Drivers of Engagement in Standardization and Relationship to Company Performance

Abstract: Background:Engagement in technical standardization – both through following standards, as well as through participation in the creation of new standards – is an important part of the business strategy of a technology company. Companies face decisions on whether to participate, and if so, how, where and to what extent. Creation of standards is closely connected to company proprietary or patented information, making it difficult to balance the effects of intellectual property protection with the benefits and drawbacks of the open standardization process. Objectives: Limited studies exist that investigate the company choice to participate in standardization. We expand the concept of participation to include the intensity of participation, or engagement in standardization. We aim to understand the drivers of intensity of participation in standardization, and of the intensity of participation on financial performance. The existing theories about SSO engagement will be validated and further knowledge generated to better understand the effects of standardization participation at the firm level. Methodology: Panel data on company standardization participation, activities within innovation as well as size and financial performance have been collected for approximately 1700 ICT companies both participating and non-participating in standardization. Participation of companies in voluntary consensus standards has been measured for the case of participation in the Internet Engineering Task Force, IETF, using open records of this standardization consortium. The intensity of participation sheds light on the way in which companies pursue standardization. Correlations with company size, performance, R&D spending and patenting intensity have been performed while taking into account the selection that defines whether a company participates in the standard-setting body, or not. Further, the effect of standardization participation on the financial performance has been studied. Results: Modelling the intensity of engagement in SSOs using the Heckman selection model reveals the dependence of the selection on R&D budget, patenting activity and on company size, and a dependence of the intensity of participation on R&D budget, company size and profitability. In turn, the profitability of a company is found to be partially driven by the engagement in standardization.  Conclusions: The results of the analysis show that the drivers of company participation are not necessarily the same as for the company participation intensity in standardization. The intensity of participation and financial performance are indeed found to be correlated. We theorize that firms which are the technology creators, are not necessarily the ones that reap the greatest benefit of the innovation.  Recommendations for future research: Further studies may expand on the present approach by including more than a single SSO in the analysis. Additionally, inclusion of private companies can shed further light on how the full range of company sizes relates to standardization engagement. Finally, temporal offsets may be included in the models in order to account for causality effects.