The Economic Benefits of Information Standardization

Standardization is applied within all kinds of level within industries. Standardizations in production processes, but also within IT, for example interfaces (EDI, ODBC, …) and coding languages (SQL, XML, …).

And why? Because standardization leads to cost reduction,  increased flexibility and improved responsiveness and quality.

The question arises what the benefits would be for organisations using a standard form of business communication for the (management) information.

Cost Reduction through Standardization

“Standardization can lead to lower transaction costs in the economy as a whole, as well as to savings for individual businesses.”

There are many studies available on the internet which states that standardization is effective and will reduce manufacturing costs significantly. And it is not only within manufacturing process. It affects multiple departments. When parts and products are standardized, companies can reduce their purchasing costs considerably and the cost of inventory will go down coincidentally. Also there is less overhead in procuring standard parts and materials that are common and more readily available. And, more standardization means less picking and manufacturing errors.

Does this also applies to management information? The simple answer is a big YES. To go from data to information is also a process, a parallel can be made with a  production process: data is transformed into information and in the end consumed by a decision maker.

This process would benefit from standardizations. Think about a clear and transparent way to present data, using a comprehensive notation and an ambiguous way of presenting a message. Because of standardization the layout of reports is prescribed, standard building blocks can be predefined to create reports and dashboards. This means that front-end software will be judged on their functionality, not on their looks. Expected is that the number of different software tooling within an organisation will decrease, and in effect the cost of ownership as the number of licenses needed, maintenance and support of the software, as well as the needed knowledge to create and maintain management reports and dashboards will be reduced.

Increased Flexibility

Within a manufacturing environment standardization eliminates set-up, greatly reduces inventory, and simplifies supply chain management. Improving the operational flexibility in the warehouse results in better delivery of products. With standardized components you can change over work centers quickly because you won’t have to put away and restock as many components with a product switch.

Nowadays IT affects all disciplines within an organisation. And therefor IT is not only an enabler, but sometimes also the bottleneck. How often IT departments are not able to deliver on-time and/or within budget? It is not that they want to, the load of requests is simply a burden and a fragmented landscape of tools and knowledge and procedures does not help to speed up delivery.

Standardization of management information will help an IT department to become back in control and more flexible to react on demand. Many elements mentioned at the cost reduction also impacts the process to come from data to information. The standard modular building blocks in the tooling helps a developer to speed up the creation of reports and dashboards and maintenance will become easier as you just replace a component instead of rewriting single code lines. And as the look and feel of reports will become independent of the tool being used, it is expected that the number of tools will converge in time. The consequence is that less specialised knowledge is needed and creates more flexibility in assigning developing capacity.

Improved Responsiveness and Quality

Without the additional concern of too many parts and unnecessary procedures, manufacturing companies can focus on improving their response time and quality. Fewer errors will be made in the manufacturing process, which lead in the output to fewer quality problems. Standardization frees up time and allows employees to concentrate on more efficient processes which will contribute in a high-quality, low-cost product.

An often heard saying is that Business Intelligence is expensive. Many companies have invested heavily in management information systems in the last decade. And this investment has proven valuable, but the expectations are also higher. Because companies are lacking a standardization in their business communication (management reports), this means that creating reports and dashboards is more time consuming, which lead to unnecessary higher costs and overall throughput time and prone to errors.

On the consumer side – the decision maker – an serious advantage is gained by the improved quality. As information is easier, faster and more comprehensive to understand, the quality of decisions made will improve as well.

Potential Competitive Advantage through Standards

“Having influence in the content of a standard is a critical factor in gaining a competitive advantage.”

International Business Communication Standards (IBCS) is gaining international ground as concept on management reporting and presentation. The content is growing and technologically supported by the major reporting software, either embedded or as add-on. Early adopters have influence on the content and software development and have a head start in their information and decision making process.

So why is still the majority of companies abundant in using an information standard, as there is so much to gain? Partly because not being aware of, but – and the following is not scientific based, it is simply gut feeling based on day-to-day experience – there is a need in having “sexy” window dressing. Creating something visually attractive on the outside, sometimes on purpose to obscure or distract attention of what is needed, of the message to be presented. Just ask yourself, would you be eager to report bad tidings to your manager?  By making things look nice, the message appears nice as well.