industry, has beenanalyzed. However, this paper is limited to the review ofstudies related to the contribution of standards on indivi-dual companies.

Although manufacturing companies from different in-dustries constitute the large majority of the selected com-panies, the assessment approach is generic and can beapplied for all types of industries and companies, specifi-cally including ICT.

Table 1: Industries and countries covered by the case studies

Industries Countries

Agri-food business Cameroon, Peru, Egypt

Chemical industry Thailand

Construction & constructionmaterials

Botswana, Indonesia, Italy,Lebanon, South Africa, Sri Lanka

Electrical appliances Vietnam

Electrical power transmission Germany

Food retail/food logistics Singapore

Heating, ventilation,air conditioning

Jordan

Industrial automation equipment Brazil

Information & telecommunication Germany

Pipes and piping systems China, Colombia, Mauritius

Shipbuilding China

Water supply Senegal* Corresponding author: ReinhardWeissinger:E-Mail: [email protected]

PIK 2014; 37(3): 183–188

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Key data needed for the assessment was obtained throughdesk research and the use of available industry data. How-ever, the primary sources of information about the com-pany are interviews and workshops with company repre-sentatives as well as publications of the company, such asannual reports and other internal documents, such asquality manuals.

3 Basic analytical approach of themethodology: The Value Chain

3.1 Company value chain

Themethodology is based on the Value Chain approach [3].In this approach, the operations of a company are sub-divided into a number of key business functions (see fig-ure 1 with the primary functions E to I and the supportingfunctions A to D). These functions are associated with a setof activities that are typically undertaken inside each of thebusiness functions.

Figure 1: Company value chain.

3.2 Industry value chain

The value chain approach can be applied to a single com-pany, but it can also be extended to an industry sector (orbeyond), in which case the network of suppliers and custo-mers of a company are included in the perspective.

4 Key steps in the assessmentof an organization

The assessment of the impacts of standards is undertakenin a four-step approach:

Step 1: Understand the value chain of the industryand the company

The first step is to determine – at least at a general level –the value chain of an industry and to locate a company inthe context of the industry value chain. This is importantbecause it helps to understand the business, to appreciateits boundaries and its relations with suppliers, customersand distribution channels. Secondly, the internal valuechain of the company needs to be understood. It is crucialto understand the company business processes, its organi-zation, and its core value adding activities.

A decision of key importance is with regard to thescope of the assessment: should it cover the whole com-pany, or should it be limited to one or more of its businessfunctions? It may take a few iterations in the analysis untilthe scope can be finally fixed. The decision on the scope isdependent on factors such as the size and complexity ofthe company, the available resources for the assessment,the access to key information, the experience of the mem-bers of the project team and the willingness of the com-pany to engage in such an assessment.

Figure 2: Processmapwith an indication of the locations wherestandards are used.

Step 2: Identify the impacts of standards

In this second step, the business functions and activities inthe company value chain where standards are expected toperform a significant role are determined. Existing com-pany documentation, e.g. the quality manual, process andorganizational charts, other corporate or departmentaldocumentation, should be used to understand processes,business functions and the main activities performed bythe relevant business functions. Company experts shouldthen indicate which standards (or groups of standards) areapplied for which activities within the selected businessfunctions. Figure 2 shows a process map in which stan-

184 ReinhardWeissinger



dards are mapped to specific activities (the “stages”) thatare conducted within a business function.

Step 3: Analyze the value drivers and determineoperational indicators

This step is divided into the following two sub-steps: a) theanalysis of the company value drivers and b) the determi-nation of operational indicators relevant to the selectedbusiness functions.

a) Value driversValue drivers are crucial organizational capabilities thatgive a company a competitive advantage. The analysis ofvalue drivers is important because:– It helps to better understand the company strategy

and the activities, within the various business func-tions, that add value

– If impacts of standards can be assessed in activitiesclosely associated with value drivers, their impact onvalue creation may be significantly higher than forother activities

The analysis of value drivers can be done at two levels:Firstly, at the company level, an analysis of the valuedrivers helps to understand the overall company strategy.Depending on the organization of the project and theinvolvement of senior management, the analysis can beperformed initially in the framework of the value chainanalysis (step 1) and may then be refined in the currentstep. Secondly, at the level of the individual business func-tions, activities can be identified that are more closelyconnected with the company value drivers and relatedoperational indicators.

Figure 3: Intersection: standards contribute and sustain value diversand key activities.

Whenever possible, the assessment of the impacts of stan-dards should focus on activities most closely related tovalue drivers (see figure 3). This is because standards willmost likely generate the largest benefits for a company

when they support value drivers. However, if such anintersection cannot be found or if it is relatively limited, allother activities which are impacted by standards should beconsidered as a secondary choice.

b) Operational indicatorsTo assess the impacts resulting from the use of standards,one or more operational indicators need to be identified.Operational indicators are measurable criteria of companyactivities that show improvement or degradation of perfor-mance. The operational indicators chosen in the assess-ment need to be relevant, i.e. they need to capture essen-tial aspects of the activities under analysis, and need toreflect the impacts of standards. Whenever possible, theyshould be associated with the company value drivers. Theselected indicators may not cover all the impacts of stan-dards on the selected business functions. Nevertheless, ifchosen carefully, the impacts that can be determined andquantified for these indicators may be significant enoughto prove the degree to which standards influence the op-erations of the company and contribute to its value crea-tion.

Step 4: Assess and calculate results

The purpose of the whole assessment process is:1. To quantify the impact from the use of standards

through the operational indicators and to aggregatethese impacts for each of the selected business func-tions;

2. To convert the resulting quantities in financial figures,such as Earning Before Interest and Tax (EBIT), i.e.gross profit, generated by the use of standards for eachof the selected business functions;

3. To sum up the figures for all the selected businessfunctions, determining the total contribution of stan-dards to EBIT. EBIT is the key indicator applied for theassessment and is taken as a measure of the contribu-tion of standards to the company's value creation.EBIT expresses the gross profit of a company, i.e.revenueminus cost, at a given point in time.

It is expected that the use of standards leads to a change inthe value of the operational indicators for the selectedbusiness functions. This impact, converted into financialterms, shows that the value created by the company isincreased a) by reducing costs, b) by contributing to higherrevenues or c) a combination of both.

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5 Basic approach tomeasuringthe impacts of standards

In the simplest case, the approach to assessing the impactsof standards is to compare a situation 1 in which certainstandards have not been used in an organization for abusiness function, a process or an activity, with a situa-tion 2 after these standards have been applied (see fig-ure 4).

Figure 4: Basic approach in the assessment: Comparison betweensituation 1 and 2.

5.1 Distinction between the impacts ofstandards from other factors

Obviously, there may be other factors that have an impacton the performance of a company and the data thatare collected with the chosen operational indicators. Toaddress this challenge two approaches can be applied:(1) Indicators can be refined to a level that they are morepertinent to reflect the impacts of standards versus otherfactors such as process re-organization, automation etc.(2) Experienced staff members of an organization can beasked to give an estimate of the degree they believestandards have impacted the performance. If their estima-tion results in a contribution by standards of x % of themeasured impacts for a particular indicator, then thisportion (x %) is attributed as the impact of standards.

6 Findings from the company casestudies

As mentioned earlier, the selection of the companies forthe projects was made by the ISO members in the variouscountries.

An overview of the business functions where stan-dards had the most impact in the companies and whichtherefore have been the subject of assessment is given intable 2. It shows that production is the business functionmost frequently assessed, followed by marketing andsales, procurement and R&D/Engineering.

The size of the companies varied from small com-panies with 25 employees with annual sales revenue ofaround USD 4.5 million to companies with several thou-sand employees and annual revenue of over USD 2 billion.

Table 2: Business functions (BFs) assessed in the case studies todetermine the impacts of standards

M&S =Marketing & Sales // M&A =Management & Administration //R&D = Research & Developmen t// S&L = Storage & Logistics

6.1 Key benefits of standards resulting fromthe case study findings

The results demonstrate consistently that companiesachieve benefits from using standards. From the companycase studies it is possible to identify three main forms ofbenefits from the use of standards:

Key benefit 1: Streamlining internal operations

Standards can be used to streamline the internal processesof companies: e.g. by reducing time needed to performspecific activities within the various business functions,decreasingwaste, reducing procurement costs and increas-ing productivity in production and engineering. Gains in




efficiency also occur through the reduction of transactioncosts with suppliers and customers: Most of the case stu-dies provide evidence of this type of impact and the bene-fits of using standards are valued, in terms of contributionto the companies’ EBIT or gross profit, between 0,15 and5per cent of the annual sales revenues of the companies.

Key benefit 2: Innovating and extending the scale ofexisting company operations

Some case studies provide examples that standards areused as the basis for innovating business processes, suchas cold chains used in the transport of perishable goods,allowing the extension of the geographical market for foodsupply. In other cases, standards helped to reduce the riskto companies of introducing new types of products tonational markets. Standards can also be used as a basis forthe international expansion of companies by providing acommonmanagement framework.

Key benefit 3: Creating or entering newmarkets

Other case studies show that standards have been used asa basis for the development of new products, for enteringnew markets (both domestic and export), for supportingmarket take-up of new products, or creating markets. (Theterm “new product” refers either to products that are com-pletely new or which may have existed already, but arenew to a particular national market). In special cases theimpact of standards could exceed the previous figure byfar, reaching a contribution to the companies' gross profitof up to 33 per cent of annual revenue, helping a com-pany to achieve a leading position in its market, at least fora certain period of time.

In case standards are instrumental in creating marketsfor new products, then the contribution of standards canbe significant. The mentioned 33 per cent contributionwhich was found in one of the case studies occurred in acompany of the ICT-sector. It is not clear whether this isrepresentative of the sector or not, but seems to be relatedto the early stage of market creation when the companyenjoys a dominatingmarket position [4].

In such cases, standards can play a central role increating confidence for potential customers in a new tech-nology or in building trust that a company which enters anew market will be able to consistently deliver productsand services with the required quality.

The case studies did not attempt to quantify the bene-fits derived from participating in standards development.

However, the analysis indicates that when standards playan important role for entering new markets or promotingnew products, companies tend to be significantly engagedin standards development and, in some cases, they have aleadership position (at national or international level).Consistent with the above, case studies also provide evi-dence that a focus on standards can be the core of anupgrading strategy throughwhich companies aim at enter-ing higher value-added segments of the value chain intheir respective industries.

6.2 Types of standards used

As shown in table 1, the case studies comprise companiesfrom twelve different industries each of which uses indus-try-specific standards. One fact sticks out, however: Allcompanies have implemented management system stan-dards and most of them are certified against them. Thisincludes ISO 9001 (quality management), ISO 14001 (en-vironmental management), OHSAS 18001 (occupationalhealth and safety management) as well as sector specificmanagement system standards, such as ISO 22000 (foodsafety management) or ISO/TS 16949 (special require-ments of quality management systems based on ISO 9001for the automotive industry). Other related standards thatare referred to in some of the case studies are SA 8000(social accountability), standards developed by the EthicalTrading Initiative (ETI) or the HACCP-system used in foodprocessing.

This fact may be taken as an indication that the com-panies have established – to a certain degree – a systema-tic approach to the management of their operations. Thisfactor is most likely a key precondition for the economicbenefits the companies have gained from the use of stan-dards.

Bibliographic references

1 ISO has established an online repository with studies on thebenefits of standards, which contains bibliographical informa-tion, but in many cases also links to the full texts of thesestudies. The repository can be found at: http://www.iso.org/iso/home/standards/benefitsofstandards/benefits_repository.htm?type=EBS-MS.

2 Gerundino, D., Weissinger, R. (2011). Economic benefits of stan-dards. International case studies. Geneva: International Organi-zation for Standardization. The case studies in this volume areavailable at: www.iso.org/benefits_of_standards.Gerundino, D., Weissinger, R. (2012). Economic benefits ofstandards. International case studies. Volume 2. Geneva:International Organization for Standardization. The case studies

Economic benefits of standards 187



http://www.iso.org/iso/home/standards/benefitsofstandards/benefits_repository.htm?type=EBS-MS



http://www.iso.org/benefits_of_standards

in this volume are available at: www.iso.org/benefits_of_standards.

3 Gerundino, D., Weissinger, R. (2013). Economic benefits ofstandards. ISOMethodology 2.0. Geneva: International Organi-zation for Standardization. This publication is the key source forthe description of the ISOMethodology and brings togethertheoretical aspects as well as practical experience and guidancederived from the organization of the case studies.

4 The concept of the “company value chain” as used in this meth-odology, which relates impacts of standards to business func-tions, is based on the work of Porter, M. (1985). Competitiveadvantage. Creating and sustaining superior performance.New York, London, Toronto: The Free Press. See in particularpp. 33–61. Porter’s approach is based onmanufacturing compa-nies, which implies that the basicmodel of the value chain needsto be adapted for the analysis of other types of organizations orservice companies.

5 For this example, see the case study of the German ICT-companyNanotron at: http://www.iso.org/iso/home/standards/benefitsofstandards/benefits-detail.htm?emid=40.

ReinhardWeissinger: InternationalOrganization for Standardization (ISO),1 chemin de la Voie-Creuse Geneva 1201,Switzerland






http://www.iso.org/iso/home/standards/benefitsofstandards/benefits-detail.htm?emid=40

http://www.iso.org/iso/home/standards/benefitsofstandards/benefits-detail.htm?emid=40

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