Standardized IT systems can appear to make a lot of sense – standardization can be cost efficient, aligned with industry approaches and can help promote re-use. However, the business advantages standardization yields can be easily replicated by competitors. So what are the trade-offs and when does it make sense to choose standardization?
Standardization is typically preferred when cost efficiency is the motivation and/or when there is a requirement for interoperable IT components and process interfaces. The cost motivation is straightforward and is particularly appealing to organizations that are subject to cost pressures in their own market. Selecting standardized technology can yield immediate savings. The combination of multiple suppliers and ease of interchangeability creates a buyer’s market. This can stimulate ongoing price reductions. The drive to achieve cost efficiency through standardization can be seen in all stages of technology deployments. In the design stage, selecting standardized technologies can increase interoperability and reduce complexity in system design. In the deployment stage, standardized products can enable a more predictable operating environment that is typically less costly to manage. In the operational stage, use of more standardized technologies may increase access to skilled personnel. Interoperability is an increasing concern for many organizations, especially those that operate in markets where eco-systems and partnerships are critical factors or those markets in which merger and acquisition activity is common. The process of linking or bringing together multiple heterogeneous IT systems can be greatly simplified when IT environments are built from highly standardized systems.
However, the cost advantages that organizations can achieve by deploying highly standardized IT systems are easily replicable by competitors, so the competitive advantage obtained is typically short-term. Moreover, a decision to base IT systems and applications on highly standardized elements can make the service levels they support much less differentiable from those of competitors. Over time these factors can erode barriers to market entry and result in increased competitive activity. Organizations that favor more standardized IT may also lose some of the skills associated with handling emerging technologies, thus reducing their ability to embrace future technology innovation. In a similar vein, the interoperability benefits yielded by more standardized IT not only makes it easier to acquire other organizations: It also makes it easier to be acquired by others.
EAs play a key role in helping organizations identify the architectural choices and switching costs regarding standardization that enable an appropriate response to market dynamics. In markets characterized by high or increasing standardization, organizations essentially have three choices: • counter the effect by localizing or customizing their offering • exploit the effect to gain structural advantage over competitors • seek customer loyalty through factors such as service-level differentiation, ease of doing business or brand recognition. EAs can help organizations weigh up the feasibility, costs and trade-offs of alternative approaches and help inform the organization’s strategic response.