Do vendors like standards or not?

Jul 24, 2013

Quoting from discussion on David More’s blog:

“[Vendors] basically saw the standards as having the potential to erode the significant barriers to entry they had put around their little proprietary walled gardens”

This is something I hear a lot, but the reality is much more nuanced than that.

To illustrate, consider the example of a service provider who makes a living by selling the provision of a service. The actual service doesn’t matter - it could be selling software that manages a clinical data repository (i.e. EHR), selling communications (Vodafone etc), or a surgeon who does open heart surgery.

Roughly, their activities can be broken into 3 different types

  • Core: The service that they provide - the exact service, the balance between quality and cost, their customer base is built around that. For a surgeon, this is his professional service, the way he does operations, etc. For an EHR vendor, this is their information models, their UI, their value adds around decision support, etc
  • Ancillary: The support things that are part of the service, but subsidiary. For a surgeon, this is his infection control procedures, his practices with regard to visting and billing patients, etc. For an EHR vendor, this is the way they expose data for exchange, the integration points they have etc
  • Plumbing: The necessary things that have to be done that aren’t of value. For a surgeon: choosing instruments, keeping up with literature. For an EHR vendor - security, audit, database backup

(Obviously there is a big overlap in these things, but the general principle holds)

When it comes to standardisation, most service providers are totally in favour of standardising the last set of their activities - the plumbing - of course. There’s no profit in being different, it’s just overhead. So standardising this is just good business sense.

On the other hand, for the Core activities - standardising these is a direct attack on their livelihood. It can destroy their market, their living. Commoditising their service is not something that they can openly embrace. That’s nothing to do with whether it’s a good thing or not - creative destruction is going to happen, and while standards can vary the economic pressure point at which it does (in either direction), it’s only a small contribution. But irrespective of what is good for the economy, there is no way that a service provider can support commoditising their core service - unless they are a bit player in the market that think they can win the competitions based on price for a fixed service. And there’s no point expecting a service provider to do anything different - either the surgeon or the vendor.

Where it get’s interesting is in the Ancilliary activities - different service providers feel differently about the pro’s and con’s of this, and make different decisions. Some have an open culture, and a focus on their core business - these are more likely to want to standardise these support activities. Other service providers take an antagonistic view of the world, and actively resist it. Personally, I’m very much in the first camp, and I think that leaders that pursue the second option will destroy their business in the longer term.

if you look at the support or otherwise from Vendors for the various Australian government initiatives over the last few years, you’ll see that by and large, vendors are simply following the predictable model above, or based on their established culture. Some things, they are completely in favour of, some they aren’t, and others, reaction is mixed. Whether the initiatives themselves are good or bad has nothing to do with whether the vendors are in favour either - that’s something that will only become evident in the history books.

From a consumer’s point of view, looking at service providers, it’s hard to tell whether the price of an activity is simply extracting rent, or a fair price to pay for services provided. Generally, we’ve settled on competition as the answer to this, but this is an imperfect answer (it’s too hard to ensure real competition exists, and the purchaser is never fully informed, particularly in healthcare. By it’s nature, too, healthcare service provision - even by the vendors - has a real element of coercion). It’s even harder to tell whether lack of standardization is going to help reduce the price, or not. A standard might just end up being overhead (which is probably why so many standards fail in practice).