Learning effects during standardization develop core competencies further and promote effectiveness

Cost flexibilization forces companies to consider core competencies in their own value creation: if, for example, the core competency is to be found more in the product (development) know-how, outsourcing of the production gains in significance. If the core competency is located more in the production of the products, the product development can be offered as the object of a tender.

Rigorous standardization contributes to specialization and cost leadership, market entry barriers continue to rise. The decisive points here include the realization of the learning curves in production and investments in automation. Established companies have the advantage that they have already gone through the learning curves, allow them to realize effects of scale which can be achieved by other companies only by making massive commitments (of capital).

This specialization leads to a situation in which innovations can generally be launched on the market via existing standardized mass production only by means of massively increased coordination expenditures, which is detrimental to the available time periods and the quality requirements, whether strictly qualitative or in terms of product characteristics. Innovation thus tends to be more of an evolutionary rather than revolutionary nature.

The increasingly evolutionary character of product development means that the planning of the product lifetime cycles and generations will become even weightier. In particular, the strategic goals for each product generation – e.g., gaining market share (cost focus), market exploitation (focus on time to market), generation of a long-term cash cow (focus on product features) – make a substantial contribution to effectiveness and lay the initial foundation for the exploitation of the potential found in a standardization. This focus makes ever greater demands on the coordination of the value generation partners. Language barriers, differences in mentality, and different time zones do not further this coordination.  

Specialization and focus on standardized products/processes make benchmarking possible and simplify outsourcing. Benchmarking is the measurement of the company’s own position on the market. However, the capability of a company to standardize products and processes, i.e., to implement learning effects, becomes more important so that it can improve as well as verify its own cost position on the market. This is the only way to ensure the company’s ability to develop further its competency and skim off profits from first movers. When this serves as the backdrop to decision-making, the decision situation is transparent and the management of an outsourcing supplier becomes comparatively simpler.

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