Communications of the ACM

Communications of the ACM

Standards Development and Diffusion: A Case Study of RosettaNet

By Wai Fong Boh, Christina Soh, Steven Yeo
Communications of the ACM, December 2007, Vol. 50 No. 12, Pages 57-62
10.1145/1323688.1323695
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Business-to-business (B2B) e-commerce requires a set of standards to ensure system interoperability and integration among partner organizations. The result is a proliferation of industry-sponsored standards consortia [5]. However, not all such consortia have been able to propagate standards for their industries.

Prior research identified two key dimensions of a consortium's performance: the extent and the speed of its standards development and adoption [10]. Widespread standards adoption is critical, because B2B standards, like other network technologies, are susceptible to network externalities [3]. The attractiveness of a standard to potential adopters depends on the number of existing users. The speed of standards development and adoption reflects a consortium's responsiveness to an industry's e-business requirements [10]. However, achieving speed is difficult due to the need to involve user organizations across geographically dispersed regions and industries [7]; moreover, organizing a group of organizations with heterogeneous interests and perspectives to work with one another is complicated and time-consuming [5].

Consortia can adopt various strategies to ensure their success in standards development and adoption. Prior research has shown they are critical in promoting standards adoption but not exactly how their actions deliver standards adoption. Hence, our study of RosettaNet's experience in setting and diffusing standards (2004–2006) contributes to the literature by examining what consortia can do to increase the likelihood of their success. Understanding effective consortia strategies provides valuable lessons for other newer standards consortia.

The activities of consortia fall broadly into two categories: development and diffusion. We identify, from prior research and theories, the strategies consortia they pursue in these areas, illustrating them through RosettaNet, a standards consortium for high-technology industries, including the computer, consumer electronics, and semiconductor industries.

RosettaNet has one of the biggest organizational memberships among supply-chain standards consortia [7]. As most of the high-technology industry supply chains are in Asia, RosettaNet faces significant challenges in diffusing its standards across countries with widely varying infrastructure and business cultures. Despite this complication, RosettaNet has been cited by researchers (such as [4]) as a consortium with high potential for success. Examining RosettaNet's strategies may therefore generate useful lessons for other consortia.

RosettaNet is a not-for-profit organization (headquarters in Lawrenceville, NJ) founded in February 1998 that grew to a membership of more than 500 organizations by 2005. Today, it is organized into six industry sectors, each with its own council of key industry players. In addition, RosettaNet includes four other types of memberships (see the table here). We collected data in two phases. In the first, we obtained secondary data from RosettaNet's Web site (www.rosettanet.org) about its standards development methodology and programs. In the second, we conducted hour-long face-to-face meetings and phone interviews with 13 informants from both RosettaNet headquarters and member organizations, ensuring they included representatives from a variety of roles and regions. We also attended several RosettaNet conferences and workshops.

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Paradox of Participation

A key aspect of standards consortia strategies for building a critical mass of adopters is to involve key players and a range of stakeholders in relevant industries [5]. This increases a standard's legitimacy because it enhances the perception that standards were developed with consideration of costs and effects on all relevant stakeholder groups. Key players involved in any standards-setting process are usually also early adopters of the standard, demonstrating through their own commitment the value of adoption. Participants are also likely to have greater ownership of the standard and be advocates, pushing key suppliers and customers to adopt [10].

Unfortunately, there is an inherent paradox in the strategy of participation. The greater the number of stakeholders, the more difficult it is to achieve consensus [10]. Different players are likely to have different requirements and priorities, possibly slowing the standards-setting process [6]. There is an inherent tension between the need to involve a large number of stakeholders and the need to move standards development along quickly [5]. The cost of delay must be weighed against the goal of creating a set of legitimate, high-quality standards that factor-in the diversity of participants' interests [9].

Successful consortia are prepared to manage this tension, able to deliver three main results: promote a focus on solving real-world business problems; move the standards-setting process along quickly without negatively affecting the quality of the standards; and ensure open sharing of valuable knowledge across a range of stakeholders [1, 5].

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Strategies for Standards Development

The cornerstone of the RosettaNet standard—Partner Interface Processes (PIPs)—specifies the processes and associated business documents for data exchange among participating organizations. PIPs are developed via milestone programs (such as order management and global billing milestones) that are carefully designed to meet the challenge of balancing stakeholder participation with the speed of development.

Commitment of resources to milestone program. Only council members are granted voting privileges and the ability to sponsor new PIP development. At least five council members and 20 trading partners must commit to implementing the resultant PIPs before a milestone program can be approved. This requirement ensures that organizations commit significant resources to PIP development. Hence, only standards that address real-world, high-value business issues become milestone programs.

To assure the effectiveness of the standards at the time they're implemented, the people (champions) responsible for PIPs implementation in their organizations are often assigned to participate in the program. Organizations also assign employees with a variety of skills to work on different parts of the standards-setting process. To ensure that their organizations obtain a proper return from their investment, participants tend to focus less on the political aspects of standards setting and more on getting standards implemented. Concerning how the practical focus of milestone participants helps build consensus, RosettaNet's vice president of standards management said: "Because of the need to get real benefits from the implementation process, people get pragmatic about how to solve the problem. They work very much like a project team in a company. Team members usually resolve their own problems; there are barely any situations where something is escalated above the team."

Clear roles and restrictions. Other council members do not involve themselves in developing the PIPs, only in voting to accept or reject the standard in the course of development. While this limits the number of key players actively engaged in standards development, it also reduces the need to manage too many competing views while speeding the process. Concerning the rationale for reducing the number of active participants in the process, the director of a milestone program said: "You always need a hurdle mechanism; otherwise you get noise. It is very hard in a consortium to say no. It is better to set up hurdles and give people very clear requirements for moving forward. They can be self-governing, but to gain a voice, you need to commit to implement."

Validation. Some standards consortia require only that the standards be set and approved; others require at least a couple of implementations as proof of concept, as in the case of the Internet Engineering Task Force [9] and EbXML, or Electronic business using XML. RosettaNet's validation process goes beyond proof of concept to full implementation of the PIPs with the milestone program participants who have committed to implementing them. A feedback loop linking the validation experience to the standards-development process helps identify the shortcomings of the specifications in a variety of organizational contexts. This leads to a set of technically sound and usable standards. Concerning the importance of learning from the validation experience, RosettaNet's vice president for standards management said: "It is very difficult to define everything about a set of PIPs in a conference room. The validation process brings the standard through the test of implementation."

Informal norms and social networks. Milestone programs bring together the champions from each organization and, through their interaction, help them build and strengthen new and existing ties. The result is a strong social network that places a high premium on trust and reputation. Individuals within the network are motivated to self-regulate their behavior to focus on constructive problem solving and knowledge sharing. Concerning the importance of allowing these social mechanisms to work without interference from excessive rules, RosettaNet's vice president for standards management said: "People participating in RosettaNet are already passionate about it; many of them believe they will make a difference and can contribute. If we put in a lot of rules, they will leave or wrestle against them."

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Trade-offs

All effective strategies involve trade-offs [8]. Unlike other standards consortia, which permit public comments on draft versions of their standards [7], only a select group of RosettaNet members are allowed to provide input into the standards-development process. RosettaNet has adopted "hurdle mechanisms" to prevent just anyone from having a say in standards development. This helps fulfill two objectives—solving real-world problems and moving standards-setting quickly without compromising quality—but falls short of the objective of the open sharing of knowledge across a large group of stakeholders. However, to mitigate the restrictions, RosettaNet endeavors to ensure a representative group of participating organizations in the milestone program by including organizations of varying size and from different regions. Figure 1 outlines the RosettaNet standards-development strategy, its potential influence on adoption, and the moderating effects of the standards-development strategies.

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Paradox of Global Diffusion

Successful organizations employ strategies that are internally consistent to deliver on their value proposition [8]. A standards consortium's diffusion strategies must align with its standards-development strategies. The strategic choices made by standards consortia with regard to the participation paradox in standards development have implications for the subsequent diffusion of the standard. In the case of RosettaNet, we observed that the diffusion strategies took into account the restrictions on participation, as a significant investment of resources goes toward diffusion, spreading adoption beyond the organizations directly involved in standards development [9]. The diffusion strategies also reflected the fact that most of the high-technology supply chain—the potential RosettaNet adopters—is in Asia.

RosettaNet also reflects a second paradox. Successful standards consortia provide value by enforcing the use of common data and processes among supply-chain partners. However, when consortia seek to diffuse their standards globally, business partners often operate across countries with diverse economic, regulatory, and social environments. Diffusion strategies must balance the need for a coordinated approach that can be adapted to local conditions.

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Decentralized Approach

RosettaNet adopts a decentralized approach for promoting standards diffusion; with headquarters in the U.S. (called RosettaNet Global) it has also appointed vice presidents to spearhead standards diffusion in Asia and Europe. In the Asia-Pacific region, it has affiliate offices in Australia, China, Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand. RosettaNet depends on them to generate local strategies to promote within-country diffusion following PIPs development. The Asia-Pacific vice president coordinates the standards-diffusion efforts of all the affiliate offices in Asia. In Europe, RosettaNet has been slower in gaining acceptance, as electronic data interchange is deeply rooted as the continental standard for information exchange. Hence, RosettaNet has yet to set up affiliate country offices in Europe.

Each RosettaNet affiliate office is run independently, securing its own funding to sustain its own local operations. Each RosettaNet affiliate also attracts and retains its own members. Nevertheless, all RosettaNet affiliates have the same mandate: promote the diffusion of RosettaNet PIPs among RosettaNet members. As RosettaNet Global Council members tend to have global operations, the local staff of these organizations (such as Malaysian staff from Intel) often play a major role in helping affiliate offices organize activities and attract new members (typically RosettaNet's regional partners).

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Diffusion Strategy

The portfolio of strategies used by affiliate offices are broadly classified into four key categories:

• Market. Promote awareness among potential adopters of the RosettaNet standard's capabilities and benefits and how they can be implemented in their organizations;
• Technology. Improve the standard's technical performance by lowering the cost of implementation and increasing the ease of implementation and use [2];
• Policy. Change or leverage the social and legal-regulatory environment in which potential adopters operate; and
• Relational. Co-opt key players (such as industry supply-chain masters, or dominant customers driving demand in a supply chain) to pressure their trading partners to adopt RosettaNet.

These strategies are implemented in different ways in different countries, as RosettaNet applies a "one size does not fit all" philosophy (per RosettaNet's director for marketing). At the same time, RosettaNet must maintain a degree of consistency in the positioning and communicating of its standard. For example, RosettaNet Global coordinates development of marketing and educational material for distribution to country affiliates, looking to ensure consistency of message about RosettaNet. Affiliates also produce their own marketing and educational material to showcase local organizations' implementations of RosettaNet or explain how the standards can be used in conjunction with local government e-business plans. RosettaNet local affiliates also frequently organize conferences and workshops to increase awareness of RosettaNet capabilities. They feature not only RosettaNet Global staff updating new global initiatives but showcase the RosettaNet implementation efforts of organizations in the region.

RosettaNet Global engages in R&D to increase ease of implementation and usability. For example, a program called RosettaNet Automated Enablement, introduced in 2006, targets increased usability of RosettaNet for small and mid-size businesses (SMBs).¹ RosettaNet affiliates in countries with large numbers of SMBs but with low technological maturity are likely to pursue country-level technology strategies. For example, RosettaNet China worked with local application service providers to provide quick, inexpensive e-hub solutions. However, RosettaNet must ensure that affiliates do not create local variations of its standard(s) and risk undermining RosettaNet's global standardization effort. RosettaNet manages this through "focus process teams" (FPTs) for each milestone program. Organizations from different regions worldwide are invited into an FPT for each milestone program to determine whether region-specific requirements must be factored into the PIPs. Milestone programs also endeavor to include organizations in different regions as participants in the validation phase to ensure that the PIPs meet region-specific requirements.

RosettaNet Global takes note of major changes in policy that affect entire regions, seeking to develop appropriate standards. For example, RosettaNet worked with industry associations to understand the regulatory requirements resulting from the tightening of green laws by the European Union when they were scheduled to take effect July 1, 2006 (ec.europa.eu) and develop new PIPs to satisfy the requirements.²

In Asia, affiliates have actively pursued country-level policy strategies. Asia lacks a unifying body like the European Union, and governments play a major role in each economy, developing infrastructure and investing in strategic sectors. One common RosettaNet policy strategy is to gain endorsement from a country's government. This provides legitimacy for the standard and boosts the confidence of potential adopters. One sign of endorsement is to invite senior government officials to assume leadership positions in RosettaNet (as in China and Singapore). Endorsement can also take the form of adopting RosettaNet as a recommended standard in a country's e-business plans (as in Taiwan). More directly, the Philippine and Malaysian governments use RosettaNet PIPs for their own national electronic customs declaration systems.

Another key policy strategy is to obtain funding and personnel directly from the government. For example, the governments of Singapore, Malaysia, and Taiwan provide grants for SMBs and even for multinational corporations to subsidize the cost of their RosettaNet implementations. These grants aim to catalyze RosettaNet adoption, helping RosettaNet adoption reach critical mass throughout the industry. RosettaNet also sometimes obtains government funding for affiliate offices or for local research centers.

Globally, RosettaNet capitalizes on supply-chain masters using RosettaNet to influence their trading partners to recognize the business value of adopting RosettaNet. RosettaNet's relational strategy is so pervasive that one company representative reported that 80% of the connections among trading partners using RosettaNet is effectively driven by a group of powerful supply-chain masters.

At the local country level in Asia, relational strategies play a less important role. The limited effectiveness of the strategy in Asia may be attributed to a lack of large supply chain masters with sufficient clout to influence many trading partners (except in Japan and Taiwan). MNC subsidiaries in Asian countries also lack the drive to spearhead initiatives, as many view themselves as only subsidiaries or manufacturing sites of U.S. or European companies.

RosettaNet's diffusion strategies have accelerated the extent and pace of standards adoption beyond the U.S., particularly in countries where RosettaNet has affiliate offices. The decentralized focus of standards-diffusion strategies complements RosettaNet standards development, resulting in a high level of standards adoption, despite a less inclusive approach to standards development. The trade-offs reflect a greater need for RosettaNet coordination and management of the risks of excessive local adaptation. Figure 2 outlines the main types of diffusion strategies RosettaNet pursues.

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Conclusion

The RosettaNet standards consortium is relatively successful at achieving both speed and the extent of its standards development and adoption. Since its founding in 1998, it has published 110 sets of PIPs, declaring in May 2003 that it had reached critical mass in the high-technology sector worldwide [7]. What lessons from RosettaNet's development and diffusion strategies are applicable to less-established consortia? RosettaNet provides a voice only to organizations committed to solving the targeted problem. This strategy yields a focused, quick, problem-oriented approach to standards setting at the expense of a more inclusive and open approach typical of many consortia [7]. This trade-off is somewhat mitigated by the inclusion of a representative group of companies in standards development.

RosettaNet ensures broad adoption beyond these standards-setting participants by investing significantly on standards-diffusion strategies through its country affiliate offices. Hence, contrary to previous studies that advocated openness for standards setting, the RosettaNet experience shows there is no one right approach to the standards-development process. However, standards consortia must ensure that they adopt diffusion strategies that are aligned with their development processes.

Second, RosettaNet's experience reflects the importance of adapting each standards-diffusion strategy to the local conditions in each country. While we have identified a set of strategies that standards consortia can use to promote standards diffusion, including market, technology, policy, and relational, they should be adapted to local conditions in each country. The challenge is to balance central directions from headquarters with local adaptation.

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