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“If you control an
industry’s standards, you control the industry lock, stock and ledger” -W.
Edwards Deming The Organization of Economic Cooperation and
Development (OECD) estimates that 80 percent of global trade (equivalent to at least $4
trillion) is impacted by
technical regulations and standards[1].
This estimate underscores the importance of incorporating technical
regulatory planning as part of the overall corporate strategy and the
planning process. Many
organizations overlook the strategic nature of technical regulations and
delegate the responsibilities to those that may not have a holistic vision
of the organization. A sound,
technical regulatory strategy will benefit an organization through scale
economies, expanded market access, more consistent quality, lower-cost for
product differentiation, and lower cost of regulatory compliance. Strategic Technical Regulatory Management (STRM™) consists of a framework that enables a clearer vision of the organization’s direction and the tactics necessary to successfully navigate the regulatory landscape. The framework is comprised of four basic strategies that an organization can follow to achieve the goals that are in alignment with their overall organizational objectives:
Standards:
The Core of STRM The basic element of
STRM is the global standardization system and strategically leveraging the
development process. Standards
are so pervasive in our industrialized society that we overlook their
necessity and under-value their importance.
Standards are the underpinning of our technologies and the
technical bedrock of our regulations.
In the past, these standards only affected local markets, but
companies in the global market must contend with both domestic and
international standards and regulations.
A company exporting
to the international community must deal with divergent and ever-more
intrusive government regulations. This
pressure comes from both the domestic government, as well as the importing
country’s regulatory requirements. This
compounding impact of multiple national regulations on a company is
immense and must be dealt with from the strategic levels of the
organization. As a fundamental element of the industrial infrastructure,
standardization must be part of the strategic planning process with
short-term and long-term planning, encompassing the use of standardization
as a competitive tool. Standards
Defined A standard can be
defined as: Documented
agreements containing technical specifications or other precise criteria
to be used consistently as rules, guidelines, or definitions of
characteristics, to ensure that materials, products, process and services
are fit for their purpose.
-International Organization for Standardization (ISO) This definition
simply means "a common solution to repetitive problems."
Standards provide industry with a mechanism to lower costs, increase
quality, and communicate with consumers. First, standards play
an important role in lowering costs by providing scale economies within a
company and across an industry. For
example, screw manufacturers comply with industry standards so there are a
finite number of screw-types, enabling mass-production.
This cost-benefit is realized by a company that uses the screw,
first through a reduction in design-time and second, through the cost
savings associated with the mass-production of the screw. Standards also play a
large role in increasing quality and the sustainability of that quality
level. Both regulatory and
market measures will drive the lowest level of quality accepted.
Regulated performance standards will mandate a lowest level of
quality accepted by a product, requiring compliance by the manufacturer.
The free-market also will drive an industry to comply with a
quality standard. If the
market only will support a product that meets a certain standard then
companies will have to comply or face declining market share.
Sustainable quality is accomplished through quality management
standards such as ISO 9000, which requires an organization to establish a
company-wide methodology to manage the quality process. A consumer benefits
greatly from standards because they provide a common language with the
manufacturer to describe expectations such as safety, performance,
quality, and interoperability. Consumers
can use standards as a basis for product comparison, making an informed choice on which product best fulfills their needs. Standardization
Process Industry standards
(technical regulations) are developed in a global system that is
intricate, interweaving different processes, participants, and objectives.
For example, there are
different processes that produce standards including company standards,
consortia, and consensus. The
players involved in the standards development process can be individuals,
companies or countries. Objectives of the standards can be
different depending on the goals of
the process and the participants. The driver for
strategically managing this process is to align your organizational goals
with the standardization process, making sure that you are participating
at a level that is appropriate for your company and your industry.
There are thousands of committees, developing industry standards
through hundreds of organizations every year.
STRM begins with assessing your organization’s objectives and
utilizing this standardization infrastructure as a tool to support these
objectives. STRM
Framework As mentioned earlier,
the basic strategies within STRM are:
Companies engaged in
strategic planning typically conduct a SWOT analysis to understand
internal strengths and weaknesses and external opportunities and threats.
A key discussion
in this stage is the impact of the regulatory landscape on the
organization and the level of interaction the company has with its environment. This thought
process establishes the organization’s current-state in relation to its
regulatory environment. The next step in
crafting the organization’s future state of interaction is determining
the appropriate STRM strategy. Respond
– The Respond strategy is basically a hands-off approach to development
of the technical regulation, focusing
on compliance.
When a relevant regulation is imposed, the company seeks
efficiencies in the production of the regulated product or in the auditing
process itself. Plan
– The Plan strategy is based on
the organization’s participation in the standardization process and the
anticipatory knowledge that is gained.
Many times a regulatory body will work with an industry’s
standard developing organization to create the technical basis for a new
regulation. This open
communication may result in the industry standard precluding the
regulation altogether, but at the very least the participants have an
inclination of the regulatory body’s intentions.
This foresight provides opportunity for the organization to prepare
for the pending regulation, providing a competitive advantage over those
companies that have not anticipated the change. Defend
– The Defend strategy is a
proactive stance in the standardization process.
The intended outcome of this strategy is status-quo of value
relative to the competition. One
of the dangers of not participating in the process is that you may be held
accountable for a standard that your competition influenced, leaving you
at a distinct disadvantage. The
Defend strategy is implemented in cases where your organization already
enjoys a competitive advantage and the pending regulation may threaten
that advantage. Affect
–
The Affect strategy is also a
proactive stance; however, status-quo is not the goal.
The intent of the Affect strategy is to increase your product’s
value relative to your competition. This
is accomplished by actively seeking to influence the technical-regulatory
environment toward your competitive advantage.
The first step in this process is to understand the regulatory
landscape by knowing who all of the players are and where your participation
will have the greatest impact. Conclusion Global competition is
so fierce that companies constantly are searching for a way to distinguish
themselves by either decreasing costs or increasing their perceived value.
Strategically managing the technical regulations that impact your
industry is a path that few companies leverage to its fullest potential,
but those that do reap great benefits. Government regulations are an undeniable force within an industry’s landscape. The companies involved in a regulated market must decide if they are going to be beholden to those technical regulations or participate and drive those standards, leveraging the process to their competitive advantage. For additional information, please feel free to email me at sezar@hillgroupinc.com. [1] OECD Working Party of the Trade Committee, Report on Regulatory Reform and International Standardisation, Appendix 99-8 (TD/TC/ WP(98)36/ Final), 1999 These materials have been prepared for educational and information purposes only. They are not consulting advice or opinions on any specific matters. Transmission of the information is not intended to create, and receipt does not constitute, a consultant-client relationship between The Hill Group, Inc. and any recipient of this material. Readers should not act upon this information without seeking professional advice. 
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