With or without you: The countervailing forces and effects of process standardization

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Abstract

Process standardization is defining a new era of business process revolution across many industries and contexts in electronic commerce in which the impetus for cooperation is greater than the drivers of competition. As industries consolidate and competition rises, firms are increasingly pursuing process standardization to further enhance process management and reap the benefits of standards. The current literature explores and analyzes standards and standardization at the IT, firm, and industry levels. The complex nature of process standardization requires a reorientation of the existing approaches to analysis to understand the countervailing forces and effects. This article introduces a robust framework that captures the dynamics of process standardization across four levels of analysis: IT innovation, firm, industry, and economy. It also presents the cascading effects that occur as we traverse through the different levels. We use this framework to draw conclusions for appropriate directions in research that will enable greater theoretical and managerial understanding of the related issues.

Introduction

Process standardization has quickly become a global phenomenon across many industries and contexts in electronic commerce, creating the impetus for cooperation more so than necessity of competition. Toward the end of the 20th century, firms began to explore the idea of process outsourcing as a means to further reduce costs, increase flexibility, and acquire access to specialized expertise (Davenport, 2005, Westland, 2008). Despite the attractiveness of process outsourcing, firms have been cautious in pursuing this option due to the associated challenges and risks. The lack of common process standards across industries has been speculated to hinder their adoption (Smith and Fingar 2003). Industry-wide process standards provide the advantages of a standardized approach to describe business processes via a common terminology, consistent measurements for determining results across various industries, opportunities to decrease process overhead costs and growth in off-the-shelf IT solutions that incorporate industry best practices. In e-commerce, this trend has led to the creation of standardized process for e-purchases, consistent formats for online catalogues, and a common set of business practices for buyers, sellers, technology suppliers and payment authorities.1

A de facto process standard takes many years to develop and requires the contribution of various industry stakeholders. The telecommunications industry took over 8 years to establish the Business Process Framework also known as eTOM (Enhanced Telecom Operations Map), a de facto process standard. eTOM emerged as a result of the collective effort among the participants of the TeleManagement Forum (www.tmforum.org) (TM Forum 2009a). This industry consortium was founded in 1988 and has focused on the transformation of business processes, operations and systems for managing and monetizing online information, communications, and entertainment services (TM Forum 2009b). Within the last decade, similar activities have occurred across other industries, and many industry standard-setting organizations (SSOs), also known as standards development organizations (SDOs), have been born. Examples include the OpenTravel Alliance (OTA, www.opentravel.org) in 1999, the Society for Worldwide Interbank Financial Telecommunication (SWIFT, www.swift.com) in 1973, the Petroleum Industry Data Exchange (PIDX, www.pidx.org) in 2006, and the Mortgage Industry Standards Maintenance Organization (MISMO, www.mismo.org) in 1999. A primary focus of industry consortia is to support the production of vertical information systems (VIS) standards, which are technical specifications that promote coordination among the organizations within or across vertical industry sectors (Markus et al. 2006). Unlike IT standards where the emphasis is on creating technology standards that support horizontal application, VIS standards are designed to support data and business processes of particular industries. The evolution of process standards has resulted in tremendous development of IT. See Appendix A for additional background on some of the leading SSOs that we have mentioned here.

Why does it take an industry so long to form a de facto process standard? What are the countervailing forces and effects that influence the creation and diffusion of process standards? When is it appropriate for a firm to shift from a competitive strategy to a more cooperative strategy? Our study aims to address these primary research questions in this arena. Lyytinen and King’s (2006) review of the IS literature revealed that the topic of standardization has not been rigorously pursued in the information systems (IS) discipline, despite the significant role standards play in the evolution of IT. The existing literature concentrates on IT standards rather than on VIS standards or process standards specifically. As the number of firms exploring process standardization continues to rise, this topic has become increasingly important. To fill this gap in the research, we surveyed the standards and standardization literature to explain process standardization and the formation of de facto process standards.

Standardization is the activity of standard-making and a standard is “a set of technical specifications adhered to by a producer, either tacitly or as a result of a formal agreement” (David and Greenstein 1990, p. 2). Process standardization involves creating standardized processes. Process standards represent a subset of VIS standards, and similar to compatibility standards, they assure the user that an intermediate product or component can be successfully incorporated in a larger system comprised of closely specified inputs and outputs (David 1987). Compatibility standards exist as de jure and de facto standards. De jure standards are mandated by public authorities, and de facto standards are formed ex post in the market process as a consequence of the interaction among agents (Antonelli 1994). De facto standards are further categorized in two ways. One category is unsponsored standards, or “sets of specifications that have no identified originator holding a proprietary interest, nor any subsequent sponsoring agency, but nevertheless exist in a well-documented form in the public domain” (David and Greenstein 1990, p. 2). The other is sponsored standards, “where one or more sponsoring entities holding a direct or indirect proprietary interest – suppliers or users, and private cooperative ventures into which such firms may enter – create inducements for other firms to adopt particular sets of technical specifications” (David and Greenstein 1990, p. 2).

Industry consolidation, and expanded organizational and IT requirements are all factors that have contributed to the increased complexity of business processes. In recent lectures at MIT and University of Manchester, Dr. Wladawsky-Berger, former Vice President of Technical Strategy and Innovation at IBM, has referred to the 21st century as the “era of business process revolution” (University of Manchester 2006). Across industries, firms seek to streamline and deliver more consistent processes, triggering process standardization to spread at a much faster rate than it has in the past. For some industries, process standardization is just beginning to materialize. Firms have the opportunity to standardize processes where differentiation brings negligible value, so they can concentrate on innovating around processes and business models that bring true differentiation and value to the business. This overall shift in business strategy offers researchers and practitioners a chance to explore and comprehend the significance of this transformation. Fomin and Keil (2000) describe standardization as a blend of complex economic and social interactions that make traditional business and e-commerce more effective.2

As we previously indicated, the current literature addresses standards and standardization at three levels of analysis: the IT, firm, and industry levels. This approach offers a limited view on the subject though. A fourth level of economy is required to support a fuller understanding of the evolution and refinement of process standards. We will introduce a new perspective: that there are cascading effects that occur as process standardization evolves from the simplest to most complex level of analysis. This starts with IT innovation, and goes to the firm and industry levels, and then on to the level of the economy.

We discuss this perspective using a framework presented in Section 2. The remaining structure of the article is as follows. Sections 3 IT innovation dynamics and process standards, 4 Firm dynamics and process standards, 5 Industry dynamics and process standards, 6 Economy dynamics and process standards apply this framework and offer theoretical perspectives on each of the four levels of process standardization, including the corresponding cascading effects. Section 7 introduces real-world examples to ground our proposed framework. The final two sections close with a discussion of emerging themes on process standardization that warrant additional research exploration in the context of IS and e-commerce, and our key findings.

Section snippets

A process standardization analysis framework

The process standardization ecosystem includes four levels of analysis: IT innovation, firm, industry, and economy (see Fig. 1).

Each level introduces cascading effects that flow into subsequent levels. There are two dimensions to the cascading effects: stakeholder dynamics and process standardization level outcomes. Stakeholder dynamics broadly describe the complex activities that occur among the dominant stakeholders of each level. Stakeholder dynamics increase in complexity as process

IT innovation dynamics and process standards

Process standardization begins at the IT innovation level, and technology producers influence the stakeholder dynamics. Technology producers launch IT innovations that introduce new business processes. These processes are the process standardization level outcomes at the firm level and serve as firm level forces.

Firm dynamics and process standards

The second level of process standardization is the firm level. At this level, the stakeholder dynamics center on the technology producers and technology users. The motivations for technology users to standardize processes are different from those of technology producers. Business processes drive process standardization at the firm level. The process standardization level outcome is formation of coalitions between technology producers and technology users.

Industry dynamics and process standards

At the industry level, the stakeholder group increases to include an industry SSO and related business intermediaries. The multiple coalitions created at the firm level represent the forces at the industry level. An industry SSO is born as collective bodies work to establish an organizational community focused on driving a common goal. Business intermediaries emerge to create new market niches for themselves. Once the coalitions decide that there is a need for an industry standard, a de facto

Economy dynamics and process standards

The economy is the final level of analysis. Once a de facto standard exists, the stakeholder list expands to include other SSOs, regulators, and analysts. Existing stakeholder categories will also experience an increase in participants. The de facto standard created at the industry level becomes the driving force at the economy level. Massive adoption and diffusion of the industry standard will lead to commoditization of the standardized process and the technologies that support it.

Grounding the framework with real-world examples

We next offer some discussion of additional real-world examples that involve two well-known SSOs, the timelines for the development of their de facto standards, and observations about them that match the cascading effects we proposed. This is intended to ground our proposed framework, if not to validate it fully. We leave that for others in future research.

Research directions

Our survey of the standards and standardization literature revealed that the area of process standardization requires further investigation. This article offers a starting point for researchers seeking to contribute by developing a stronger understanding of process standardization. To assist researchers who aspire to expand their knowledge, and make new and relevant contributions to process standardization research, we note several emerging themes and research directions (see Appendix D).

One of

Conclusion

We evaluated the countervailing forces that relate to process standardization, and the effects of their promulgation in the marketplace. The traditional approach of evaluating standards and standardization via a one-dimensional analysis of IT, firm, or industry is insufficient due to the complexity of process standardization. The framework we propose captures four levels of analysis that operate in tandem with one another: IT innovation, firm, industry, and economy. In addition, it presents

Acknowledgments

This article was presented at the Research Development Track at the 2009 International Conference on Electronic Commerce in Taipei, Taiwan in August 2009. A brief abstract also was included in the ICEC 2009 Proceedings. The authors acknowledge helpful discussions on related topics with Yoris Au, Kim Huat Goh, Alok Gupta, Ting Li, Fu-Ren Lin, Arti Mann, Ben Shao, Trent Spaulding, Angsana Techatassanasoontorn, Hsiao-Lan Wei, Chris Westland, Amy Ping Wu, James Yeh, and the participants of the 2009

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