Standards, Strategy, and Policy: Cases and Stories

268 Pages·1995·1.063 MB·English

by  Peter Grindley

Standards, Strategy, and Policy: Cases and Stories
Peter Grindley

ABSTRACT
This book discusses how compatibility standards may be used to ensure business success. It provides a
framework for standards strategy and policy, together with a series of case-studies which interpret the
economics of standards in practical settings. The book considers the problems of establishing a new
standard in the market and winning standards contests. It studies the questions of how to maintain the
profitability of a standard and how to compete within an established standard. It combines the strategic
analysis with an evaluation of standards policy, and suggests ways in which markets and policy
intervention may effectively be used together. Cases include contests for standards for video cassette
recorders, digital audio tapes, personal computers, open computer systems, high-definition television,
and Telepoint cordless phones. Standards have long been seen as a technical problem, yet in a large
number of industries they are central to business strategy and technical aspects are only part of the effort
needed for product success. They imply very different strategies and policies than for conventional
products.

Keywords: business success, compatibility, personal computers, policy, profitability, business strategy
BIBLIOGRAPHIC INFORMATION
Print publication date: 1995
Print ISBN-13: 9780198288077
DOI:10.1093/acprof:oso/9780198288077.001.0001
Content

Front Matter
Title Pages
Preface
List of Figures
List of Tables
1 An Introduction to Strategy and Policy: Winning with Standards
2 Framework for Standards Strategy: Establishing Standards and Maximizing Profits
3 Standards Policy and Regulation: Combining Committees and Markets
4 Video Cassette Recorder: The Value of Co-operation
5 Compact Disc and Digital Audio Tape: The Importance of Timing
6 Personal Computers: The Power of Open Standards
7 Open Computer Systems: A Standards Revolution
8 High-Definition Television: The Failure of International Co-operation
9 Telepoint Cordless Phone: Regulation, Markets, and Policy
End Matter
References
Index
Title Pages
University Press Scholarship Online
Oxford Scholarship Online
Standards, Strategy, and Policy: Cases and
Stories
Peter Grindley
Print publication date: 1995
Print ISBN-13: 9780198288077
Published to Oxford Scholarship Online: October 2011
DOI: 10.1093/acprof:oso/9780198288077.001.0001
Title Pages
Standards, Strategy, and Policy Standards Strategy and Policy
This book has been printed digitally and produced in a standard specification in order to ensure
its continuing availability
(p.iv)
Great Clarendon Street, Oxford OX2 6DP
Oxford University Press is a department of the University of Oxford.
It furthers the University's objective of excellence in research, scholarship,
and education by publishing worldwide in
Oxford New York
Auckland Bangkok Buenos Aires Cape Town Chennai
Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata
Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi
São Paulo Shanghai Singapore Taipei Tokyo Toronto
with an associated company in Berlin
Oxford is a registered trade mark of Oxford University Press
in the UK and in certain other countries
Published in the United States
Page 1 of 2
Title Pages
by Oxford University Press Inc., New York
© Peter Grindley 1995
The moral rights of the author have been asserted
Database right Oxford University Press (maker)
Reprinted 2002
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any means,
without the prior permission in writing of Oxford University Press,
or as expressly permitted by law, or under terms agreed with the appropriate
reprographics rights organization. Enquiries concerning reproduction
outside the scope of the above should be sent to the Rights Department,
Oxford University Press, at the address above
You must not circulate this book in any other binding or cover
and you must impose this same condition on any acquirer
ISBN 0-19-828807-7
Page 2 of 2
(p.v)
Preface
University Press Scholarship Online
Oxford Scholarship Online
Standards, Strategy, and Policy: Cases and
Stories
Peter Grindley
Print publication date: 1995
Print ISBN-13: 9780198288077
Published to Oxford Scholarship Online: October 2011
DOI: 10.1093/acprof:oso/9780198288077.001.0001
(p.v) Preface
This book in concerned with the relationship between standards, technology, business strategy,
and policy. Standards provide a valuable opportunity to combine economic analysis and business
strategy. The economic forces at work apply clearly and often overwhelm other issues. In a large
number of industries, including major new products such as the video cassette recorder and the
personal computer, standards have become central to business success. Compatibility standards
also apply in industries where they may not at first glance be expected, such as airline routes,
international railway timetables, bank credit cards, and automobile service networks. There is
now a large and growing body of economic theory dedicated to understanding standards. Yet
this has not made its full impact on business strategy, practised or taught, which has still not
fully absorbed the implications of standards. Industry analysts and policy-makers often see
standards as a technical problem, to be left to technical committees and research departments.
Technical aspects are only part of the reasons for standards success. Standards imply very
different strategies than those for conventional products. The objective of this book is to help
bring standards more fully within the realm of business strategy and policy, as a component of
analysis alongside the many other more conventional aspects.
The book aims to help the business strategist and policy-maker understand how standards work,
and how they can be used to ensure success. It contains a collection of analyses and case-studies
which interpret the economics of standards in practical settings. It explains the market
processes associated with standards and uses these as the basis for strategic analysis. It
approaches the issues first from the point of view of an innovating firm, and the problems it
faces winning standards contests and establishing its products in the market. It also considers
the parallel problems of how to maximize the profitability of a standard, and how to compete
within a market once standards have been established. This is later extended to policy issues,
and recommendations for combining directive action by industry standards bodies and
government regulators with market processes.
The book contains an introduction to the problems of standards and two extended chapters
laying out a framework for strategy and policy, followed by six case-studies illustrating different
Page 1 of 3
(p.v)
Preface
aspects of standards. Chapter 1, ‘An Introduction to Strategy and Policy’, outlines the need for a
new look at standards, and introduces the main themes to be brought out later in the case-
studies. The second chapter ‘Framework for Standards Strategy’, looks at standards strategy in
detail. It presents a framework for identifying network effects and using them to win standards
contests, maximize returns (p.vi) to the firm from standards and continue to compete
effectively once standards are established. The third chapter, ‘Standards Policy and Regulation’,
presents a similar framework for evaluating official and market standards from a policy
viewpoint, and examines possible hybrid policies which combine the two.
The next six chapters present the case-studies. The cases are primarily in high-technology
industries, where compatibility standards are strongest, but the lessons are intended to be
universal. The first four cases—video cassette recorder, digital audio, personal computer, and
open computer systems—look at standards which are almost purely market determined, and
illustrate the effectiveness or otherwise of firms' strategies, with little government intervention.
The two later cases—high-definition television and telepoint cordless telephone—have a stronger
mix of market strategy and government policy, and illustrate ways in which the two may be
combined to work with or against each other. Each of the chapters is self-contained and may be
read independently, though it is recommended that at least the introductory chapter is read
first. At the risk of some repetition each contains a brief summary of the standards theory
needed to understand the particular case.
The book may be used in business strategy courses as a self-contained introduction to the use of
standards in strategy, combining a framework for understanding the economics of standards
with a series of analysed cases. At the same time, the approach is intended to be broad enough
to appeal to the general business reader with an interest in new product markets, and to the
strategy practitioner, who may be aware of the importance of standards but wishes to know
more about how they work. The book should also be of interest to policy-makers and regulators,
seeking a framework and case analyses, to illustrate and inform current strategy and policy
issues. Particular subject areas for which the book may provide a useful reference are hi-tech
manufacturing industries, computer science, telecommunications, and regulation.
The book has its origins within a research programme at the Centre for Business Strategy,
London Business School, with the general objective of using economics to understand questions
of strategy and policy. Research was completed at the Center for Research in Management at
the University of California, Berkeley. I am particularly grateful to John Kay for his guidance as
Director of the Centre for Business Strategy, to David Teece for his support while revising the
manuscript during my stay as Visiting Scholar at the University of California, Berkeley, and to
the Gatsby Foundation and the Sloan Foundation for financial support at different stages of
preparing the book. I thank Ronnie McBryde for his assistance as co-author of earlier studies for
the video cassette recorder, digital audio, and the Personal computer, and Saadet Toker as co-
author of the original study for telepoint, on which the relevant current chapters have built. The
book has (p.vii) benefited from discussions with Charles Baden-Fuller, John Cubbin, Paul David,
Joseph Farrell, Landis Gabel, Paul Geroski, Heather Hazard, Barry Karlin, Edwin Kelliher,
Jackson Nickerson, Josephine Ohlson, Alan Robertson, David Sainsbury, William Schreiber,
Edward Sherry, Charles Steinmetz, Edward Steinmuller, Paul Stoneman, Peter Swann, Rob
Wilmott, and others. I also thank participants at conferences and workshops where early
Page 2 of 3
(p.v)
Preface
versions of some of the cases have been presented, including INSITS (Braunschweig, 1989),
EARIE (Budapest, 1989, and Ferrara, 1991), and ITS (Nice, 1992). It goes without saying that
responsibility for any errors and opinions expressed here lies solely with the author.
Page 3 of 3
(p.x)
(p.xi)
List of Figures
University Press Scholarship Online
Oxford Scholarship Online
Standards, Strategy, and Policy: Cases and
Stories
Peter Grindley
Print publication date: 1995
Print ISBN-13: 9780198288077
Published to Oxford Scholarship Online: October 2011
DOI: 10.1093/acprof:oso/9780198288077.001.0001
(p.x) (p.xi) List of Figures
2.1 Standards reinforcement mechanism 27
2.2 Strategic positioning decisions 30
2.3 Strategic positioning: costs and benefits 31
2.4 Strategic positioning: positive selection factors 31
2.5 Strategic positioning: examples 32
2.6 ‘Battle of the sexes’ game 33
2.7 ‘Rather fight than switch’ game 35
2.8 Sequence of positioning decisions 36
2.9 Openness vs. sales and profits 46
2.10 Openness vs. sales, profits: existing standard 49
3.1 Effectiveness factors for market vs. committee standards processes 64
3.2 Need for policy intervention in standards setting 66
3.3 Apparent and true costs in standards leadership contest 67
3.4 Effect of payoff equalization policy in standards contest 69
4.1 VCR sales, USA 85
4.2 VCR sales, UK 87
4.3 VCR market shares, UK 88
4.4 VCR cumulative sales, UK 88
4.5 VCR advertising expenditure, UK 89
4.6 World VCR production: VHS and Betamax 89
4.7 Cumulative VCR format shares 90
4.8 Japanese VCR and camcorder production 95
4.9 VCR and camcorder unit prices 95
5.1 Japanese CD and DAT production 102
5.2 CD player sales, UK 103
5.3 CD player base price, UK 103
Page 1 of 2
(p.x)
(p.xi)
List of Figures
(p.xii) 5.4 CD, LP, and cassette sales, UK (units) 104
5.5 CD, LP, and cassette sales, UK (value) 105
5.6 CD disc prices, UK 106
5.7 US CD players and discs—sales and prices 107
6.1 World-wide PC sales 134
6.2 World-wide PC market shares by value 134
6.3 PC price history, UK 135
7.1 World-wide IS revenues 160
7.2 World-wide IS revenues by segment, 1992 161
7.3 Changes in world IS segments, 1984–1992 162
7.4 Changes in world IS segment shares, 1984–1992 162
7.5 Traditional ‘vertically integrated’ computer industry structure 165
7.6 New ‘multi-layered’ computer industry structure 167
7.7 Alliance cross-membership, 1990 183
Page 2 of 2