Real evidence of economic impact of standards

2007-10-19

As far back as the barter system and throughout the ages, for business and industry, the development and application of standards has been a key component of commerce and trade. Across manufacturing and supply chains, standardization has played an important role in the machinery of the marketplace: facilitating the import and export of goods; enabling the interoperability of components; contributing to the safety of products; and increasing the confidence and reliability of goods.

Articulating the benefits of standardization in a language that business can appreciate has not always been easy. In addition to testimonials, the ability to quantify the value of standards is necessary to effectively communicate their importance. At the end of the day, numbers tell the real story.

For Infasco, one of the largest producers of standard steel fasteners in the world, investing in standards was a key business decision.

“One of the primary reasons for implementing ISO standards was to ensure that Infasco was in complete compliance with all provisions of the US Fastener Quality Act,” says Michael Krohn, marketing communications manager for the Marieville, Quebec, company.

The Fastener Quality Act is an American piece of legislation passed in 1990 to protect consumers from poor-quality fasteners being imported into the United States. The Act requires companies in the fastener business to adhere to specific standards for manufacturing and inspection. It also requires businesses to use laboratories that are accredited to international standards for calibration and testing (ISO/IEC 17025) or face difficult and lengthy inspections at U.S. Customs.

The application of standards has provided Infasco customers with confidence that the company meets internationally-recognized quality requirements, and helped them to develop excellent customer service.

Krohn cites other benefits as well.

“A result of certification was the standardization of in-house training programs,” he says, adding that the creation of the documentation and procedures required for certification provided the unexpected benefit of lessening the impact of employee turnover. “Better performance in many areas of the organization was achieved due to benchmarking performance metrics.”

Infasco is one of two Canadian companies profiled by the Conference Board of Canada, in a report entitled Economic Value of Standardization.

To determine the impact of standardization on the Canadian economy, authors Joseph Haimowitz and Joanne Warren used standards-oriented economic literature and research, and interviews conducted with senior executives working in the public and private sectors, as well as examining specific practices applied by two Canadian businesses.

The research methodology used by the Conference Board is adapted from ones used to produce similar reports for Germany and the United Kingdom. Both of those nations have effectively demonstrated the important contribution to growth in productivity made by standardization in their respective countries.

In the report, Haimowitz and Warren explain that an empirical analysis of the impact of the collection of Canadian standards on labour productivity between 1981 and 2004 reveals that Canada’s GDP would have been $62 billion (or 5.5 per cent) less in 2004 had the number of standards not increased over the preceding years. Haimowitz and Warren also report that 17 per cent of the growth rate in labour productivity, and nine per cent of the growth rate in economic output (real GDP), over that same time period, were as a result of standards-related activity.

The report’s qualitative findings cite the importance of standardization as the basis for continuous improvement, innovation and new product development. Haimowitz and Warren indicate that standards can provide information to reduce uncertainty, encourage research and development, and as such, lower the risk of investing in future technologies.

“The study shows what we’ve been saying all along,” says Peter Clark, executive director of the Standards Council of Canada. “People tend to take the benefit of standards for granted, but now we have hard numbers that prove standardization has a real positive economic impact on this country.”

With evidence of the positive and direct link between standards and the Canadian economy, the challenge becomes one of using the report to convince industry, government and the public to invest in standards development.

“We can now conclusively demonstrate the value that standardization has for Canadians,” says Clark. “It’s an investment with real and achievable returns.”

Copies of the Report on the Economic Value of Standardization are available at http://www.scc.ca/Asset/iu_files/Econ-Value-Standztion_FinalReport_e.pdf.

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This article first appeared in Volume 37 of CONSENSUS Magazine, 2007.  This version has been modified to reflect corrections received following publication but has not been updated since being posting here. If you have specific questions or concerns about the content, please contact the Standards Council of Canada.

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