Introduction to Standardization in Business

Standardization can confer numerous competitive benefits to businesses, from the efficiencies gained in the manufacturing production line, to the massive productivity gains available to knowledge workers, to the implementation of cutting-edge performance-enhancing technologies such as robotics process automation (RPA), business intelligence (BI) and analytics, and customer-journey mapping and enhancement.

Despite all that potential, it can be difficult to find a consistent and usable definition for standardization in business—let alone the actual standards that result from it.

In this article, we will definitively answer the question, “What is standardization?” We will trace its history and development. We will define and explore the different types of standards. And we will show the numerous benefits and advantages of standardization in business.

Standardization is the process of developing – and implementing – measures, metrics, (or, “standards”) used to specify essential characteristics of just about anything: rules, technologies, behaviors, measurements and countless other items.

However, one of the most important benefits of standardization in business is that throughout history it has always provided a powerful and valuable competitive weapon.

Four categories of standards are helpful for understanding where the competitive advantages of standardization in business can be developed:

  1. Performance standards – These lead the pack. Competitive superiority – as perceived by customers – sets the benchmark (or, the standard) by which all others are measured. Innovators respond by devising new processes (No.2) to deliver more competitive products and services (No. 3). Competitive gains in performance, the benefits of standardization in business, drive the continuous evolution of yet other standards.
  2. Process standards – These describe the “how” for achieving competitive superiority in business for products and services: how they’re developed, produced and delivered. Process standards describe the workings and operations of all aspects of a business – from the enterprise level down to individual digital data elements.
  3. Structure/form standards – These define the “what.” They specify the characteristics of a business’ products and services – from summary-level raw materials and customer needs all the way down to individual digital data elements. These are closely linked to, and sometimes inseparable from, process standards – especially when automation is involved.
  4. Regulatory standards – These are the formal “rules” of business, including everything from contract law through ingredients labeling and even customer service standards for regulated industries. Think of a tax code as a standard way to calculate the income from business performance – it’s another form of performance standard. It did not evolve to achieve competitive superiority – at least not for businesses.

What is standardization?

Definition: What is standardization?

Standardization is any process used to develop and implement metrics (i.e., “standards”) that specify essential characteristics of something whose control and uniformity are desired. Thus, standardization can apply to just about anything, including:

  • Rules
  • Technologies
  • Products
  • Behaviors
  • Measurements

Limits of the standard definition

While the above summary-level definition is accurate, it lacks sufficient detail to explain the transformative role of standardization in business—both in its historic past and its future potential. Capitalizing on standardization in business requires further definition of standardization processes, as well as the standards that they produce.

Finding this sharper focus is inherently difficult, given this paradox:

The basic irony of standards is the simple fact that there is no standard way to create a standard, nor is there even a standard definition of “standard.”[1]

So while standardization processes, and the standards themselves, are often poorly (even elliptically) defined, they must be recognized. And new ones must also be created. These are both prerequisites to harnessing business-empowering technologies such as robotics process automation (RPA), business intelligence (BI), advanced analytics, machine learning, and artificial intelligence (AI). None of these can live up to their promise of augmenting or even replacing human activities, unless the activities themselves are standardized first.

Deliberate vs. de facto standardization processes

Some standardization processes are launched intentionally and managed formally. Others develop casually and evolve unmanaged:

Deliberate standardization processes are knowingly and intentionally defined, adopted, and enforced. They’re often centrally managed. They can include documentation, formal reviews, and analysis, all to deliver a set of published standards; indeed, deliberate standardization processes are what most people associate with the term “standardization.” Examples include:

  • Deliberate attempts to create product standards that deliver consistent tasting meals across a franchise restaurant network.
  • Technical standards that enable connectivity across a global telecommunications network.

More examples, and details, will be provided in the Types of standards section below.

De facto standardization processes, by contrast, often emerge spontaneously, and proceed in a decentralized fashion. Despite broad input and wide adoption, they’re rarely managed. Instead, they’re typically informal, undocumented, and context- or interpretation-dependent. Thus de facto standardization processes can hide in plain sight; they’re easily overlooked and taken for granted. De facto standardization processes are what most people think of when they hear terms such as “crowd-sourcing.” Examples of de facto standardization processes include:

  • Everyday rules of thumb.
  • Know-how.
  • Tribal knowledge.
  • Data contained within a business letter, email, or even an invoice.
  • Trends in language variation, g., slang or idioms
  • Mobile phone emoticons, g., text or images.

What the above examples have in common, aside from their spontaneous roots, is the fact that human, rather than machine, interpretation is often essential for even trivial tasks that rely on de facto standardization processes.

Challenges of de facto standardization in business

While deliberate and de facto standardization processes can exist simultaneously, the distinction between them is simple and stark:

Deliberate standardization processes are subject to greater scrutiny, analysis, and evaluation. Therefore, the standards which emerge from these processes are typically well-tested and explicitly documented. It’s easy to locate their documented outputs, such as:

  • Specifications
  • Rule books
  • Ingredient lists
  • Building codes
  • Safety regulations
  • And countless others

Similarly, locating the organizations that authored these standards is a straightforward exercise.

By contrast, de facto standardization processes—and the standards that emerge from them—can often be illogical, ineffective, and even counterproductive. When they’re longstanding, widely-held, and unquestioned, they present a significant barrier to the introduction of deliberate standardization—forming the basis of an “anti-standardization bias” that can be difficult to surmount.

Examples of deliberate standardization processes

Deliberate standardization processes range from the casual and ad hoc to the formal and legal. Depending on the parties developing the standards, as well as their objectives, four broad categories of intentionally-developed standards emerge:

  • Laws. Mandated standardization process, with the objective of enforcement.
  • Voluntary development. Collaborative standardization process, with the objectives of coordination and interoperability.
  • Preferences. Informal, ad hoc, even unconscious standardization process, with objectives varying from market dominance to least effort/most convenience.
  • Innovators. Conscious, directed standardization processes, with the objective of achieving a strategic advantage, whether it is technical, economic, business, etc.

All of these categories—including the especially important fourth one, “Innovators”—will be discussed in greater detail in the Types of standards section later in this article.

Examples of de facto standardization processes

Among the less-obvious de facto standardization processes which persist in business today, five categories can be defined:

  • Perception of facts. The earliest “modern” notions of facts are about 200 years old. These include standard definitions, normalized comparisons, and statistical significance.
  • Data visualization. Common techniques for data visualization, which pervade today’s PowerPoint presentations, originated in the latter half of the 1800s. As recently as the 1920s, these were still considered new; progressive advocates decried their infrequent use.
  • Rules of thumb. This under-noticed category of business standards—which is not intended to be scientifically accurate—develops informally, based on experience and common-sense judgement. Most are perceived to be so obvious that no one bothers to write them down. They exist across organizations as a form of collective knowledge.
  • Workarounds. These are informal detours around known problems or limitations.
  • Tribal knowledge refers to any unwritten information that is not commonly known by others within a company—yet may need to be known by others. Unlike skill, tribal knowledge can be converted into a company asset through standardized documentation.

[1] Russel, Andrew, and Vinsel, Lee, “The Joy of Standards,” The New York Times, February 16, 2019.

History of standardization in business

The history of standardization, just like the practice of standardization, is far from written. It is still evolving. A conventional history of standards in business is rife with gaps: It begins with the evolution of weights and measures—and then leaps forward thousands of years to the industrial revolution that began in the late 1700s. It typically ends with a dry review of the regulatory bodies (such as Underwriters Laboratories) that emerged in the early 1900s to set standards for power, communications, and a host of then-emerging technologies. But that’s not a history of standardization; it’s largely a history of technology, with an institutional history of standards organizations bolted onto it. 

Such an approach to the history of standards in business overlooks three essential insights that are vital to its formation:

  1. The standardization process originates from four the fundamental sources noted earlier and detailed below (i.e., laws, voluntary development, preferences, and innovators).
  2. Competitive benefits of standardization in business typically originate from just one of those sources: Innovation.
  3. These standards—the result of successful innovation—often evolve through historical “lifecycles.” We will explain these after reviewing the four sources.

The four sources of standardization in business

Laws. In de jure (“by right”) development, standards are mandated by legislation, rulings, regulations, and interpretations thereof to meet the needs of courts and enforcement bodies charged with overseeing contracts, agreements, and compliance. Examples include:

  • Tax laws
  • Environmental regulations
  • Building codes

This source of standardization in business has persisted throughout history. Seven thousand years ago, in ancient Babylon, clay tablets were employed to track merchants’ accounting figures. And in the United States in 1917, for example, there were 994,840 varieties of axes available for sale. Under Herbert Hoover’s newly-created National Bureau of Standards, a far smaller number was mandated—along with such mundane yet important items as nuts, bolts, and the wrenches to turn them.[1]

Voluntary development. Here, standards are created intentionally and implemented via collaboration and cooperation. Examples include:

  • The North Atlantic Treaty Organization or NATO. The NATO Standardization Office (NSO) creates military standards and specifications common to all treaty members.
  • Telecom interoperability standards, which include network operating standards, and everything from USB to Wi-Fi, Bluetooth, BluRay, and 5G.

Again, the influence of these sources can be traced throughout history. Ancient Egyptians divided the work on the pyramids among skilled craftsmen, artisans, stonecutters, and porters—precursors of later trade guilds. Modern examples include crowd-sourced computer code, such as Linux and HTML.

Preferences. Contrasted to the de jure (“by right”) development described above, preference-driven standards are more de facto (“in effect”). They emerge as a result of widely-preferred work methods, technology, and product and customer characteristics. They may be catalyzed by a diversity of factors, whether planned or unintended, such as convenience, market forces, tradition, and perception. Examples include:

  • Data visualization, including the organization chart, and pie and bar charts.
  • Railroad track gauge, dating from the 19th
  • The moving assembly line.
  • Computer operating systems, including Apple iOS, Microsoft DOS, and Windows.
  • Facts: As we know them in the standards realm—including definitions, normalized comparisons, and statistical significance—these largely emerged in the late 19th century in Britain.

Preferences, as the basis of standards, can be traced back for decades. The Society of Automotive Engineers, founded in 1905, was instrumental in standardizing everything from the size of wrenches to the viscosity of motor oil;[2] while modern preference-based standards for computers include DOS, and for phones, systems such as iOS and Android.

Innovators. This is the most important category, as it pertains to business transformation. Individuals and businesses alike perceive standards as an opportunity to achieve a competitive advantage, and continually seek out new ways to apply the principle of standardization. This enables both specialization and division of labor, among workers and machines. Examples are manifold:

  • Division of labor: This can be traced all the way back to stone-age hunter-gatherers and flint tool makers.
  • Physical work: This includes the activity-level deconstruction and specialization of labor, as it evolved from human effort, to animal assistance, to the supplementation of steam and then electrical power.
  • Skilled labor deconstruction: The first specialized assembly lines began ages ago: One site in the U.K. has revealed to archeologists a veritable “hand axe factory,” dating back to the late Stone Age. In 1776, Adam Smith, in The Wealth of Nations, famously told the story of how one worker could effectively manufacture 4,800 pins a day, thanks to specialization of labor.[3] Advancements such as these paved the way for modern mass production.
  • Reduction of variance: This includes Six Sigma and Lean standards. Work that has gone through the Lean standardization “lifecycle” has been researched, documented, and measured to identify the operating details which deliver the optimal performance standard. Typically documented via templates, tables, and work charts, Lean-optimized work is defined by 1) work sequence (the best process flow for performing work activities); 2) Takt time (the production rate required to meet demand/avoid backlog/overage); and 3) standard work-in-process inventory (the ideal level needed to maintain a smooth Takt time flow).
  • Knowledge work, including the activity-level deconstruction and specialization of labor. Examples includes Gaspard de Prony, who, near the end of the 18th century, employed tiers of increasingly-skilled mathematicians to crunch vast quantities of numbers. It also includes Charles Babbage, who envisioned the first mechanical computer in the 1830s.[4]

Innovators and their standards have re-shaped the history of business and competition. Consider Adam Smith’s “pin factory” cited above; consider, too, how modern robotic process automation (RPA) allows individual knowledge workers to configure and install software robots—without the need for IT skills or coding.

History’s lifecycle of standardization

Standards are often created on a limited basis, to serve an in-house need, or a single business’ strategic objective (Category 4, “Innovators”). Later, if they succeed, these can evolve to become de facto industry standards (Category 3, “Preferences”). Over time, these can be further institutionalized by voluntary industry organizations (Category 2, “Voluntary Standards”). Ultimately, these standards might be mandated into contractual agreements and regulatory standards (Category 1, “Laws”).

Building codes represent a good example of this type of organic evolution. Other, less obvious examples include many elements taken for granted today in business: accounting rules, the definitions of assets, costs, even “facts,” and the means to display these: bar charts and pie charts.

[1] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, pp. 25, 56.

[2] “What Does SAE Stand for in Motor Oil?”: https://www.yourmechanic.com/article/what-does-sae-stand-for-in-motor-oil

[3] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, pp. 53-54.

[4] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, p. 59.

 

Types of standards

Rules of thumb vs. “scientific” standards

 Is it possible to create a systematic, step-by-step process to continually replace informal, inefficient work methods, or “rules of thumb,” with rigorous, scientifically developed standards? Could a process-standardization approach be developed to escape the unpredictability of random, one-off standardization “breakthroughs”? Doing so would continuously increase the benefits of standardization in business—and accelerate automation to enable more digital transformation.

In fact, Frederick Winslow Taylor (1856-1915) spent most of his career developing and promoting precisely that process-standardization approach—minus the emphasis on automation. He published his seminal work in 1911, entitled The Principles of Scientific Management. Although this masterpiece has historically been misinterpreted, under-utilized, and overlooked, Taylor’s insistence on scientifically developed, quantitative standards for work activities is directly applicable for businesses struggling to identify digital transformation opportunities.

Taylor noticed the vast drain on business efficiency that resulted from management’s widespread reliance on common rules of thumb when rigorous, scientifically accurate standards could be feasibly developed. And so, by his own 1911 description, Taylor set out to create a management process-standardization approach based on “…the substitution of scientific, for rule-of-thumb methods in even the smallest details of the work… (to achieve)…enormous saving of time and…increase in the output…”.

More importantly for digital transformation today, Taylor noticed that the intangible waste of avoidable work effort was difficult to perceive, because it left nothing behind: no scrap piles, no returned goods. Appreciating these vast, stealthy losses required, according to Taylor, “an effort of the imagination.”

“Rules of thumb” is a very effective way to understand the “unstandardized” problem. While businesses will often push back against that portrayal, the fact is that existing work is not un-standardized. Rather, it is under-standardized. That’s because it operates according to rules-of-thumb standards. Rules of thumb are like a least-effort solution to standardizing—a stark contrast to the development of quantified, scientific standards.

Deliberate business standards

Businesses consciously adhere to a wide range of diverse, deliberately-developed standards—some voluntary, others mandated by law. At the same time, they often seek to deliberately establish standards as a part of their competitive strategy. If successful, the business might establish its product or service as a wider standard for the industry, the region, or an entire category. Consider the examples below:

Generic standards include a product or service that defines an entire, often new, class of similar things:

  • Kleenex describes an entire class of facial tissues.
  • Band-Aid, invented in 1920, describes an entire class of adhesive bandages.

Brand standards include the visual, audio, or linguistic characteristics which define a company or category of products:

  • The Shell Oil Company logo requires no text, characters, or symbols for recognition, worldwide.

Some brand standards are so powerful that the owners temporarily modify them, disrupting standard customer expectations to increase brand recognition and awareness:

  • Coca Cola temporarily relabeled its cans with people’s first names using its famous logo script.
  • Snickers candy bars were similarly rebranded with words such as “Hungry” and “Satisfies.”

Industry standards are generally-accepted practices and/or technical specifications adopted across an entire industry:

  • The financial services industry maintains standards for the transfer of funds by means of its Automated Clearing House (ACH) network.
  • The tire industry maintains technical standards (such as P-metric and Euro-metric) for the sizes of its products.

Market standards are similar to industry standards (above), except that they pertain to market segments, which might cut across industries:

  • Manufacturers of products such as electrical equipment often produce different versions of the same device to meet the differing needs of residential versus commercial markets.
  • Professional service standards and licensing requirements often vary by market: General practice physicians must meet different standards than those promulgated for specialized surgeons.

The importance of standardization in business

 Standardization can empower business performance by enabling effective management of the “intangible assets” in knowledge-work business—which accounts for 60 percent of the average S&P business today.

Advantages and benefits of standardization

Historically, the most valuable benefits of standardization in business deliver breakthrough competitive advantage for workers, businesses, and entire industries. Over the course of two and a half centuries, landmark breakthroughs in business standardization have been famously documented for manufacturing straight pins (Adam Smith, 1776), laying bricks (Frank Gilbreth, 1909), and assembling automobiles (Henry Ford, 1913).

Each of these standardization breakthroughs replaced informal, inefficient work methods with more rigorously—even “scientifically”—developed standards. Over the course of time, the benefits of standardization in business from these insights have been continuously harvested in the form of increased levels of automation; even brick laying is increasingly performed by robots. These standardization breakthroughs have not been overlooked; they continue to be transformational.

The single standardization process most relevant to business is that driven by innovation, as described in the History of standardization section above. In this instance, businesses or entrepreneurs develop what they believe will be a “better mousetrap”—one that impels customers to “beat a path to their door”, e.g., a faster algorithm, a tastier formula, or a more efficient supply chain.

Advantages of activity-level standardization

Henry Ford noted in his autobiography that “the greater the subdivision of industry, the more likely that there would be work for everyone.”[1] This actually speaks to the activity-level standardization in manufacturing, and the numerous benefits it confers upon the company:

  • Training is simplified and cycles are reduced: workers can learn new jobs, and more jobs, and get started almost immediately. Similarly, the operation can better accommodate a diversity of worker skill levels.
  • Short tasks (anywhere from one to eight minutes in duration) enhance simplicity and make it easier to fit them to individual workers’ skills.
  • Overall standardization of activities allows for greater scheduling flexibility; management can easily move workers, depending upon needs.[2]

In modern production operations, these brief, consistently-timed activities deliver numerous benefits, including:

  • Line balancing, with easier-to-achieve continuous-flow production.
  • Outsourcing, due to the unbundling of work activities which increase opportunities.
  • Automation: Simple, short, and repetitive tasks are ideally suited to machines and robots.

Benefits of standardization: Potential impact

The very lack of standardization which persists in knowledge-work operations today points up a vast opportunity for benefits of standardization in business. The lack of standardization among knowledge workers squanders some $3 trillion in value among the Fortune 500 alone:[3]

  • Ten million knowledge workers are employed by the Fortune 500.
  • Thirty percent of their work activities consist of avoidable waste (also known as “virtuous waste”).
  • Three million full-time equivalent workers perform avoidable waste activities.
  • $180 billion is spent on compensation to these workers.
  • Twenty percent of earnings are diverted to virtuous-waste compensation.
  • Thus, $3 trillion in value to shareholders is lost to virtuous waste.

By contrast, the elimination of virtuous waste, due to rigorous standardization of knowledge-work activities, can transform this liability into an asset.

[1] [1] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, p. 236

[2] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, p. 236.

[3] Heitman, William, The Knowledge Work Factory, New York: McGraw-Hill, 2019, p. 3

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