The Economic Contribution of

Standards to the UK Economy

June 2015
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Disclaimer

Whilst every effort has been made to ensure the accuracy of the material in this document, neither the Centre for Economics
and Business Research Ltd (Cebr) nor the report’s authors will be liable for any loss or damages incurred through the use of the
report.

Authorship and acknowledgements

This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The
main authors of the report are Oliver Hogan, Cebr Director and Head of Microeconomics, Colm Sheehy, Cebr Senior Economist
and Rajini Jayasuriya, Cebr Economist. The views expressed herein are those of the authors only and are based upon
independent research by them.
The report does not necessarily reflect the views of the British Standards Institution (BSI) or the Department for Business,
Innovation & Skills (BIS).
Research funded by the Department for Business Innovation & Skills.
Published in June 2015 by BSI, 389 Chiswick High Road, London W4 4AL
© BSI 2015
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Contents
Contents 3

Acknowledgements 6

Foreword 7

Executive Summary 9

1 Introduction 14

2 How standards contribute to economic growth 15

2.1 A brief history of standards and BSI 15
2.2 What is a standard? 15
2.3 How standards contribute to productivity and efficiency 17
2.4 The important role of standards in facilitating international trade 22
2.5 Standards and innovation 24

3 Trends in standards 26
3.1 Measuring the stock of standards 26
3.2 The composition of the catalogue of BSI’s standards 28
3.3 The origin of standards available to UK companies 31

4 Macroeconomic impact of standards on the UK economy 33

4.1 A summary of national studies on the economic benefits of standards 33
4.2 Methodology: a model for the relationship between standards and productivity 34
4.3 Testing the relationship between standards and productivity 36
4.4 Comparison of results to other national-level studies 39
4.5 Productivity and standards since 2000 40
4.6 Differences with the 2005 DTI analysis 42
4.7 Interpretation of the findings 42
4.8 Conclusions – macroeconomic impact of standards 43

5 Contribution of standards to the success of UK companies 45

5.1 Introduction 45
5.2 The business economy impacts of standards 45
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5.3 How do standards contribute to business productivity and efficiency? 50

5.4 How standards enhance UK business competitiveness and competition 50
5.5 How do standards help companies enter new markets? 52
5.6 Do standards catalyse innovation? 53
5.7 What is the role of standards in the supply chain? 54
5.8 Why do companies get involved in the standards development process? 56
5.9 Non-monetary benefits of standards 58

6 Sector analysis 60
6.1 Introduction 60
6.2 Automotive 61
6.3 Life sciences 66
6.4 Aerospace & defence 70
6.5 Energy 74
6.6 Food & drink manufacturing 79
6.7 Construction 83
6.8 Information & Communications Technologies (ICT) 88
6.9 Conclusions - contribution of standards to the success of UK companies 91

7 References 93

Appendix 95
Data sources for the econometric analysis 95
Detailed methodology 95
Sample structure 99
Methodological note for Section 5.2 101
Sector definitions 103
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Acknowledgements
Cebr and BSI would like to thank the following experts for their valuable contribution to the research:

 Mick Furlong, Manufacturing Engineering manager, GMM Luton Ltd (subsidiary of General Motors)
 Andy Vaughan, Standards Consultant, Association of British Healthcare Industries
 Andrew Norrish, Regulatory Affairs Manager, Becton Dickinson
 Ken Morgan, Quality Manager, Honeywell Aerospace
 Alan Lyons, Assistant Compliance Manager, Dunlop Aircraft Tyres Ltd
 Steve Durrant, Engineering Manager, Sembmarine SLP
 Nigel Elliot, Fuels Technical Advisor, Exxon Mobil Research and Engineering
 Kenneth Chinyama, Food Safety Executive, Food & Drink Federation
 Tony Blanch, Business Improvement Director, Costain
 Colin Cook, Chief Scientist, H+H UK Ltd
 James Cemmell, Head of Government Affairs, Inmarsat
 Lara Joisce, Risk and Compliance Manager, Sage (UK) Ltd

Cebr would also like to express our appreciation to the following BSI staff members for their valuable
contribution and support that has enabled this research:
 Dr. Scott Steedman CBE, Director of Standards, BSI
 Jim Shuker, Head of Strategic Engagement, BSI
 Debbie Stead, Head of Committee Services and International Secretariat, BSI
 Daniel Mansfield, Head of Policy Engagement, BSI
 Dr. Sanna Nissinen, Lead Project Researcher - Strategic Engagement, BSI
 Nick Von Behr, Project Research Assistant - Strategic Engagement, BSI
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Foreword
It is well-understood that standards play a vital and often invisible role in supporting economic growth
through their role in boosting productivity and innovation. However, the impacts of standards within
businesses and their supply chains are less well understood.

This report, prepared by my colleagues at Cebr, represents the most comprehensive study of the
economic benefits of standards to UK businesses to date. The original research published in 2005 during
my tenure as Director General and Chief Economist at DTI established the economic value of standards in
the UK and raised the profile of standard use within industry.

This study adds to that important work by updating the estimates for the impact of consensus standards
on productivity at the national level, using a similar methodology and covering the period from 1921 to
today. These updated estimates indicate that business standards have had a larger impact on UK
productivity over this longer period than previously recognised. On our calculations, standards appear to
have contributed towards 37.4% of annual productivity growth. As an illustration, in 2013, that would
translate to an extra £8.2 billion of GDP emanating from the proper use of standards. Caution should be
taken when interpreting these estimates given that standards have a complementary and
interdependent role in driving productivity along with patents, and other forms of knowledge.
Nevertheless it is clear that standards are a vital element of the growth and strength of UK industry,
facilitating trade and innovation and adding to the impact generated by the machinery and equipment
used in production and the people employed in those industries.

More importantly, this study gives us for the first time empirical evidence of the ways that standards are
benefiting individual companies in the UK. The research showcases the extent to which standards
provide multiple benefits to companies including enhancing the quality of products and the efficiency of
processes; facilitating the efficient distribution of technical information and processes; supporting the
effective functioning of supply chains; and catalysing innovation within businesses. Using a survey, it was
also possible to build a picture of the financial benefits of standards at the sector level in terms of
turnover and GVA.

At the time of writing, the UK economy continues to recover from the most severe recession since the
1930s depression. The recovery will only be sustainable if it is accompanied by an internal and external
rebalancing of our economy: in other words a higher savings rate, more business investment, and rising
net exports. Boosting productivity is essential to this. The research presented here shows that standards
are most intensively used by the UK’s most productive sectors such as the aerospace and defence sector
where labour productivity (output per worker) in manufacturing between Q1 2005 and Q3 2014 has
increased by 20.1% compared to 4.9% for the UK economy as a whole.

The impact of standards on exports is of particular interest in the current policy context, given the
necessity to address the UK’s trade deficit. Standards are important for opening up new markets, linking
UK companies into global supply chains and reducing technical barriers to trade. Exporting firms tend to
be the most productive. The evidence shows that standards have been hugely influential in boosting the
sales of UK products and services abroad, with reported impacts averaging 3.2%, equivalent to £6.1
billion per year in additional exports.

The benefits of standards in the growth of the UK economy so far are clear and is reemphasised by the
findings in this report. What the UK now needs is to capitalise on its strong position and continue
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moving up the value chain so it can cement its role as the world leader in the industries where we have
comparative advantage.

Over the past 110 years, the UK has led the world at each stage of the evolution of voluntary consensus
standards for industry. The UK was one of the first countries to develop technical product standards and
later, the first to develop process standards for quality management (BS ISO 9001), environmental
management (BS ISO 14001) and information security management (BS ISO 27001).

Today, in a third phase of development, the UK is leading the codification of good practices aimed at
releasing the full potential of businesses, through a new focus on people – through leadership,
governance and risk. Good examples of this are standards covering the principles of organisational
governance (BS 13500), anti-bribery (BS 10500) or corporate social responsibility (BS ISO 26000). By
taking a lead in using UK experts to create standards for good practice in all areas of business practice,
the UK can remain one step ahead of the game.

The policy context of this report is also important. It is often forgotten that standardization represents a
useful and often superior policy alternative to regulation, with legitimacy of the voluntary standard
achieved within industry through the consensus process.

Considering this policy function and the importance of standardization for the future competitiveness of
the UK economy, it is vital that it should continue to figure highly in Government industrial policy for
many years to come.

Vicky Pryce

Chief Economic Adviser, Centre for Economics and Business Research

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Executive Summary
This report provides a comprehensive examination of how standards – in their important role as diffusers
of technology and promoters of efficiency in businesses – have impacted UK economic growth. The
report and underlying study were commissioned by the British Standards Institution (BSI).

The report examines the economic contribution of standards from two angles: an empirical analysis of
the macroeconomic impact of standards on the UK economy, updating a previous study published by
the DTI in 2005, and a micro-level analysis on how the use of standards and participation in the
standards development process produce financial and other benefits for individual companies. The
micro-level analysis combines a survey of 527 UK companies (referred to in this report as the BSI
Standards in Industry Survey), in-depth interviews and case studies covering seven key sectors to provide
evidence on how standards benefit companies. The key findings of the study are presented here:

 It is widely accepted that standards play a vital and often invisible role in supporting economic
growth – by promoting productivity and efficiency in companies, through their role in supporting
international trade and by acting as a catalyst for innovation within companies and sectors.
 Taking into account these multiple important roles that standards play, it is possible to envision
that standards might have a sizeable effect on productivity in the UK economy. To measure this
empirically at the national (macro) level, an econometric analysis was carried out to determine
the relationship that standards have with productivity and to quantify the value of standard’s
contribution.

Financial benefits of standards

 The analysis found a positive and significant contribution of standards to productivity –
supporting 37.4% of annual labour productivity growth in the UK economy over the period
1921 to 2013, which translates into approximately 28.4% of annual GDP growth – a similar
finding to that of other recent national level studies in France and Germany. However standards
do not boost productivity growth exclusively. Instead standards have a symbiotic and
complementary role in driving productivity along with other factors such as improvements to
education and advancements in technology. Standards support productivity growth through a
variety of mechanisms such as by enhancing organisational efficiency, boosting trade and
facilitating innovation.
 For the purposes of putting the findings in monetary terms, and if you accepted that such a
contribution was broadly constant over time, standardization at a national level would be
associated with approximately £8.2 billion of the £29.0 billion of GDP growth recorded in 2013
(2014 prices).
 Results from the micro-level analysis provide evidence to support these macro-level findings.
Close to half (48%) of companies surveyed reported a net benefit from standards, and this
finding was consistent across industries ranging from 40% in the automotive sector to 54% in
food and drink manufacturing with larger businesses more likely to report a net benefit relative
to SMEs.
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The results show that at the sector level, impacts on annual turnover range from 1.7% (aerospace and
defence) to 5.3% (food and drink manufacturing), closely mirroring findings from a series of ISO
company case studies which found impacts ranging from 0.15% to 5% of annual turnover1 .
This translates into substantial financial benefits for the seven sectors surveyed, amounting to
annual impacts on turnover totalling £33.3 billion (2014 prices) and £6.9 billion (2014 prices) in
GVA terms. Food and drink manufacturing reported the largest revenue impact (£10.2 billion
per year) while the ICT sector had the largest impact in GVA terms (£2.1 billion per year).

How using standards generates benefits for companies

 A further objective of the study – beyond quantifying the financial contribution of standards at
the micro and macro level – was to understand how the use of standards generated benefits for
companies. The academic literature shows that standards fulfil four important economic
functions that help solve fundamental problems of firms and industries, which can impede
companies from maximising their productive potential. These four economic functions were
explored in the survey. The findings for each are listed below:
1 Standards help businesses to enhance the quality of their products and the efficiency of their
processes – More than a third (36%) of companies reported that they had experienced an
increase in productivity as a result of using standards. These findings were highest in the ICT
sector, where 48% of companies reported a boost to productivity. In terms of the effect of
standards on quality, 70% of respondents stated that standards had contributed to
improving their supply chain by improving the quality of supplier products and services.

2 Standards efficiently reduce the variety of goods and services to an optimal level for
minimising cost – 63% of firms stated that standards have homogenised products to the
extent that price competition has increased.

3 Standards facilitate inter-operability of products and processes – In sectors highly reliant on

technical standards; the survey confirms the importance of standards in interoperability –
41% of companies in the ICT sector agreed that standards have increased inter-operability
of products and systems.

4 Standards efficiently make available technical information to all firms allowing an effective
and less costly inter-firm exchange of information. - More than half (54%) of companies
reported that information was made more accessible through the dissemination of
technology through standards and this was highest in the ICT sector (60%).

The benefits of standards to trade

 One of the most important economic roles of standards is in promoting and supporting
international trade. Using a similar approach to the estimation of turnover impacts, the survey
results show that impacts on exports attributed to standards ranged from 0.3% in the energy
sector to 9.9% in the food and drink manufacturing sector. Translating these estimates into
monetary values, it was found that the combined impact of standards on exports in the sectors
surveyed amounted to £6.1 billion per year (2014 prices).
 The survey results highlight the important role of standards in ensuring compatibility of British
products in international markets, reducing transaction costs and providing a signal of quality to

1
International Organization for Standardization, 2014, ‘Economic Benefits of Standards’, ISO.
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customers, thus boosting the export performance and prestige of British companies. On average,
76% of companies disagreed with the concept that standardization had contributed to higher
barriers of trade. Given this supportive role, it is of no surprise that survey respondents (all of
which use standards) were twice as likely to export relative to the average firm of the same
size in the whole economy2.

The role of standards as a catalyst for innovation

 The academic literature highlights another important economic role of standards – as a catalyst
of innovative activity. Standards facilitate innovation by reducing the time to market for new
products, promoting the diffusion of innovative products, levelling the innovation playing field
between big and small companies, and facilitating inter-operability in network industries thus
creating the environment for the development of new products. The survey provides evidence to
support this catalytic role of standards in innovation – 50% of firms stated that standards
encouraged innovation through the diffusion of new knowledge.
 The survey shows that standards enhance the supply chain of industries by promoting
compatibility between products and processes and boosting confidence between suppliers and
clients. On average, over half (51%) of all firms surveyed confirmed that standardization had
improved their client-supplier relationship through improved confidence.

Benefits of participation in the standards development process

 The survey highlighted the existing capacity of businesses to become more involved in the
standards development process. Over two-thirds (68%) of businesses surveyed were not
involved in the standards development process. The survey evidence shows that participating in
developing standards makes it more likely that a company experiences benefits from using
standards – those that reported they are highly involved in the standards development process
are the most likely to report that they experience a net benefit from standards.
 The most important benefits of participation in the standards development process are:
o Being able to anticipate future market rules and emerging themes in their industry
(88% of participant companies),
o Promoting the industry’s interests at a national level (75% of participant companies);
o Having prior access to information that would not normally be received (71% of
participant companies).

Other important roles of standards

A further important role of standards relates to non-monetary issues such as protecting the
environment, and the health and safety of employees. The survey results show that 73% of
companies found that standards allow greater control over environmental problems and 89% of
companies stated that standards contributed to the optimisation of compliance with regulations
such as health and safety legislation.

2
This refers to all firms in the UK non-financial business economy as defined in the Annual Business Survey 2013. The finding does not indicate
the direction of causality between standards and exporting activity in firms. There is likely to be bi-directional causality between standards and
trade, given their mutually supportive roles.
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Conclusions

 The macro-level analysis confirms the important role that standards play in boosting UK
productivity. In addition, the findings emphasise that the impact of standards on productivity
accrues only in the long-run, implying that businesses should consider the use and
implementation of standards as an investment that pays back over a number of years, in the
same way that businesses invest in new machinery and equipment.
 The micro-level analysis reveals the perceptions of businesses regarding standards and the
channels through which standards impact firms. The sector analysis illustrates the extent to
which standards are essential to the functioning of UK businesses, sector supply chains and
markets. The survey results also provide evidence to support the theory in the academic
literature on the role of standards in the economy.
 The study shows that being involved in the standards development process produces surprisingly
large benefits for participants, and it raises the questions as to why there is not more widespread
involvement among UK companies. In some countries where demand to participate is high,
companies pay for the right to sit on technical committees whereas in the UK this is not the case.
This may be a result of UK companies simply not being aware of the specific benefits that accrue
to companies that get involved in standards development.
 Evidence from the survey and in-depth interviews with industry experts show that standards are
an integral part of the functioning of businesses in many of the sectors. In some cases, if
standards were not widely used in the sector, companies simply would not be able to operate
the same way they currently do, or it would become uneconomical to do so. For example the
business model of large aircraft manufacturers (OEMs) has evolved to outsource the production
of a vast array of components, and to focus on the design and assembly of aircraft. This allows
for substantial cost savings to be achieved. Without standards to allow easier verification of
quality and to distribute technical information, manufacturers would need to revert to a more
traditional vertically-integrated model of business structure, which may reduce the capacity of
the industry to produce aircraft in sufficient volumes and would likely increase costs of
production, to the detriment of customers and the economy.
 The evidence from the sectors covered in this report shows that standards have been hugely
influential in boosting the sales of UK products and services abroad, with reported impacts
averaging 3.2% of annual exports, equivalent to £6.1 billion per year in additional exports. Given
the current Government emphasis on re-balancing the economy towards export-led growth, this
highlights the importance and benefits of further promoting standardization throughout the UK
economy.
Integrating the macro-level results with findings from the British Standards Institution (BSI) Standards in
Industry survey provides insight into how standards benefit businesses and the mechanisms through
which these benefits translate into national-level impacts.

 The micro-level analysis targeted sectors that were identified as the most standard-intensive in
the UK economy. These sectors, which represent 25% of the UK non-financial business economy
are also sectors that have experienced the strongest productivity growth over the past ten years
– productivity in manufacturing grew by 19.7% between Q1 2005 and Q3 2014 compared to just
4.9% growth for all sectors over the same time period3.

3
Productivity statistics obtained from the Office of National Statistics Labour Productivity Q3 2014 Dataset
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 The macro-level estimate for the impact of standardization is based on average productivity
growth for the whole economy, incorporating both high and low productivity growth sectors. If
only high productivity growth sectors were covered - as was the case in the sector-level analysis -
then estimated impacts would likely have been larger.
There are several conclusions that can be drawn from this:
 Standards which enable high productivity growth industries to be more productive may have
helped to offset low and even negative productivity growth in some sectors during the recession.
 If high productivity growth industries tend to be intensive users of standards, then it follows that
standards are likely to have played a role in sustaining overall productivity growth during the
recession and in the economy generally.
 If standards were more widely employed across businesses and sectors, average productivity
across the whole economy could rise. This suggests that if such a study of national economy
impacts of standard were repeated in the future, and standard use also increased over that
period, then we could expect that the estimated impacts of standards would be even larger.
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1 Introduction
This report provides a comprehensive examination of how voluntary consensus standards – in their role
as an important diffuser of good business practices and catalyst of innovation – have impacted on UK
economic growth. The report was commissioned by the British Standards Institution (BSI) using funding
provided by the UK’s Department for Business, Innovation & Skills (BIS).

There are several inter-related objectives of this report and the study underlying it. They are to:

 Quantify the macroeconomic impact of standards on the UK economy;

 Determine how standards affect the financial and export performance of UK companies;
 Determine how standards impact industry supply chains in the UK;
 Present the value of participation in the development of standards.

This study was composed of two parts:

Part 1 involved an analysis of the macroeconomic impact of standards and represents an update of the
2005 study ‘The Economic Contribution of Standards in the UK’ published by the Department for
Trade and Industry (now part of the Department for Business, Innovation & Skills). Cebr has
endeavoured to replicate the methodology employed in that study but inevitably, given advances in
knowledge and in the availability of new and better data, there are some differences. The underlying
framework has not changed though and has also been employed in national-level studies in Germany,
France and Canada. Sections 1 to 4 of this report document the methodological approach and findings
of Part 1 of the study.

Part 2 sought to understand the microeconomic effects of standardization – how the adoption
of standards and participation in the standards development process benefits individual companies.
The research concentrates on the role of standards in seven key sectors: automotive, energy, aerospace
and defence, food and drink manufacturing, ICT, construction and life sciences. The report on this part of
the study combines the evidence from a survey of 527 UK companies (BSI Standards in Industry survey)
and in-depth interviews with executives of companies that use standards, which were used to produce
case studies demonstrating how standards benefit companies in each sector. Part 2 of the study is
reflected in Sections 5 and 6 of this report.

Together, both parts of the study achieve a comprehensive examination of the macro and
micro economic effects of standards and builds upon and extends the existing understanding of the
important role standards play in driving the UK economy.

What makes this study unique is the examination of the role of standards in the UK economy at
the microeconomic level. The objective of the research was to understand the qualitative and where
possible quantitative benefits of standards on UK companies, how standards are used by companies, the
value of participating in the standards development process and the impact of standards on the supply
chains of the UK’s largest sectors. While research on standards of this kind has been carried out in other
countries, this is, as far as we are aware, the first of its kind in the UK.
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2 How standards contribute to economic growth

Voluntary consensus business standards have long been associated with making an important
contribution to economic growth and productivity, although few studies sought to examine this question
in detail until the late 1990s. Since then, a large body of research has developed to explain the
mechanisms through which standards have an impact on economic growth and productivity.

In this section, we present an overview of the main channels identified by the academic literature
through which business standards contribute to economic growth – supporting productivity and
efficiency within companies, facilitating trade and acting as a catalyst for innovative activity.

2.1 A brief history of standards and BSI

Standards-making has progressed in three distinct phases. In the first phase, at the turn of the twentieth
century, it was recognised by industry that getting agreement amongst experts on the technical
specifications of products, such as the dimensional criteria or test methods, would open up new markets
and allow competition on the basis of quality and service. Today this would be described as enabling the
inter-operability of components. The first national standard in the UK, BS1, was published in February
1903 and tabulated the standard dimensions of steel angle sections, essential for structural engineers in
sourcing from different manufacturers.

Following WWII and the work of Edward Deming in Japan, industry experts began to recognise that the
quality of a product was a function not only of the technical specification but also of the quality of the
process which made it, and that the manufacturing process was common to many different products. So
assuring the quality of the manufacturing process could go a long way to assuring the quality of the
products. The UK is widely regarded as a thought leader in the development of standards for
management systems and BSI in its role as the UK national standards body acting on behalf of the UK
manages the secretariats for most of the world’s most famous management system standards. Many of
the UK’s successes will be instantly familiar to many:

 ISO 9001, quality management systems, started life as BS 5750,

 ISO 14001, environmental management systems, started life as BS 7750,

 ISO 27001, information management, started life as BS 7799,

 ISO 22301, the business continuity management standard, started life as BS 25999.

In the last few years, a third phase in the role of best practice in delivering business potential has begun
to be recognised. This third phase of the evolution of business standards is concerned primarily with the
business principles that underpin high performance, rather than the business processes or product
specifications. The third phase of business standards development is about improving organisational
performance by codifying best practice principles in the areas of behaviour: leadership, governance and
risk. This is based on the consensus that there are good practices in how to improve the innovation
capacity of an organisation, as well as how to motivate and improve the productivity of the workforce.
Recent standards in this area include the principles of organisational governance (BS 13500), anti-bribery
management (BS 10500, to be BS ISO 37001) and organizational risk management (BS 31500, now BS ISO
31000). In the area of smart (future) cities, new UK developed standards address the principles of
decision making (BSI PAS 181) and planning guidelines, (BSI PD 8101) as a pre-requisite for building
investor confidence and supply chain procurement.
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2.2 What is a standard?

Simply put, a standard is an agreed way of doing, thinking about or managing something. The
International Organization for Standardization (ISO), on the Council of which the UK has a permanent
seat and for which BSI pays the national dues, defines a standard as a document that provides
requirements, specifications, guidelines or characteristics that can be used consistently to ensure that
materials, products, processes and services are fit for their purpose. Standards can relate to anything,
including definitions and classifications, manufacturing, process management or service delivery.

All countries around the world that are signatories to the World Trade Organisation (WTO) Technical
Barriers to Trade (TBT) chapter have a national standards body which is responsible for developing
national standards, participating in the development and adoption of new international standards and
the publication of standards in their country. In the UK, the British Standards Institution (BSI) is
appointed by the UK government (HMG) as the sole organisation responsible for developing and
publishing British Standards. BSI supports and coordinates UK expertise in making standards, including
participation in the development of European and international standards, the majority of which are also
adopted as British Standards.

This study focuses on voluntary standards 4 developed and published by BSI, which facilitates
collaboration between industry experts, government bodies, companies, academia, trade associations
and consumer groups. As a result of this cooperation, each standard is developed to represent an
industry-wide consensus on best practice.

The relationship between standards and regulations is frequently confused. Standards can assist
companies to comply with legislation but in almost all cases in the EU and EFTA countries are not a legal
obligation5. While standards provide a straight forward way to demonstrate conformity, with very few
exceptions their use is voluntary – it is up to the individual company to decide whether to try and meet
the requirements of the legislation themselves or to adopt the standard. Some standards may become a
market requirement, as has happened in the case of EU construction products regulation6.

Standards cover a wide variety of activities undertaken by businesses in the production of their products
or services and in supplying their customers. A summary of the main types of standards is provided in
Table 1.
Table 1: Summary table of the main types of standards

Standard type Description Example

Quality Help companies achieve cost effective ISO 9001 quality management system (QMS)
management and quality assurance methods through ISO 13485 QMS for medical device industry
a system of continual improvement ISO 16949 QMS for automotive industry
Health & safety Set out systems for health and safety OHSAS 18001 Occupational health & safety
management and the minimisation of BS ISO 31000 Risk management
operational risk BS 5839 Fire detection and fire alarm systems
for buildings

4
While proprietary technology (normally covered by patents) represent an important part of the stock of technological knowledge, this does not
fall into the scope of this study.
5
In the EU, the voluntary ‘New Approach’ system of technical harmonisation introduced in 1985 specifies standards as one means of conformity
with the ‘essential requirements’ of European directives. Where another technology/method is used to meet the essential requirements, or in
the absence of standards, the burden of proof that the product meets the essential requirements rests on the producer or importer of the
product.
6
A rare example where standards are mandatory is in the construction products industry, where the 2011 EU Construction Products Regulation
has made it a mandatory requirement that products are manufactured to a common European technical specification (EN standards).
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Standard type Description Example

Technical Set out the technical characteristics of a BS 7671 Requirements for electrical
product or a production process, installations
allowing efficient application and BS EN 1090 Execution of steel structures and
replication aluminium structures
Environment Enable companies to identify and ISO 14001 Environmental management
control their environmental impact and systems
improve their environmental
performance
Code of practice Provide best practice guidelines in the BS 5266 Code of practice for the emergency
implementation of a process or escape lighting of premises
procedure
Management Provide systems for the effective ISO/IEC 27001 Information Security
management of specific functions within Management
organisations
Organisational Provide guidance on effective structures BS 13500 Code of practice for delivering
governance and practices for the governance of effective governance
organisations

The BSI Standards in Industry survey – covering 527 companies within seven sectors - reveals that health
and safety standards are the most commonly used standards across all UK businesses, with 80% of
companies surveyed reporting their use in their organisation (see Figure 1). Quality management
standards such as ISO 9001 have become an essential certification for many UK companies. The survey
shows that 75% of companies surveyed – and 98% of large companies (>250 employees) – use quality
management standards in their organisation.
Figure 1: Adoption of standards, all sectors, % utilisation by standard type

100%
80% 76%
80% 65% 63% 60%
60% 51%
35%
40%
20%
0%
Health & Quality Technical Environmental Codes of Management Organisational
safety management Practice governance

Source: BSI Standards in Industry Survey, Cebr analysis

2.3 How standards contribute to productivity and efficiency

The development of standards is driven by a demand from industry. Standards help to solve fundamental
process, organisational and technical problems, which if left unresolved, could result in inefficient market
functioning and poor economic outcomes. Lessons from the introduction of the first standards in the UK
are instructive on the economic role that standards play. One of the first to be introduced in the UK – the
standardization of the number of tram gauge specifications from 75 to 5 in 1903 (standard BS 2) – was
put in place to ensure quality of manufacture while removing the unnecessary variety that existed in the
tram rail market, which restricted the interoperability of tram networks and resulted in longer lead times
18 18

for tram rails. The reduction in variety reduced the purchase costs for tram companies and allowed tram
rail manufacturers to expand their markets (Dow, 2014).

The same principles of standardization apply to today’s industries – standards help industries overcome
a multitude of problems that would otherwise result in a less optimal outcome for businesses. A
common classification of standards in the literature (Swann, 2000) relates to the economic issues they
solve. This classification generally show that standards play a direct or indirect role in the productivity
and efficiency of companies – through reducing the cost of producing goods and services, increasing
revenue by opening up new markets, or boosting the efficiency with which goods and services are
produced. Standards can serve many purposes and therefore solve multiple issues. Here we provide a
brief discussion of the different types of standards and their role.

Facilitating inter-operability of products and processes

Some standards are designed to assist in the inter-operability between products and systems. The
literature (for example, Farrell & Klemperer, 2007) describes two economic phenomena that inter-
operability standards affect: switching costs and network effects.

Switching costs arise when a customer chooses to change supplier. This often ‘locks in’ the customer to
purchasing from a single firm because it is costly to switch or purchase from multiple suppliers. These
barriers to switching have the effect of limiting competition in the market. Interoperability was a key
aspect of the reforms of the regulated network industries in the 80s and 90s, largely with a view to
reducing switching costs and therefore facilitating competition. Standards help to reduce switching costs
by making it easier for customers to move between suppliers, thus improving choice and lowering the
overall cost of investment for the customer.

Network effects (also known as network externalities) are generated when the adoption of a given
technology, product or service produces benefits that increase with the number of users, i.e. creating a
‘network of users’. The oldest example of a good that produces network externalities is probably the
telephone (De Vries, 2006). Specifically, there is zero economic benefit if only one person owns a
telephone and is connected to the network. As more and more people are connected, the benefits
increase exponentially because every user experiences the benefit of being able to call more and more
people. Social networks operate in much the same way – the more people are connected to Facebook,
for instance, the more attractive it becomes to be a part of the network for people who have not done so
already.

With interoperability between telecommunications networks, for example, these network effects are
even greater because anyone connected to one network can call anyone connected to other networks,
including fixed-to-mobile for instance. This increases the attractiveness of being connected to at least
one of them because it means being able to call anybody on one’s own network and on any other
network. With network externalities making it so attractive to be connected, it is in the interest of
communications providers to ensure interoperability between their networks, as it increases the size of
the total market, allowing them to achieve a higher turnover. But interoperability is also good for
competition and ensuring value-for-money to the consumer.

One downside of strong network effects is the lock-in of customers to older or less functional
technologies (Swann, 2000). Highly specialised computer software systems such as those used in
engineering, design or finance sectors can often lock firms in by requiring specialised training for their
use. As competing packages will have different methods that require different skill-sets, firms are locked
 19 19

in from switching to other systems by disruption to business and re-training costs. This can result in firms
using the same software for many years even if other more recent software might be more efficient.

Efficient reduction in the variety of goods and services

Markets require standards in order to efficiently align the expectations of buyers and sellers. If different
versions of products need to be produced for each market, costs are likely to be higher for both
consumers and producers. For example, the size of freight containers used for transporting cargo need to
be standardized across global markets so that they can be stacked onto ships, trucks, and trains as
efficiently as possible. If containers were not standardized then it would be difficult to load, unload and
move goods seamlessly between modes of transport, leading to higher costs for the producer and
consequently higher costs of goods for consumers. Therefore it is efficient to standardize the sizes of
containers to ensure that as many goods as possible can be transported at one time.

A more recent example of a standardized product is the USB connector, which was introduced by
industry to provide a standardized way to supply power to cameras, mobile phones and other handheld
devices and to allow such devices to communicate with each other.

Ensuring quality and promoting efficiency

Quality management system (QMS) standards, Figure 2: Global certification to quality management standards
such as ISO 9001 are some of the most widely
used standards worldwide. According to ISO, in
2013 there were 1.2 million companies 26,000
worldwide certified to a QMS standard (see 54,000
Figure 2), with 47,000 companies certified in the
UK alone7.

QMS standards help companies to ensure

quality and boost efficiency. This is achieved
through the implementation of management
system frameworks that facilitate continual
improvement in performance. These 1,129,000
frameworks consist of processes that are
designed to identify more efficient and time ISO 9001 Quality management
saving procedures and to proactively reduce ISO/TS 16949 Automotive QMS
errors and defects. This can generally lead to
greater efficiency and reduced costs through, for ISO 13485 Medical devices QMS
instance, the obviated need to recall batches of
product already gone to market. Source: ISO Survey 2013, Cebr analysis

But at the same time, QMS standards, provide certainty to customers that they are purchasing a quality
product or service, and that it satisfies the customer's quality requirements while also ensuring
compliance with applicable regulations and directives (where relevant).

7
ISO Survey 2013
20 20

QMS standards contribute to solving the economic problems that arise due to information asymmetry, a
situation where sellers have more information than buyers about the quality of their product. To get
around this problem companies use a QMS standard which allows them to signal to buyers that they
provide high quality products or services.

The BSI Standards in Industry survey reports very high levels of QMS use amongst the sectors covered. Of
the 527 companies surveyed, 75% have adopted QMS standards. Use of QMS standards is generally
much higher amongst larger companies (250+ employees) - 98% of large companies surveyed reported
they have a QMS. This is unsurprising as, to a certain extent, large companies are much more likely to
have the resources to implement and refine the required processes. But they are also likely to have a
much greater need for QMS in order to retain organisational control and avoid diseconomies of scale
(average cost increasing instead of decreasing with size).

Efficient distribution of technical information

Many technical standards also Figure 3: Use of technical standards, by sector
serve the purpose of providing
90% 77%
information and product 80% 72% 70% 67% 67%
descriptions that align the 70% 56%
expectations of suppliers and 60% 49%
50%
purchasers. Standards spread 40%
technical knowledge by making 30%
information readily accessible to 20%
all firms. This allows for an 10%
0%
efficient and less costly inter-
firm exchange of information,
reducing the costs of each
transaction. This lowers the
costs of purchasing intermediate
products from external suppliers,
allowing manufacturers to
outsource more of their
activities. Source: BSI Standards in Industry Survey, Cebr analysis

Standardizing components is essential in complex industries such as aerospace (see Figure 3) where large
manufacturers source their components from thousands of suppliers. Airplane manufacturing is a good
example of the challenge involved. Each plane is composed of millions of separate parts sourced from
thousands of companies across the supply chain. Manufacturers such as Boeing and Airbus use both
internal and external standards to effectively communicate technical requirements to their suppliers.

A summary of the different standard types and their impacts is provided in Table 2.
 21 21

Table 2: Summary of types of standards classified according to the economic problems they solve

Type Positive impacts Negative impacts

Facilitating  Network externalities  Can lock in old technologies in

interoperability  Avoids lock-in of old technologies the case of strong network
of products and  Increases choice of suppliers externalities
processes  Promotes efficiency in supply
chains
Efficient  Generates economies of scale  Can restrict choice
reduction in the  Fosters critical mass in emerging  Can increase market
variety of goods technologies and industries concentration
and services  Can lead to premature selection
of technologies

Ensuring quality  Helps avoid adverse selection  Can be misused to raise rivals'
and promoting  Creates trust costs
efficiency  Reduces transaction costs

Efficient  Helps reduce transaction costs by  Can result in excessive

distribution of helping to eliminate information influence of dominant players
technical asymmetries on regulatory agencies
information  Diffuses codified knowledge
Source: Swann 2000

Other roles of standards

Standards also play an important Figure 4: Use of environmental and health & safety standards, by sector
role in solving other economic
problems which may not 71%
Food & drink manufacturing
influence the productivity and 90%
efficiency of companies, but can
Energy 79%
result in benefits to society as a 88%
whole. Standards can help
companies to meet their Construction 68%
83%
obligations under regulations
designed to reduce public costs Life Sciences/ Healthcare 50%
(such as air pollution) or deliver 77%
public benefits (such as 53%
improvements in road safety, or Aerospace and Defence 77%
as already noted, increased
network externalities). ICT 52%
75%
Sectors most likely to use these 66%
Automotive 72%
types of standards are those
where health and safety and
0% 50% 100%
environmental concerns tend to
Environmental standards Health and Safety standards
be integral to their operations
Source: BSI Standards in Industry survey, Cebr analysis
22 22

and reputation. Standards help these companies meet the various requirements and obligations under
health and safety and environmental regulations.

The BSI Standards in Industry survey shows that the highest use of environmental standards is in the
energy sector (see Figure 4) – which is highly regulated with regard to the environment - 79% of
companies employ an environmental standard.

In the food and drink manufacturing sector, where maintaining food safety standards is essential, 71% of
companies have adopted a health and safety standard – the highest amongst the sectors surveyed.

2.4 The important role of standards in facilitating international trade

Standards play an important role in facilitating international commerce by reducing technical barriers to
trade. These can occur when countries put in place technical regulations that may be considered
unreasonable if they are arbitrarily applied resulting in difficulties for foreign companies trading in that
country. The World Trade Organization (WTO) 1995 Agreement on Technical Barriers to Trade seeks to
avoid unnecessary barriers by setting out a code of good practice, whereby countries recognize and use
international standards as the basis for technical regulations.

Harmonisation of standards across countries can act as a major catalyst for trade – allowing companies
to sell their products and services without the need for adaptations across multiple markets. To facilitate
the functioning of a harmonised common market, new European Standards (ENs) produced by the
European standards bodies CEN, CENELEC and ETSI must be adopted as national standards by all their
national members. In a similar way, elements of many bilateral trade agreements involve the mutual
recognition of standards.

The academic literature provides strong evidence to support the notion that the use of international
standards supports trade. A recent comprehensive survey of the literature on the relationship between
standards and trade (Swann, 2010), shows that using international standards was generally found to be
positive for export performance. An exception is where national standards are shown to be superior to
international standards. The general consensus in the literature is that international standards support
compatibility, reduce transaction costs and provide a signal of quality to customers, thus boosting the
export performance of companies.

It is of no surprise therefore that companies that use standards tend to be more likely to export relative
to the average. To demonstrate this point, Figure 5 contrasts the proportion of exporting companies in
the seven sectors covered by the BSI Standards in Industry survey relative to the general business
population8. While these groups are not directly comparable, it does indicate that the likelihood of a
company being an exporter is higher if that company uses standards.

8
‘General business population’ refers to the UK non-financial business economy (SIC sections A to S). Data are sourced from the Annual
Business Survey 2012 – Export and Import Activity (GB)
 23 23

Figure 5: Proportion of exporting companies, by employment size band

100%
76% 79%
80%
61%
60%
43%
40% 35% 35%
20%
20% 10%

0%
1 to 9 10 to 49 50 to 249 250+

All companies Companies that use standards

Source: Annual Business Survey 2012 – Export and Import Activity, BSI Standards in Industry survey, Cebr analysis

The academic literature (Swann, 2010) identifies four main channels through which standards enhance
trade. These are as follows:

1. Standards drive trade by providing a signal of quality to consumers and trade partners. A
strong national system of standardization that improves perceptions of quality can facilitate
non-price competition (where firms compete in terms of attributes such as product quality,
delivery and customer service). The opportunity for domestic exporters to compete with foreign
companies on the basis of quality has the potential to increase trade. In addition, by improving
transparency, buyers and sellers are more likely to be able to make optimal purchasing decisions,
which can help to minimise transaction costs and increase competitiveness
2. International standards create a ‘common language’ for potential trading partners. Standards
drive trade where previously technical differences may have been a barrier to trade.
International standards that ensure compatibility, for example in terms of product
measurements, convey information and form the basis of a universal standard for producers
across the world. By creating internationally recognised technical characteristics, standards help
to lower barriers to trade and reduce production costs. Such reductions can be passed on or at
least shared with customers in the form of lower prices. This would be expected to enhance
competitiveness and stimulate international trade.
3. Standards support international commerce by lowering barriers to trade, reducing production
costs and offering opportunities for economies of scale. Lower barriers to trade (often
technical) allow firms to access a wider number of customers globally, thus offering
opportunities for economies of scale. In addition, by ensuring compatibility, standards can
increase the demand for complementary products and services. For example the invention and
continual improvement of mobile phones has led to the development of ‘add-on’ products and
services ranging from accessories to tethered devices to applications.
4. Standards encourage trade by reducing transaction costs. Compatibility standards promote the
option of outsourcing or even off-shoring of specific tasks to more efficient external producers
or service providers. This is, in essence, a division of labour between firms which leads to the
differentiation of the supply chains in manufacturing and service industries. For example, it may
be optimal for a company to contract a supplier which has lower input costs to manufacture
their products while they focus on the design, sales and marketing of the product. Suppliers
24 24

benefit from gaining access to information and technology which is already being used within
the industry. The primary contractor benefits from being able to produce and sell their product
at lower unit costs while concentrating on their core strengths.

2.5 Standards and innovation

Standards are considered to have a catalytic effect on innovation – in the sense that standards facilitate
innovation but usually do not themselves directly contribute to the creation of new innovative products
and services. Blind (2009) summarises these effects as follows:

1. The standardization process reduces the time to market for inventions, research results and
innovative technologies;
2. Standards promote the diffusion of innovative products, which is most important for the
economic impact of innovation;
3. Standardization levels the playing field and therefore promotes competition, and consequently
innovation;
4. Compatibility standards are the basis for innovation in network industries;
5. Standards set the minimum requirements for environmental, health and safety aspects and
consequently promote trust, especially in innovative products.
Blind (2009) argues that governments should act to promote and support these catalytic effects
wherever possible and to avoid or restrict the negative effects, such as the prescriptive nature of some
technical standards, the effect of the consensus approach in standards development on bringing forward
the most advanced technologies, and the lock-in effect when standards have no provision for follow-on
technologies.

The role of the standards development process in promoting innovation

The standards development process brings together technical committees of experts who volunteer to
help develop standards. These include representatives from industry, professional institutions, trade
associations, certification bodies, testing and inspection bodies, research organisations, consumer
interest organizations, educational bodies and government departments. Combining these varied
interests facilitates ‘market-driven’ innovation and enables user-orientated solutions to be achieved.

The literature proposes that standards have dual informing and constraining roles in innovation - Swann
and Lambert (2010) find that companies which say that standards inform innovation and that regulations
constrain it, tend to be the most innovative; hence they are the most active at pushing the innovative
barrier and also the most constrained by the pace of the standards development process. The BSI
Standards in Industry survey provides evidence to support this finding, showing that where there is a
higher pace of technological advancement, in sectors such as life sciences, energy and ICT, companies
are more likely to experience a lag between the development of standards and the latest technological
developments (see Figure 6).
 25 25

Figure 6: Do standards tend to lag behind technological development? % of respondents that agree, by sector

Life Sciences/ Healthcare 75%

Energy 67%
Construction 63%
ICT 60%
Aerospace and Defence 56%
Automotive 46%
Food & drink manufacturing 41%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: BSI Standards in Industry survey, Cebr analysis

Standards bodies have been active in addressing this issue. Standards development time has been
reduced by the introduction of efficiencies in technical committees and standards body back-office
functions, and by shortening some stages of the development process. In some instances where a
standard originates from another source, such as an industry consortium and already has widespread
acceptance in an industry, a fast track procedure can be used to adopt it into the formal standards
system.

However, a balance needs to be struck between the pace of standards development and the
fundamental importance of achieving consensus amongst stakeholders. Without such consensus,
dominant players could have disproportionate influence on standards (or impose de-facto standards)
which might then be misused to raise rivals' costs and increase market concentration.

To summarise, this section gives an overview of the various channels through which standards contribute
to economic growth; promoting productivity and efficiency in companies, through the role in supporting
international trade and by acting as a catalyst for innovation within companies and sectors. It has been
shown that standards play a vital and often invisible role in promoting technological advancement and
improving efficiency within companies and industries.

The next section proceeds to analyse the catalogue of standards9 published by BSI, the past trends in the
composition and sector share of the standards catalogue, and trends in the international composition of
the catalogue.

9
It should be noted that any reference to the catalogue of BSI’s standards in this report excludes such documents as draft standards, guides and
handbooks which may be available through the BSI standards catalogue but are not adopted standards or standards distributed by BSI on behalf
of other standards bodies.
26 26

3 Trends in standards
The previous section provides an overview of the mechanisms through which standards contribute to
economic growth and the performance of companies. This section focusses on the standards themselves,
analysing the composition of the stock of standards and showing how it has changed over time.

3.1 Measuring the stock of standards

To evaluate the impact of standards on economic activity and productivity, a measure of the stock of
standards over time is required. Such a measure would ideally take account of variations in the quality of
standards, the extent to which they are used and useful in industry and how standards come and go as
time marches on. But the available data do not support such an ideal measurement so a more
straightforward proxy must be used. This is provided by a simple count of the number or quantity of
standards.

There is evidence to support the validity of using a quantity measure of the stock of standards as a proxy
for estimating the effect of standards on productivity. As noted in the 2005 DTI study, growth in
international trade tends to coincide with an increase in the demand for standards, due to both intra-
industry trade10 and increased productivity. The globalisation of UK trade since the 1990s correlates with
strong growth in the stock of BSI’s standards, suggesting that this ‘stock’ measure represents a
reasonable proxy for both the level of standardization in the UK economy as well as the demand for
standards.

Using data from the catalogue of BSI’s standards, a measure of the net stock of standards in the
catalogue in any one year was calculated by subtracting the sum of standards that had been withdrawn
or retired up to the end of that year from the sum of all published standards up to the end of that year.
This calculation is described by the equation in Figure 7:
Figure 7: Equation for the net stock of standards

Net stock All

Standards
of published
withdrawn
standards standards
in year(t)
in year(t) in year(t)

10
Intra-industry trade is the trade of similar goods and services within the same industry, often within different countries. For example, the
textile industry of two countries may respectively import and export different quantities of cloth, according to how the countries are
competitively advantaged.
 27 27

The measure has been constructed using data from the British Standards Online (BSOL) and Perinorm11
databases for the period 1921 to 2013. These databases contain detailed information including the date
each standard was published and withdrawn, standard type, the original standard issuing body and the
sector the standard applies to12. Where withdrawal dates were unavailable for early standards, hazard
rates13 estimated for the 2005 DTI study were used to estimate years of withdrawal for each individual
standard where this was absent.

The process of publishing and withdrawing standards is in many ways similar to that of the product
lifecycle – the process where products are designed, tested, launched in the market and ultimately
withdrawn. After the launch of a standard, there might be some maintenance, modifications and
updates, based on business needs and market conditions. Once the standard is no longer relevant to the
market, even with additional revisions, it will be retired and most likely replaced with a new standard in
its place.

Each standard is conceived by industry, in the sense that a requirement for the standard is established
and a new standard is proposed. Standards are designed in the technical committee phase and then
realized through adoption by the standards body. Like a product, standards go into service and produce
benefits for the firms that use them. Eventually, benefits from standards decline, necessitating periodic
reviews of whether they are still fit for purpose. If they are not, they are amended or updated, or
withdrawn and superseded by other standards. Each new version of a standard therefore represents a
step forward in technology or knowledge reflected in the standard.

Since the introduction of the first standard in 1903, the BSI standards catalogue has grown exponentially
– from less than 100 publications in 1920 to approximately 35,100 publications in 2014. The fastest pace
of growth was observed between 1961 and 1970 when annual growth averaged 6.6%, albeit from a
much lower base than today. The 1990s saw major changes in the composition of the catalogue with the
introduction of harmonised European standards contributing to relatively high annual growth of 5% for
the period. In more recent years, the pace of growth has slowed, averaging 3% for the period 2001 to
2014, partly because the period starts from a higher base (see Figure 8).

11
Perinorm is a bibliographic database maintained jointly by the German (DIN), French (AFNOR) and British (BSI) national standards bodies,
containing information on national, European and international standards from more than 200 standards publishing organisations in 23
countries, with a total of more than 1.4 million records.
12
For the 2005 DTI study, a more limited set of data was available. For the period 1901-1984 data were sourced from the BSI History Book, and
for the period 1985 – 2003, from the Perinorm database.
13
A hazard rate in simple terms refers to the hazard or chance of an event occurring. In the context of standards, it refers to the chance that a
standard has been withdrawn at a given point in time.
28 28

Figure 8: Net stock of standards in the BSI Standards Catalogue, 1945 to 2014

Source: BSI British Standards Online (BSOL) database, Cebr analysis

3.2 The composition of the catalogue of BSI’s standards

The composition of the catalogue over the years has changed to adapt to shifts in the structure of the UK
economy and the varying and growing demands for standards. Between 1945 and 1970, both
engineering and manufacturing had a similar share of the standards stock (approximately 30%). Since
1970, the proportion of manufacturing standards in the catalogue has declined, while the engineering
sector has retained its place as the most important source of demand for standards. Over the same
period, the importance of the IT, telecoms and electronics sector has grown substantially, with its share
rising from 7% in 1970 to 15% in 2014 (see Figure 9).
 29 29

Figure 9: Composition of the BSI Standards Catalogue, by broad industry group (aggregated ICS fields) and year of publication, %
of total

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Agriculture & food Construction Engineering
Environment, health & safety Health IT, telecoms & electronics
Management & quality Manufacturing Mining, chemicals & energy
Other Testing

Source: BSI British Standards Online (BSOL) database, Cebr calculations

An examination of the top 10 most published groups of standards in 2014 (Figure 10) reveals how some
fields have grown substantially in importance in terms of their share of standards published in each
period while others have declined in importance.

Figure 10 shows how the share of standards in ICT fields has expanded rapidly since 1945 while the share
of more traditional manufacturing fields such as rubber and plastics manufacturing have declined.

The data also indicate how standards have been developed to assist companies to meet expanding
legislation in certain fields. Coinciding with the growing importance and awareness of issues relating to
health and safety in the workplace and the protection of the environment, the share of standards in
these fields has expanded from 4.6% between 1970 and 1990 to 8.8% for the period 1991 to 2014.
30 30

Figure 10: Top 10 most published groups of standards in 2014 (ICS field), % share of standards catalogue by time period

Management & quality

Rubber & plastic industries

Health care technology

Telecommunications, Audio & video engineering

Manufacturing engineering

Information technology

Electrical engineering

Construction materials & building

Aerospace engineering

Environment, health & safety

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

1945 - 1970 1971 - 1990 1991 - 2014

Source: BSI British Standards Online (BSOL) database, Cebr analysis

The pace of standards development in each field reflects, to some extent, rates of technological
advancement. The introduction of a new standard normally occurs when problems have been identified
with the provisions of an existing standard, necessitating its update or replacement with a brand new
standard. In this way, the pace at which standards are withdrawn can in some instances reflect the pace
of technological change at that point in time.

Figure 11 shows how standards published between 1945 and 1984 took more than 15 years to be
withdrawn, while standards developed more recently being withdrawn more rapidly. To a large extent
this reflects the primarily British composition of the standards catalogue prior to 1990, and the rapid
withdrawal of many of these standards and their replacement by EU harmonised standards during the
1990s. However it also reflects the pace of technological advancement in recent years and how
standards published closer to the present day are more likely to have not yet reached the end of their
useful life. These factors contribute to the continual withdrawal of standards.
 31 31

Figure 11: Average years before standard withdrawal, by published year, 1945 to 2014, smoothed

30

25
Years before withdrawal

20

15

10

1987
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984

1990
1993
1996
1999
2002
2005
2008
2011
2014
Source: BSI British Standards Online (BSOL) database, Cebr calculations

3.3 The origin of standards available to UK companies

A key driver of the growth in the BSI standards catalogue over the past 25 years has been the increasing
internationalisation of standards, at the EU level and beyond. Figure 12 shows that before the 1990s,
almost all standards within the BSI Catalogue originated in the UK. EU harmonisation of standards led to
the wide-scale adoption of European standards within the UK catalogue.

At the same time the 1991 Vienna Agreement, which formalised technical cooperation between ISO and
CEN, and the parallel Dresden Agreement between IEC and CENELEC in 1996 were signed with the aim of
minimising overlap in standards by developing single common standards at international and European
level.

These agreements resulted in the automatic adoption of many international standards into the BSI
catalogue, as they were also European standards. Standards that would previously have been developed
solely for UK companies have been replaced by common European standards (some of which are also
international standards). Other international standards developed via ISO and IEC are also
overwhelmingly adopted as British standards. This has resulted in a staggering drop in the share of
British-only standards from 88% in 1990 to 2% in 2014.14

14
While this percentage is low, it is important to note that the UK is one of the strongest contributors to CEN/ CENELEC technical committees,
with 293 working group convenors coming from UK committees in 2013. Many standards adopted at EU level have their origins in standards
developed by BSI technical committees for UK companies.
32 32

Figure 12: Internationalisation of the BSI standards catalogue, 1980 to 2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
UK European Other International

Source: BSI British Standards Online (BSOL) database, Cebr analysis

The changing composition of the BSI standards catalogue also reflects the increasing globalisation of
trade. As more UK producers trade with EU and non-EU firms, there is a greater demand for standards
that improve compatibility and reduce the technical barriers to operating in international markets.

The growing importance of information and communications technologies which are ‘standards-
intensive’ in nature combined with the globalisation of trade suggests that we are likely to see
international standards become an increasingly important feature of the UK standards catalogue into the
future.
 33 33

4 Macroeconomic impact of standards on the UK

economy

The analysis presented in this section represents an update to a study on the macroeconomic impact of
standards on the UK economy commissioned and published by the Department of Trade and
Industry (now embodied within the Department for Business, Innovation & Skills) in 2005
(Temple, Blind, Jungmittag, & Spencer, 2005).

This section proceeds as follows: First, an overview of recent national studies on the macroeconomic
impact of standards is given. Second, a description of the methodology used in the analysis is provided.
Third, the results of the analysis are presented followed by a brief overview and discussion. Fourth, the
results are compared with previous national level studies. Fifth, an outline is provided for recent trends
in economic growth and the drivers of productivity. The section concludes with a discussion of the
differences between the analysis and findings of this report and the previous 2005 DTI study, including
consideration of the limitations of the analysis.

4.1 A summary of national studies on the economic benefits of standards

This analysis utilises a similar methodological approach to that of other recent national level studies.
Before presenting the results of the analysis, it is useful to first provide a summary of the findings of
these national level studies carried out in the UK, Germany, France and Canada.

UK
In the UK, the only national level study carried out to date on the macroeconomic impact of standards
was published in a 2005 report by the Department for Trade and Industry (Temple, Witt, & Spencer,
2005). The paper (the first of three papers in the report) used data for the period 1948 to 2002 to
determine the long-run relationship between changes in the net stock of standards and productivity
growth.

The paper found the existence of a positive and statistically significant relationship between standards
and growth in productivity in the UK. The authors however urged caution in the interpretation of the
results, since standardization does not act independently of other factors – it acts in combination with
other factors (like R&D for instance) to generate gains in productivity and to catalyse innovative activity.

Germany
One of the most recent national-level studies (Jungmittag, Blind, & Mangelsdorf, 2011) analysed the
macroeconomic impact of standardization in Germany between 1992 and 2006. This research,
commissioned by DIN (German Institute for Standardization), provided an update to an initial study on
the issue in Germany, completed in 2000.

The study concentrated on the link between economic growth and the diffusion of knowledge through
standardization. To do so, the authors empirically estimate how economic growth is affected by the
amount of capital, labour and technological progress. The authors assumed that technological progress is
driven by three main factors: domestic technological knowledge, foreign-imported technological
knowledge and the diffusion of technological knowledge. These were, in turn, proxied by the stock of
patents, licence expenditures and the stock of standards respectively.
34 34

The authors estimated that the economic benefit of standardization is equivalent to 0.72% of Germany’s
GDP per year between 1992 and 2006, which corresponds to an average of €16.77 billion per year during
the same time period.

France
The Association Française de Normalisation (AFNOR) published a study in 2009 that examined the
economic impact of standardization on the French economy (AFNOR, 2009). The research analysed the
effects of standardization from both the macroeconomic and microeconomic perspective.

The macroeconomic analysis found a positive contribution of standards to economic growth equivalent
on average to 0.81% of France’s GDP growth per year between 1950 and 2007.

The study also evaluated the perceptions held by French firms regarding the impact of standardization
using a survey of 1,790 companies. The evidence showed that standardization on average positively
impacts the turnover of a firm. The study found that 66% of firms perceive standardization as a benefit
to their organisation.

Canada
The Standards Council of Canada (SCC) commissioned The Conference Board of Canada (CBC) to
undertake a study to evaluate the impact of standardization on the Canadian economy (The Conference
Board of Canada, 2007). Similar to the French study, the research also takes a two-dimensional approach
to achieve both a macroeconomic and microeconomic view of the effects of standardization on the
Canadian economy between 1981 and 2004.

The study identified a significant positive effect of standards on economic growth between 1981 and
2004, estimating that standards supported 17% of the growth in labour productivity in France between
1981 and 2004 and approximately 9% of economic growth during the same time period. Further, the
study suggests that, in 2004, economic output would have been CA$62 billion lower if there had been no
growth in standards for the period 1981 to 2004.

The findings of the microeconomic analysis provide strong qualitative evidence in favour of the beneficial
impact of standards on businesses in Canada. Using results from fifteen interviews carried out with firms,
standards development organisations, trade associations and government departments, the CBC
concluded that standardization offers a wide variety of benefits including a foundation for driving
innovation and new product development. Interviewees highlighted standardization’s enhancing effect
on productivity and its contribution towards reducing costs.

4.2 Methodology: a model for the relationship between standards and

productivity
It is understood from economic theory that growth in the economy depends on the quantities of the
factors of production employed (specifically labour and capital) and the efficiency with which they are
used. Growth can be sustained by increasing the amount of labour and capital that are used. However,
as additional units of these factors are added, the amount of additional output diminishes.
 35 35

Modern economic theory states that only increases in the level of technological progress – represented
by patents, standards and other forms of technical knowledge – can offset the decline in growth that
occurs as an economy matures15 and diminishing returns to additional capital and labour set in. Growth
over the long run can be sustained by increasing the efficiency with which these factors are combined to
produce output. This is known as total factor productivity (TFP). Improvements in TFP are driven by a
number of factors including technological advancements and improved education that enhance the
efficiency of processes and techniques. These advancements and improvements are influenced by
standards and other factors such as R&D, imports of foreign technology and proprietary technology
(patents). As such, standards play an important role in driving growth in TFP.

Economic theory states that the economy produces output (expressed as GDP) through the inputs
Capital (K), Labour (L) and TFP. Our model follows the approach of the 2005 DTI study and previous
national level studies on the impact of standards on economic growth. We use a Cobb-Douglas
production function to describe how output is a non-linear function of the labour force (L), the capital
stock (K) and TFP (A).

This Cobb-Douglas production function can be transformed into a linear equation that is conducive to
econometric estimation.16 This allows the equation to be re-stated as a per-worker production function
with components output per worker (labour productivity), capital per worker (capital-employment ratio)
and TFP. A simplified representation of this re-stated model is shown in Figure 13. (See the appendix for
a detailed exposition of the empirical methodology).
Figure 13: Relationship between Productivity, the capital–employment ratio and TFP

Contribution Contribution
Labour of Capital- of Total
Productivity Employment Factor
Ratio Productivity

For the econometric equation, we specify labour productivity as a function of the capital-employment
ratio, standards and a linear time trend and recession variable, with the unexplained variation (residual)
in productivity representing the remaining portion of TFP. The purpose of the econometric analysis is to
isolate the contribution of standards to TFP growth and hence labour productivity. A linear time trend is
included to account for growth in labour productivity that can be attributed to time. A recession variable
is included to account for impacts of recession on labour productivity across the time period under
analysis.

15
One of the most important contributions to growth theory in the 20 th century, the Solow-Swan growth model (Solow, 1956), (Swan, 1956)
proposed the addition of a third source of economic growth - technological progress – that is external to the other two factors capital and labour.
The model postulates that only the rate of technological progress has any influence on the long-run growth rate of per-capita output and
consumption. A more recent growth model (Romer, 1990) builds on these fundamental ideas, showing that technological progress is
‘endogenous’ to economic growth i.e. a higher pace of economic activity can raise the pace of process innovation as firms learn from their
experience, resulting in a virtuous circle of growth.
16
Achieved by taking the natural log of both sides of the equation.
36 36

Figure 14 shows the trends in labour productivity, the stock of standards and the capital-employment
ratio between 1920 and 2013. The figure shows that the stock of standards has been growing at 6.8% per
year, close to triple the rate of labour productivity (1.9%) and the capital-employment ratio (2.3%).

Figure 14: Long-run growth in labour productivity, capital employment ratio and net stock of standards, Index 1921=100,
logarithmic scale

100000

10000

1000

100

10

1
1921
1924
1927
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
Labour productivity Capital employment ratio Net stock of standards

Source: ONS, Bank of England, BSI British Standards Online (BSOL) database, Cebr analysis

Figure 14 also shows that prior to 1948, the pace of growth in the capital stock was low, hampered by
two world wars and the inter-war depression. Since 1948, the net capital stock has grown at a faster
pace, averaging 3.8% growth per year relative to an average 0.4% growth per year in the labour force.
Consistent with the growth path of a developed economy, the capital-employment ratio has risen at a
much faster pace than labour productivity. This echoes the growing capital intensity (capital per worker)
of British industry over the period. This, in turn, has increased the demands for standardization through
the increased requirements for technical compatibility and interoperability.

4.3 Testing the relationship between standards and productivity

Economic theory suggests that standards should exhibit a causal relationship with labour productivity
and that the effect is likely to exists only in the long-run17 – short-run changes in the stock of standards
should have little effect on productivity.18 The 2005 DTI study found that this was the case in the UK.

17
The short run in economic theory treats only some inputs as variable over time, such as the amount of labour employed. Only in the long run
can all inputs can be varied, including fixed capital.
18
The absence of short run impacts from standards is a result of the time it takes for standards to diffuse amongst a user population. In other
words, there is a time lag between the adoption of a standard and the point at which it reaches maximum effectiveness.
 37 37

The apparent relationship between labour productivity, the capital-employment ratio and standards can
be seen more clearly when the time trend is removed19 from each series as shown in Figure 1520. While
the graph illustrates how labour productivity, the capital-employment ratio and standards tend to move
together, identifying the direction of causality is more difficult. In other words, does the increasing size
of the net stock of standards drive improvements in productivity or is it changes in productivity that drive
the creation of more standards?
Figure 15: Labour productivity, Capital employment ratio and Net stock of standards, 1921 to 2013, de-trended

0.6

0.4

0.2

-0.2

-0.4

Productivity Capital employment ratio Net stock of standards

Source: ONS, Bank of England, British Standards Online (BSOL) database, Cebr analysis

Strong uni-directional causality is improbable because, in reality, productivity and the creation of
standards will grow in a virtuous cycle, with each likely to be reinforcing the other. What is observable is
a potential ‘cointegrating’ relationship between the two or three variables whereby there exists a stable
long run statistical relationship. Statistical tests can confirm if this relationship is valid (non-spurious) and
whether it exists between standards and productivity. 21

The results of the econometric estimation are presented in Table 3. The results show that the
contribution of standards to productivity growth over the period 1921 to 2013 is positive and statistically
significant. The estimation finds that the elasticity of labour productivity with respect to standards is
0.106. The capital-employment, time trend and recession coefficients were also found to be significant.

19
The time trend is removed (or the variables are de-trended) to illustrate how the variables move across time.
20
The data series used for the analysis are: GDP at 2006 basic prices, Number of persons in employment age 16+ and non-dwellings net capital
stock. Labour productivity is calculated as the ratio of GDP and employment. A detailed summary of the data sources used in the analysis are
provided in the appendix.
21
An Augmented-Dickey Fuller (ADF) test and a Phillips-Perron test were conducted on the residuals of the estimation to confirm that the
relationship is non-spurious.
38 38

Table 3: Estimation of the impact of standards and capital-employment ratio on labour productivity

OLS Coefficient Standard Error t-statistic P>t

Capital-employment ratio 0.351** 0.022 15.7 0.000

Net stock of standards 0.106** 0.017 6.1 0.000

Recession indicator variable -0.027** 0.008 -3.57 0.001

Time trend 0.004* 0.002 2.37 0.000

Constant 6.217 0.226 27.53 0.000

ADF test statistic -3.134

Observations 93

Time period 1921 - 2013

* Denotes significance at the 5% level ** Denotes significance at the 1% level

The results suggest the following:

 On average for the period 1921 to 2013, a 10% increase in the net stock of standards is associated
with a 1.06% increase in labour productivity, and this effect is found to be statistically significant.

 Between 1921 and 2013, the net stock of standards grew by 6.5%, while the average rate of growth
in labour productivity was 1.8%. Applying the elasticity of labour productivity with respect to
standards (0.106) means that standards are associated with approximately 0.69 percentage points
of the average labour productivity growth of 1.8% a year.

 This equates to the suggestion that standards supported 37.4% of labour productivity growth and
28.4% of GDP growth between 1921 and 2013. Caution should be taken when interpreting these
estimates as standards have an interdependent role in driving labour productivity along with other
knowledge factors such as higher levels of education and training, advances in technology and
increased innovative efforts.

 For the purposes of expressing the findings in monetary terms, if it is assumed that the estimated
impact is constant over time, standardization at a national level would be associated with
approximately £8.2 billion of the £29.0 billion of GDP growth recorded in 2013 (2014 prices).

The boost to labour productivity associated with the use of standards is realised when individual firms
can increase their output per employee. Standards can support increases in production activity and
efficiency within firms through a variety of mechanisms. By ensuring quality and precision, standards
help to improve organisational performance, which enable firms to lower their costs – allowing increased
output per worker employed. In addition, by spreading technical information and diffusing best practice
policies, standards enable firms to build on their specialisations and achieve a better division of labour. In
turn, firms benefit from economies of scale and a consequent increase in output relative to the number
of staff employed. If large numbers of UK firms experience similar improvements in output per worker as
a result of standards use, the analysis suggests that this would represent 37.4% of annual productivity
growth at the national level.
 39 39

To advance understanding of the connection between productivity and its determinants, further
econometric methods were used to identify the causal relationship between labour productivity, the
capital-employment ratio and the stock of standards. The results of this analysis, presented in Table 26 in
the Appendix, confirm that the relationship between productivity, the capital-employment ratio and the
stock of standards is not significant in the short-run and that the relationship between productivity and
standards exists only in the long-term.

4.4 Comparison of results to other national-level studies

The results of the econometric estimation can be compared to the findings of other national- level
studies summarised in section 4.1 – all of which found that standards have a positive and significant
impact on productivity. While not directly comparable, particularly due to the different time periods
analysed, a comparison of the magnitudes reveals potentially interesting insights about effect of
standards on productivity.
Table 4: Comparison of summary results of national studies

Country France Canada Germany Germany UK UK

Standards
Organisation and AFNOR Council of 22
DIN (2000) DIN (2011) DTI (2005) Cebr (2015)
publication year (2009) Canada
(2007)

Period of analysis 1950-2007 1981-2004 1961 - 1990 2002 - 2006 1948-2002 1921-2013

Labour Labour Labour

Estimated function GDP Output GDP Output GDP Output
Productivity productivity Productivity

Elasticity of stock of
0.12 0.36 0.07 0.18 0.05 0.11
standards

Share of labour
productivity 27.1 17 30.1 - 13 37.4
growth, %

Growth rate of GDP

3.4 2.7 3.3 - 2.5 2.4
% p.a.

Share of GDP
23.5 9.2 27.4 - 11.0 28.4
growth, %

Contribution of
standards to GDP 0.8 0.3 0.9 0.7 0.3 0.7
growth, % points
Source: AFNOR (2009), Standards Council of Canada (2007), DIN (2000), DTI (2005), Cebr analysis

22
Detailed results were not reported in the study.
40 40

The results for other national-level studies presented in Table 4 reveal the following:

 AFNOR (2009) found that the elasticity of GDP to the stock of standards between 1950 and 2007 is
0.12. This would suggest that standardization in France contributed 0.8 percentage points per year to
the average GDP growth rate of 3.4% during 1950 and 2007.

 The Standards Council of Canada (2007) found that the low growth of standards (0.7%) in Canada
between 1981 and 2004 was counteracted by a high elasticity of productivity to the stock of
standards (0.356), suggesting that standardization supported 17% of the growth in labour
productivity.

 The DIN (2000) paper analyses the economic effect of standards in Germany, and covers the earliest
time period in our comparison: 1961 to 1990. The paper concludes that standards contributed 0.9
percentage points to an average annual growth of 3.3% between 1961 and 1990. The 2011 update to
this paper finds that the contribution of standards to GDP during the period 2002 to 2006 was
slightly lower at 0.7%, although no value for the share of labour productivity due to standards was
provided.

Differences between our results and those of the DTI (2005) study likely relate to the shorter time period
used (1948-2002) as well as the fact that we used more up-to-date and comprehensive data series.23 (See
section 4.6 below for a further discussion.) That is, to some extent and in line with the studies from other
countries, the differences can be explained by how the magnitude of the impact of standards on labour
productivity is likely to be different depending on the time period being considered.

4.5 Productivity and standards since 2000

The original DTI study was completed in 2005 following a period in which the UK had enjoyed 14 years of
uninterrupted expansion with an average annual GDP growth rate of 2.9%. Since 2008, the UK has
experienced a prolonged economic recession (2008 and 2009), a protracted recovery and a period of
economic uncertainty which has coincided with a period of weak productivity growth. Even though the
performance of the economy has improved since, productivity per hour in Q3 2014 remained 1.8% below
its pre-recession peak.

23
It is important to note that due to the different data for stock of standards used here, the results are not directly comparable to that used in
the 2005 DTI study.
 41 41

Figure 16: Composition of output growth and growth in the net stock of standards, annual, 2000 to 2012

8
6
4
2
0
-2
-4
-6
-8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Labour hours Labour composition Capital Services

TFP Output growth Net standards stock growth

Source: ONS decomposition of GDP growth, BSI, Cebr analysis

As demonstrated in Figure 16, TFP – a measure of how efficiently labour, capital and other factors
combine to produce output - was the biggest contributor to the 5.6% drop in output in 2009. An
explanation for this is that there was substantial underutilisation of labour (and capital) during the period
– companies opted to keep workers employed, rather than let them go once revenues began to decline.
This meant that TFP, which is more responsive to changes in output, made a larger contribution to the
decline in output than would otherwise have been the case.

Previous research shows that standards tend to only have an influence on productivity in the long run –
standards have very little impact in the short run (Swann, 2010). This implies that other components of
TFP, such as technical efficiency, human capital or R&D investment - which are more responsive to
cyclical changes - are likely to have been more important drivers in the short term decline in TFP
observed above.

There are however channels through which the contribution of standards to productivity could have
been impacted. During the 2008-09 recession there was no decline in the growth of net stock of
standards. However standards require investment by companies in order for them to have an effect of
productivity. If companies decided to reduce investments in the implementation of standards during this
period, then it is possible that the contribution of standards could have been impacted in that year and
subsequent years.

Standards are also likely to have had an effect on productivity and GDP through their role in supporting
export activity. Standards help companies to enter new markets more easily (see section 2.4) and
companies that use standards are also more likely to be exporters (see section 2.4). During the 2008-09
recession companies that were able to access international markets – which, with the notable exception
of Europe, generally fared better than the UK economy – were likely to have been better insulated from
the damaging effect of the recession on their businesses. In addition, the impact of standards on
businesses’ productivity would likely be greater for high productivity growth industries relative to low
productivity growth industries. As a result, it is plausible to think that high productivity growth sectors,
boosted by standards may have helped to offset low and even negative productivity growth in some
sectors during the recession.
42 42

4.6 Differences with the 2005 DTI analysis

The model used to evaluate the relationship between productivity and the growth in standards is
consistent with macroeconomic theory on the determinants of economic growth. It also follows closely
the 2005 DTI analysis. However, the results arrived at by this study do differ from those found in the
2005 DTI analysis.

The following provides a brief summary of what Cebr believes are the main causes for these differences.

Time period: It is generally desirable to use a longer time period when the data are available as this
tends to reduce the standard error of the sample. The availability of the necessary data for this study
allowed the extension of DTI’s period to cover 1921 to 1947 and 2003 to 2013, incorporating the period
since the DTI study was carried out.

Capital stock measure: The capital stock measure (excluding dwellings) used in this study covering the
period 1921 to 2013 was created by the Bank of England24 and incorporates asset capital services growth
– a measure of the productivity of capital which better reflects the flow of capital into the productive
process. This differs from that used in the previous study, when this data series was not available and a
different measure of the capital stock (CIXX series from the ONS) was used.

Net stock of standards: Improvements in the compilation of data on the withdrawal dates of standards
on the BSOL database has created some differences in our counts of the net stock of standards.

Recession indicator variable: A ‘recession’ indicator variable was included in the regression specification
to capture shocks from recessions that are unrelated to the long-run relationship between productivity
and standards. This was not used in the 2005 DTI study, most likely because the necessity of doing so
was not as significant for the time period considered. In contrast, the time period considered in this
study includes the turbulent inter-war period, World War II and, of course, the deep global and UK
recessions that followed the 2008 financial crisis.

Output measure: A different measure of economic output was used. That is, GDP at constant prices was
used to allow for comparability with the findings of other national studies. The DTI 2005 study used GVA
at constant prices.

The difference of most significance to the results of the analysis is the extent to which the average
growth in the ‘net stock of standards’ variable is greater than the average growth in the ‘productivity’
variable – this gap is lower in the DTI 2005 study than in our study. This is because the extended time
period analysed in this study is characterised by a period of high growth in the net stock of standards.
This translates into a higher coefficient for the impact of standards on productivity. In other words, the
lower coefficient found in the DTI 2005 study reflects lower growth in the stock of standards observed in
their shorter time period .

4.7 Interpretation of the findings

The results of the analysis suggest that the data corroborate the underlying economic theory. However,
there are issues that justify the urging of caution when interpreting the findings. These are outlined in
numbered points that follow.

24
See data appendix for sources
 43 43

1 More standards may not produce proportional economic benefit. The assumption that the stock of
standards is a robust representation of how standards contribute to the economy is equivalent to an
assumption that each standard contributes an equivalent benefit to the economy. Furthermore, that
from one year to the next, the average economic benefit per standard does not change. In reality,
these assumptions are unlikely to hold. The benefits of older standards in the Catalogue are likely to
be lower than the benefits of newer standards. In addition, where the impact of standards on the
economy is generated by the widespread use of standards, certain standards may be more widely
used in the economy than others. For instance, some standards adopted from abroad will be of less
relevance to British companies. However, as stated in section 3.1, the strong correlation between
the growth in the stock of UK standards and the growth in UK exports, which generates demand for
additional standards to be created, suggests that the ‘stock’ measure of standards in the economy
represents a reasonable proxy for both the level and quality of standardization in the UK economy
and the demand for standards.

2 Standards alone do not boost productivity. The model does not explicitly take into account other
components of TFP, such as the rising level of education in the population, or the accumulation of
scientific knowledge. But, in reality, improvements in productivity require other factors that affect
technological progress besides standards. The model is an attempt to disentangle the effects of
standards from other complementary factors that drive productivity. According to the model, 62.6%
of productivity growth (i.e. the proportion productivity growth that is not due to standards) can be
attributed to growth in capital per worker and other influences on labour productivity, such as
advances in technology and improvements to education, captured by the residual of the
econometric model. To the extent that the complementary relationships between the stock of
standards and these other factors of TFP explains the specific impacts of standards on productivity
estimated by our model, the model’s estimates would have to be considered as overestimates.

3 Standards as a ‘black box’ – An important criticism of macroeconomic models such as those used by
most of the national level studies including this one is the treatment of the relationship between
standards and productivity as somewhat of a ‘black box’. We do not attempt to incorporate the
mechanisms by which standards generate increased productivity within our quantitative analysis,
primarily because the data to examine such factors is not normally available at the national or sector
level. Only a study at the company level, either using firm-level data derived from surveys or case
studies, can assist in the development of a clearer understanding of these mechanisms and their
effects.25

4.8 Conclusions – macroeconomic impact of standards

Growth in an advanced economy such as the UK depends on companies being able to utilise the latest
technological innovations and knowledge to improve productivity. Standards work by spreading technical
knowledge and information, and by supporting the efficient functioning of companies and sectors.

The academic literature shows that standards solve a number of economic problems which impede the
efficient operation of companies and the access of their products to markets. Standards help companies
and their supply chains to operate in a more efficient manner, reducing costs and expanding revenue –
ultimately allowing companies and sectors to become more productive.

25
Several previous studies, as already noted, incorporate a separate firm-level analysis of standards. These include DIN (2000), Conference
Board of Canada for the Standards Council of Canada (2007), AFNOR (2009) and BERL Economics for The Standards Council of New Zealand
(2011).
44 44

To empirically measure the impact of standards on productivity at the macroeconomic level, an

econometric analysis was carried out using a similar methodological framework to a 2005 study for the
UK published by DTI, and updating the analysis using new data. The analysis confirms the results of
previous studies, finding that standards continue to play an important role in boosting UK productivity,
and thus GDP. However standards do not drive productivity exclusively, but instead have an
interdependent and reciprocal role in supporting productivity growth along with other forms of
knowledge such as improvements to education and advancements in technology.

The quantified contribution of standards to productivity – 37.4% of annual labour productivity growth in
the UK economy over the period 1921 to 2013, were larger than those estimated in the 2005 study, but
correspond with the findings of other recent national level studies in France and Germany.

This does not necessarily mean that the impact of standards has increased since the last study –
variations in the methodological approach, longer time period and data used account for a lot of the
differences. However, it does reinforce the notion that standards play a large an often under-noticed
role in boosting UK productivity.
 45 45

5 Contribution of standards to the success of UK

companies
5.1 Introduction
The analysis described in the previous section establishes that at a whole economy level, standards
contribute significantly to the spread of technical knowledge, leading to a boost in productivity and thus
driving the growth the economy. This represents an update to a study published in 2005 that used a
similar methodology. A shortcoming of this macroeconomic approach is the absence of any detail on
how the benefits of standards are transmitted in practice, at the sector and company level. Multiple
mechanisms have been identified in the academic literature as to how standards benefit companies but
there is limited evidence to show how these mechanisms apply at the sector level in the UK economy.

To further our understanding of the role of standards in the UK economy at the micro level, additional
quantitative research has been carried out in Part 2 of this study. The objective was to gain a detailed
understanding of the role of standards within sectors in terms of monetary and non-monetary impacts,
the role of standards in competitiveness, trade and innovation, and the value of participating in the
standards development process. To achieve this, a comprehensive survey of 527 companies in seven key
sectors26 was commissioned as part of the study, asking businesses to think about the general and
detailed effects of standards on their operations.

The aims of this second part of the research are to:

 Quantify the monetary impact of standards on the supply chains of some of the UK’s largest sectors;

 Establish how standards boost the productivity and efficiency of firms;

 Identify the effect of standards on competition within markets;

 Determine how standards support innovation;

 Understand the role of standards in helping businesses access domestic and overseas markets;

 Understand the value for companies of participating in the standards development process;

 Identify the most important non-monetary benefits from standards.

The purpose of this section is to present the findings relating to these aims.

5.2 The business economy impacts of standards

The use of standards is predominantly voluntary. However, in many instances, companies are required to
use standards by their customers in order to supply their products or services or to meet regulatory
requirements because the alternative (non-compliance) could be more costly. While it is undeniable that
there is a cost associated with using standards, the evidence from the BSI Standards in Industry survey

26
The analysis and survey cover the following sectors: Automotive, Life Sciences, Aerospace & Defence, Energy, Food & Drink Manufacturing,
Construction products & services, ICT. These sectors were identified as those where standards-use is most intensive and were targeted to
ensure that the findings relating to the impacts of standards would be most accurate. The activities of these sectors cover 25% of the UK non-
financial business economy.
46 46

shows that, on balance, standards unanimously generate more benefits for companies than they cost to
implement.

The majority of survey respondents reported that standardization provided a net benefit for their
business (see Figure 17). 27 In particular the majority of firms surveyed in the food and drinks
manufacturing industry (54%), the aerospace and defence sector (53%)28 and the ICT industry (51%)
reported that standards benefit their business.
Figure 17: Does your organisation experience a net benefit from standardization? (% of respondents by sector)

12% 54% Food & Drink Manufacturing

23% 53% Aerospace & Defence

18% 51% ICT

22% 49% Construction Manufacturing & Services

15% 48% Energy

25% 43% Life Sciences

21% 40% Automotive

30% 20% 10% 0% 10% 20% 30% 40% 50% 60%

Disagree Agree

Source: BSI Standards in Industry Survey, Cebr analysis

The extent to which respondents reported that standardization benefitted their business differed across
firm sizes: 63% of large firms surveyed agreed that standards provided a net benefit to their business
while almost half (47%) of small and medium-sized enterprises (SMEs) surveyed responded in the same
way.

The survey revealed significant monetary benefits to firms in terms of revenues and value added (GVA),
that can be attributed to standards. To convert the reported benefits from the survey into monetary
values for the entire sector, the results were re-weighted by the overall business population of each
sector, thus ensuring that the survey results are used to produce representative sector-wide estimates.29

27
Firms reporting that they neither agree nor disagree with statements asked by the BSI Standards in Industry Survey are omitted from the
graphical representations in this study.
28
Respondents from the aerospace and defence industry make up a lower than average proportion of the total sample under analysis. As a
result, the findings relating to this sector are prone to large sampling error and are thus likely to be unreliable. However the findings are
presented for informational purposes.
29
Increases in revenues and exports were calculated using survey responses and official data. Survey responses were scaled by the official
business population of each industry (using ONS UK Business Counts statistics) and applied to official sector revenue and sector export revenue
data (from the ONS Supply- Use Tables 2012 and ONS GDP (O) Low Level Aggregates 2014). This ensured that findings relating to the aggregate
increases to Revenue and Export revenue were representative of each sector. Increases in GVA were calculated using the ratio of industry
revenue to industry GVA using ONS GDP Low Level Aggregates 2014 data. The definition used for each sector was limited to the disaggregation
of SIC codes available in the supply use tables. In some cases, these definitions differ from those described in Appendix 4.
 47 47

Revenues (turnover)
The survey reveals that over one-fifth (22%) of all firms benefited from an increase in revenues of at least
1% per year as a result of standardization. For many firms the monetary gain of such an impact is
substantial. In particular, the survey revealed that sectors with the highest turnover did not necessarily
see the highest gains in percentage terms, implying that firms do not have to be large to benefit from the
use of standards. Key findings relating to revenue are as follows:

 Overall, the food and drink manufacturing industry reported the largest impact on revenue in
monetary terms (£10.2 billion per year) and percentage terms (5.3%). (See Figure 18.)

 Firms within the energy and ICT sectors reported the next highest monetary impact on revenue as a
result of the use of standards, reporting an average annual impact of £5.7 billion and £5.4 billion
respectively.

 The automotive sector also reported a large increase in revenue as a result of standardization: on
average 3.8% per year. However this does not directly translate into large absolute gains due to the
relatively low turnover of the firms analysed.
Figure 18: Increase in revenue that can be attributed to the use of standards (left axis: £ billions, right axis: percentage increase)

£12bn £10.2bn 6%
£10bn 5.3% 5%
£8bn £5.2bn 4%
3.8%
£5.7bn £5.4bn 3.3%
£6bn 2.8% £4.9bn 2.8% 3%
£4bn 2.2% 2%
1.7%
£2bn £1.0bn £0.8bn 1%
£0bn 0%
Life Sciences
Energy

Aerospace & Defence

ICT

Automotive
Food & Drink Manufacturing

Construction Manufacturing &

Services

increase in revenue (£ bn) increase in revenue (%)

30
Source: ONS Supply-Use Tables 2012 , ONS GDP Low Level Aggregates 2014 Q4, BSI Standards in Industry Survey, Cebr
analysis

30
ONS Supply-Use Tables 2012 (latest available) and ONS GDP Low Level Aggregates 2014 Q4 were used to calculate the total revenue, export
revenue and GVA of industries. These sources were used because detailed data relating to exports by sector was not available through the
Annual Business Survey. In some cases, definitions of these sectors differ from those listed in Table 28 in the Appendix. However every effort
was made to rationalise the three data sources.
48 48

GVA
When turnover is stimulated, either through the domestic or export market, greater economic output or
value added is generated by the firms as a result of using standards. GVA per worker is itself a recognised
measure of productivity, where a higher GVA per capita reflects greater productivity. Likewise, the GVA
to turnover ratio partly reflects how efficiently intermediate inputs (which are included in turnover
because their cost must also be recovered through the price of the product) can be transformed into
final goods and services that deliver a high value added contribution. Key findings relating to GVA are as
follows:

 Across all industries investigated, standardization contributed to an aggregate increase in GVA of

£6.9 billion per year, equivalent to 3% of the total GVA of all industries investigated in 2014.

 Overall, the ICT industry observed the largest increases in GVA as a result of standardization,
equivalent to £2.1 billion per year (see Figure 19).

 Firms within the life sciences and healthcare industry and the food and drink manufacturing sector
also observed large rises in GVA as a result of standardization: equivalent to £1.8 billion and £1.1
billion respectively per year.
Figure 19: Estimated increase to GVA of industries as a result of standards (£ billions)

£3bn

£2.1bn
£2bn £1.8bn

£1.1bn
£1.0bn
£1bn
£0.5bn
£0.2bn £0.2bn
£0bn
ICT

Energy

Aerospace & Defence

Automotive
Life sciences/healthcare

Food & Drink Manufacturing

Construction Manufacturing
& Services

Source: ONS GDP Low Level Aggregates 2014 Q4, Cebr analysis

Exports
Of the companies surveyed, 48% indicated that they were active exporters, although this differed
substantially between sectors ranging from 70% (aerospace and defence) to 38% (energy). Perhaps
unsurprisingly, the sectors that observed the biggest increase in exports attributed to standards were
 49 49

also those where a higher proportion of companies were exporting. Key findings relating to exports are
as follows:

 The food and drink manufacturing industry observed the most significant impact on exports, with
firms within the sector reporting a 9.9% increase in exports that can be attributed to using
standards31 (Figure 20). This translated into a £2.1 billion boost to export revenue on average per
year in the food and drink industry on.

 Exporters within the aerospace and defence industry and the life sciences and healthcare industry
also observed substantial export gains from standards, with exporting firms in these sectors
witnessing a 4.4% and 2.5% rise in exports respectively on average, equivalent to a rise in export
revenue of £1.0 billion on average per year in both industries respectively.

 Exporting firms within the construction manufacturing and services industry benefitted significantly
from standardization, observing a 5.2% rise in exports, although the financial impact of this was
much lower compared to other industries due to the relatively small magnitude of exporting activity
in the sector.

Figure 20: Increase in exports revenue that can be attributed to the use of standards (left axis: £ billions, right axis: percentage
increase)

£2.5bn 12%
£2.1bn
£2.0bn 9.9% 10%
8%
£1.5bn
£1.0bn £1.0bn £1.0bn 6%
£1.0bn £0.8bn 5.2%
4.4% 4%
2.6% 2.5% 3.1%
£0.5bn 2%
£0.2bn £0.1bn
£0.0bn 0.3% 0%
Life Sciences
Aerospace & Defence

ICT

Energy
Automotive
Food and Drink

Manufacturing & Services

Manufacturing

Construction

increase in exports revenue (£ bn) increase in exports (%)

Source: ONS Supply-Use Tables 2012, ONS GDP Low Level Aggregates 2014 Q4, BSI Standards in Industry Survey, Cebr analysis

31
Exports revenue is just one component of total revenue. As a result, the boost to exports revenue from standards is likely to also be captured
by the increase to total revenue explored above. However Figure 18 and Figure 20 reveal different findings. Firstly, there are other components
of total revenue, besides exports revenue, that are impacted by standardization. Secondly, there should be a distinction between the effects of
standardization on exporting and non-exporting companies.
50 50

5.3 How do standards contribute to business productivity and efficiency?

The gains that arise from standards described in the previous subsection are the result of higher
productivity and more efficient operations as well as reductions in waste, improved risk management
and better use of raw materials, amongst other factors. With competitive markets squeezing the profit
margins of many businesses,
Figure 21: Do standards increase productivity? (% of respondents by industry)
firms are finding it
increasingly important to
identify ways to improve
productivity and efficiency 27% 48% ICT
in their business operations
24% 47% Food & Drink Manufacturing
and processes.

Results from the BSI 41% 38% Aerospace & Defence

Standards in Industry survey
28% 34% Automotive
confirm that on balance
standards act as a stimulant Construction Manufacturing &
34% 32%
of productivity, with more Services
than one-third (36%) of all Energy
47% 31%
firms surveyed stating that
they had experienced an 39% 21% Life Sciences
increase in productivity as a
result of standardization. 60% 40% 20% 0% 20% 40% 60%
The survey results revealed Agree Disagree
that higher productivity as
a result of standards Source: BSI Standards in Industry Survey, Cebr analysis
varied between smaller
and larger companies. In particular, 44% of large firms reported an overall increase in productivity as a
result of standards, in comparison to 35% for SME firms.

The survey also sought to identify the mechanisms behind the impact of standards on productivity and
efficiency. When asked if standards facilitated the optimisation of raw materials and energy usage, 47%
of large firms surveyed agreed compared to just over one-third (35%) of SMEs.

5.4 How standards enhance UK business competitiveness and competition

The survey revealed some of the most important mechanisms through which standards improve the
competitiveness of businesses (see Figure 22). The most important mechanism is the contribution that
standardization has for enhancing the status of firms, which was cited by 84% of respondents. Standards
can contribute to businesses’ competitive edge by demonstrating to the market that their products and
services are of a high quality. This mechanism was even more significant to large firms with 92%
reporting this was a factor, relative to 83% of SMEs.
 51 51

Figure 22: How has standardization affected the competitiveness of your firm? (% of respondents)

Contribute to enhancing the status of my company 84%

Generate additional costs for my… 76%

Led to an increase in R&D costs 38%

Increase capacity to export 31%

Enable gains from economies of scale 28%

Led to a reduction in R&D costs 14%

Reduce costs for my company or organisation 12%

Reduce the capacity to export 5%

0% 20% 40% 60% 80% 100%

Source: BSI Standards in Industry Survey, Cebr analysis (responses do not sum to 100% as firms were able to select
multiple statements)

However, in addition to benefitting from the enhanced status that standards can provide, standards also
generate cost during implementation. An average of 76% of firms reported higher additional costs from
standards, while 38% of firms reported higher research and development (R&D) costs. This finding needs
to be balanced with the understanding that some standards may be necessary and the alternative to
using the standard could be more costly, for example, when a standard is used to help meet regulatory
requirements.

Overall these findings suggest that standards do contribute to the productivity and efficiency of firms,
but that not all businesses are affected equally which is, of course, a reflection of the diversity of
business operations in terms of their size and sector. Some smaller firms will inevitably find that the
implementation of a standard consumes a higher proportion of available resources relative to larger
firms. For such firms, the decision of whether to implement must appraise it as an investment – will
implementation of the standard result in the business achieving a healthy rate of return on the
investment required, as well as recovering the investment itself?

The survey results also highlight an important impact of standardization on market structure and the
nature of competition: the strengthening basis for non-price competition. While 63% of firms cite that
standards have homogenised products to the extent that price competition has increased, an
overwhelming 87% of firms also believe that standards can act as benchmarks that enable the
differentiation of products according to attributes such as product quality, delivery and customer service
(see Figure 23). Of those surveyed, 51% of firms believed that standards had helped avoid a ‘race to the
bottom’, whereby firms degrade quality in order to aggressively cut costs to compete on price. Such
intense price competition is not always sensible or in the interests of consumers.
52 52

Figure 23: Quality competition: how has standardization affected competition within your market? (% of respondents)

Provided benchmarks for differentiation of

87%
products on quality or other characteristics
Homogenised products thus strengthening price
63%
competition
51% Helped industry avoid a 'race to the bottom'
Enabled increase and/or consolidation of market
45%
share
40% Enabled establishment in new geographical areas

36% Led to increase in variety of goods and services

30% Led to increase in concentration in the market

Led to reduction in the variety of goods and
29%
services
Led to reduction in concentration of companies in
22%
the market
10% Led to loss of market share
Hindered my ability to establish in new
8%
geographical areas
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: BSI Standards in Industry Survey, Cebr analysis (responses do not sum to 100% as firms were able to select multiple
statements)

5.5 How do standards help companies enter new markets?

Standards can galvanise trade by lowering
Figure 24: Standardization has made entry in new domestic markets
barriers to entry and providing a
easier (% of respondents by firm size)
foundation for competition based on
product and service characteristics, such as 60%
quality. A consequence of this is the
strengthening of competition in markets 40%
45%
which fosters further opportunities 20% 32%
including in international export markets.
0% Agree
The results of the BSI Standards in Industry 22%
20% Disagree
survey reveal that on average 33% of all
firms surveyed had experienced easier 41%
40%
access into new markets at home as a
result of standardization (see Figure 24). 60%
SME Large
In addition, the survey highlights that a
higher proportion of large firms compared Source: BSI Standards in Industry Survey, Cebr analysis
to SMEs found that entry into new domestic
 53 53

markets was made easier as a result of standardization: 45% of firms employing more than 250 people
confirmed that new markets at home were made more accessible through the use of standards
compared to 32% of SMEs (see Figure 24).

The survey also emphasised the role of standardization in facilitating firms’ access into new foreign
markets: 41% of firms in the food and drink manufacturing industry and 38% of businesses in the
automotive sector reported easier entry into new markets abroad as a result of standards. These findings
are mainly a reflection of the propensity of firms in different industries to export.

The survey identified an overall positive impact of standards in terms of reducing barriers to entry and
the subsequent effect on competition. On average, 72% of firms disagreed with the idea that
standardization had contributed to higher barriers to trade and a resultant fall in competition.

Businesses in the ICT sector were most likely to disagree with the notion, with 55% of firms surveyed
reporting that they have not witnessed an increase in barriers to entry or consequent fall in competition
that would be expected. In addition 45% of firms in the aerospace and defence industry had a similar
experience. Overall, the survey emphasises the ability of standards to lower barriers to trade by
promoting compatibility, thereby fostering trade opportunities that result from higher demands for
complementary products and services.

In addition, the ability of firms to differentiate products by attributes besides price presents a huge
opportunity for new business. Instead of entering the market and competing with incumbent firms on
price alone, new entrant firms are able to capitalise on variations of characteristics which consequently
offer consumers and trade partners more choice.

5.6 Do standards catalyse innovation?

The survey results overwhelmingly confirm that standards play a significant role in fostering innovation
(see Figure 25). 54% of all firms reported that information was made more accessible through the
dissemination of innovation and technology through standards, while half of firms surveyed also stated
that innovation was encouraged through the diffusion of new knowledge as a result of the use of
standards.

Although the findings reflect the positive impact of standards on innovation, the results also highlight
that the raison d’être of standards is not the development of brand new technologies. 59% of the firms
surveyed cited that the standards lag behind technological development. This sentiment varied across
industries, with 75% of firms in the life sciences and healthcare sector reporting the divergence between
standards and state-of-the-art technology. By contrast, only 41% of firms in the food and drink
manufacturing industry reported sharing the same concern.

Overall, businesses appeared to confirm that that the role of standards in innovation is not in driving the
development of new ideas but in galvanising the innovation process.
54 54

Figure 25: Standards and the diffusion of information: how do standards impact innovation in your industry?

59% Lag behind technological development

Facilitate technology transfer of innovations

54%
making them more accessible

Encourage innovation, e.g. by disseminating new

50%
knowledge

Stimulate the development of new sectors within

48%
my industry

Stifle/ inhibit innovation, e.g. due to inappropriate

31%
specification of standards

Hinder the development of new sectors in my

27%
industry

0% 20% 40% 60% 80%

Source: BSI Standards in Industry Survey, Cebr analysis

5.7 What is the role of standards in the supply chain?

Standards enhance the supply
chain of industries by promoting Figure 26: Better connections: standardization has improved my client-
compatibility between products supplier relationship
and processes and boosting
confidence between suppliers and 17% 63% Aerospace & Defence
clients. On average, over half (51%)
of all firms surveyed confirmed that 12% 62% Food & Drink Manufacturing
standardization had improved their
client-supplier relationship through 25% 52% Energy
improved confidence. Construction Manufacturing &
22% 52%
Services
This benefit was most widely
experienced in the aerospace and 24% 51% ICT
defence sector with 63% of all firms
reporting an enhanced client- 19% 45% Automotive
supplier relationship (see Figure 26)
29% 38% Life Sciences
Over half of all firms within the
construction manufacturing and 40% 20% 0% 20% 40% 60% 80%
services industry and in the ICT
Disagree Agree
sector reported improved client-
supplier relationships as a result of
Source: BSI Standards in Industry Survey, Cebr analysis
standardization.
 55 55

Industries that are highly

reliant on technical standards Figure 27: How do standards affect your supply chain?
are likely to benefit most
from savings that result from
Improves the quality of supplier
the improved quality of 12% 70%
products and services
supplier products and services.
The survey findings confirm
this, with 77% of firms within Enables better communication
25% 46%
the aerospace and defence with other companies
industry and 76% of businesses
from the construction Promotes collaboration with
manufacturing and services 27% 42%
other stake holders
sector confirming that
standardization improved the 40% 20% 0% 20% 40% 60% 80%
quality of supplier products
and services. Disagree Agree

In addition the survey revealed Source: BSI Standards in Industry Survey, Cebr analysis
that 46% of firms find
standardization has enabled better communication with other businesses by signalling quality and
conveying information about products to consumers and trade partners. Improved communication
enables the efficient functioning of markets as it ensures that business needs and demands are matched
to supply. Consequently, firms’ save time and search costs. The benefits of enhanced relationships
between firms are most likely to be witnessed in industries where product compatibility is vital. The
survey results confirm this, with a higher proportion of firms in the ICT sector (57%) finding that
standards have enabled improved communication between firms.

Overall, the survey results emphasise that the sense of trust fostered by standards lead to business
benefits across all firms, including in the supply chain and regardless of size. The majority of firms (52%)
surveyed stated that standardization had benefitted all firms within their supply chain proportionately.
53% of SMEs employing less than 250 people reported that standardization benefited firms in their
supply chain equally. This sentiment was common across all industries bar one, with the majority of firms
stating that the supply chain benefits of standardization were experienced proportionately by firms
regardless of size. By contrast, businesses in the energy sector were more likely to see standardization
benefitting large firms proportionately more than SMEs.
56 56

Figure 28: How does standardization benefit the firms in your market supply chain?

60% 53%
48% 50%
50%
39%
40%
30%
20%
9%
10%
2%
0%
Proportionally benefits all Benefits large firms in my Benefits small firms in my
firms in my supply chain supply chain more supply chain more
(regardless of size) Large SME

Source: BSI Standards in Industry Survey, Cebr analysis

5.8 Why do companies get involved in the standards development process?

The BSI Standards in Industry Figure 29: Scope for more involvement: to what extent is your firm involved in
survey highlighted the existing developing standards?
capacity of businesses to 80%
become more involved in the 71%
70%
standards development process.
Over two-thirds (68%) of 60% 48%
businesses surveyed were not 50%
involved, including 70% of SMEs 40%
in contrast to 48% of large firms 30% 26% 26%
(see Figure 29). At the other end 19%
20%
of the spectrum, over one 10%
quarter (26%) of large firms 10%
stated that they were highly 0%
involved in the standards Highly involved Moderately involved Not involved at all
development process in Large SME
comparison to 1 in 10 SMEs.

The survey evidence clearly Source: BSI Standards in Industry Survey, Cebr analysis
shows that participating in
developing standards makes it more likely that a company experiences benefits from using standards. In
Figure 30, it can be seen that those highly involved in the standards development process are the
most likely to agree that they had experienced a net benefit from standards.
 57 57

Figure 30: Involvement in the standards development process and experience of net benefit

80%
60% 69%
40% 50% 45%
20%
0% 6%
17% Disagree
23%
20% Agree
40%
Highly involved (involved Moderately involved (e.g. Not involved at all
on an ongoing basis) involved irregularly,
following BSI committee
progress, commenting on
draft standards)

Source: BSI Standards in Industry Survey, Cebr analysis

But what types of benefits are the firms who are not involved in the standards development process
missing out on? The survey asked firms that were at least moderately involved in developing standards
about the benefits of participating in the process. Overwhelmingly, 88% of firms that were involved in
the standards development process stated that participation facilitated the anticipation of future market
rules and emerging themes in their industry.

Three- quarters of all firms who are involved in the standards development process were able to
promote their industry’s interests at a national level while 71% of firms benefitted from gaining access to
information that would not normally have been received. Similarly, 71% of all firms participating in the
standards development process benefitted from the ability to lead the progression of their market
through channels ranging from the setting of standards to promoting new technological solutions.

Overall the survey emphasises the competitive edge gained by firms who are involved in the standards
development process. Participating companies are able to capitalise on the latest information first and
be at the forefront of their industry.
58 58

Figure 31: Top 5 benefits from participating in the development of standards. Participation in standards development lets my
company:

Gain early awareness of future market rules and

88%
emerging themes in my sector

75% Promote my sector's interests at a national level

73% Promote my firm's interests at a national level

Lead the development of my market by influencing

71%
the development or setting of standards

Gain access to information that would not

71%
normally be received

0% 20% 40% 60% 80% 100%

Source: BSI Standards in Industry Survey, Cebr analysis (responses do not sum to 100% as firms involved in the
standards development process were able to select multiple statements)

5.9 Non-monetary benefits of standards

The channels through which standardization benefits businesses and are not restricted to purely
monetary gains. Companies value highly the safety of their employees and seek to reduce the impact
their business has on the environment. Standards can help to mitigate risks in the workplace and to
proactively reduce environmental impacts. While they impose costs on companies to implement, non-
monetary benefits like employee satisfaction, company reputation and meeting regulatory requirements
can be valuable in the long term when, for example, trying to maintain or grow market share and the
competitive edge required to do so through reputation and through lower staff turnover.

The most important of these non-monetary benefits, as reported by 89% of survey respondents, is the
optimisation of compliance with regulations. Standards such as OHSAS 18001 health and safety
management – which helps companies identify hazards and put in place processes and controls to
manage them – are widely used. Companies are obliged by health and safety regulations to have such
procedures in place, and standards help to demonstrate compliance. Companies report that standards
can lead to improved definitions of roles and responsibilities when it comes to risk management (76% of
total).

Environmental management is another important area where companies use standards to reduce the
risk of environmental breaches or failure to comply with environmental regulation while enhancing the
reputation of companies. The survey shows that 73% of companies found that standards allow greater
control over environmental problems (see Figure 32).
 59 59

Figure 32: Top 4 channels through which standards contribute to risk management?

Contribute to the optimisation of compliance

89%
with regulations

Lead to an improved determination of

76%
responsibilities

Allow greater control over environmental

73%
problems

Allow greater control over security-related

68%
problems

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: BSI Standards in Industry Survey, Cebr analysis

The Government often regulates companies to minimise external costs to the public (also known as
negative externalities) such as air pollution that results from the production of goods and services.
Meeting these regulations often imposes costs on companies; however it is still in the company’s
financial best interest to act, as failure to meet obligations under environmental regulations could result
in financial penalties. Standards such as ISO 14001 Environmental Management can help companies to
introduce practices that let them meet their obligations, while also producing monetary benefits for
companies, such as reducing energy costs and minimizing waste.

The next section proceeds to delve deeper into the impacts of standards at the company level by
exploring each of the seven sectors covered in the survey in more detail.
60 60

6 Sector analysis
6.1 Introduction
The previous section sets out the evidence from the BSI Standards in Industry survey 2015 on how
standards generate costs and benefits at the individual company level, the role of standards in the supply
chain and the benefits of participation in the standards development process.

To supplement these findings and to develop a deeper understanding of how standards benefit
individual companies, a series of interviews were carried out with individuals from the seven sectors
examined in the survey. The interviewees were selected due to their knowledge of how standards are
used in their companies and sectors. The list of contributors is as follows:

 Mick Furlong, Manufacturing Engineering manager, GMM Luton Ltd (subsidiary of General Motors)
 Andy Vaughan, Standards Consultant, Association of British Healthcare Industries
 Andrew Norrish, Regulatory Affairs Manager, Becton Dickinson
 Ken Morgan, Quality Manager, Honeywell Aerospace
 Alan Lyons, Assistant Compliance Manager, Dunlop Aircraft Tyres Ltd
 Steve Durrant, Engineering Manager, Sembmarine SLP
 Nigel Elliot, Fuels Technical Advisor, Exxon Mobil Research and Engineering
 Product Development Technologist, major UK soft drink manufacturer
 Kenneth Chinyama, Food Safety Executive, Food & Drink Federation
 Tony Blanch, Business Improvement Director, Costain
 Colin Cook, Chief Scientist, H+H UK Ltd
 James Cemmell, Head of Government Affairs, Inmarsat
 Lara Joisce, Risk and Compliance Manager, Sage (UK) Ltd

Interviewees were asked a series of questions on how standards affect their businesses and sectors,
covering the following topics:

 The standards used by the company/sector and how they are used
 Strategic importance of standards to their company/sector
 The costs and benefits of standards to their company/sector
 Role of standards in the supply chain
 Contribution of standards to supporting competitiveness in the sector, exports and competition.
The information gathered through the interviews with contributors was used in conjunction with
evidence from the survey and publicly available data to develop a profile on the role of standards in each
sector. Estimates of the turnover, GVA and export impact for each sector (as described in Section 5.1) are
presented along with additional analysis of the survey results.
 61 61

6.2 Automotive
Overview of the sector
The automotive sector is one of the UK’s most important manufacturing industries, accounting for 10%
of the UK’s trade in goods, employing 149,000 people and generating £63.8 billion in turnover in 201332.
The sector spent £1.7 billion on R&D in
2012 - 10% of the UK total – and Automotive
increasing 46% in real terms between
Annual turnover (2013) £63.8 billion
2002 and 2012. In recent years, the UK
industry has benefited from significant
Annual Gross Value Added (2013) £14 billion
investments by many of the world’s
major vehicle manufacturers including Annual R&D spend (2012) £1.7 billion
Vauxhall, Jaguar Land Rover, BMW
Group, Ford, Nissan and Toyota. A total Number of UK businesses 2,700
of 1.5 million vehicles were built in
2013 and the industry is forecasted to Employment 149,000
exceed its previous 1972 production
peak in 2017. Number of industry-relevant standards 2,600

The UK industry has a globalised supply Source: ONS Annual Business Survey 2013, ONS Research and Development
chain characterised by a small number in UK Businesses 2012, BSI British Standards Online (BSOL) database
of Original Equipment Manufacturers
(OEMs), a large number of tier 1 and 2 component suppliers located not just in the UK but around the
world, engineering service providers for production line manufacture and maintenance; and a localised
marketing, sales, distribution and after-care system. With such an expansive manufacturing eco-system
and the necessity of minimising faults in the finished product, it is essential that components and the
processes through which they are made are standardized and that quality is enforced throughout the
supply chain.

How are standards used in the automotive industry?

Quality & component testing - Essential to the success of vehicle manufacturers and their suppliers is
the ability to achieve consistently high level of quality while minimising the costs of inputs. Quality
management standards (QMS) such as ISO 9001 and its application to the automotive industry (ISO/TS
16949) are utilised throughout the industry (83% of companies surveyed).

Many OEMs have developed internal quality management systems – such as General Motors Global
Manufacturing System (GMS) - derived from the principles of ISO 9001 which are aimed at continual
improvements in the reduction of defects, more efficient manufacturing processes and minimising
inventory. To ensure consistent quality, OEMs almost unanimously require suppliers to be certified to
ISO 9001 and other standards. OEMs frequently audit their suppliers for production quality. Defects are
followed up directly with the supplier to prevent re-occurrence.

32
For purposes of consistency with the business count and employment totals reported for each sector and the detailed sector definitions listed
in appendix 4, turnover and GVA values reported here and elsewhere in this section are derived from the Annual Business Survey 2013. These
values may differ from those used to calculate the monetary impacts of standards detailed in section 5.2, which used data from ONS GDP Low
Level Aggregates 2014 Q4 and ONS supply-use tables 2012.
62 62

Health & safety – Another

important focus of standard use Figure 33: Proportion of companies using standards, by type
in the sector is reducing the risk
of health and safety incidents
Quality management 83%
occurring. Of the companies
surveyed, 72% reported to use Health & Safety 72%
some form of health and safety
Technical 70%
standard. General occupational
safety standards such as OHSAS Environmental 66%
18001 are widely used, while
specialised standards are used to Management (other) 53%
provide specific safety solutions Codes of Practice 43%
on production lines, such as ISO
13855 safety of machinery – Organisational governance 26%
positioning of safeguards.
0% 50% 100%
Companies interviewed reported
that the increased cost Source: BSI Standards in Industry Survey, Cebr analysis
associated with implementing
these solutions and the requisite standards can be considerable, but also yields considerable benefits
including a better overall safety outcome and a reduction in the risk profile of a production process and
are therefore worth the investment.

Technical standards – The technical

standards used in the sector are primarily
developed through ISO. Supplier parts are
either designed by the OEM or recommended “The GM Global Manufacturing System is
as a part by the supplier and given a product fundamental to everything we do”
number, allowing the product to be sold Mick Furlong – GMM Luton Manufacturing
across the OEM distribution network. This Engineering manager
allows efficient communication of technical
information between supplier, OEM and
after-sales providers.
Table 5: Typical standards used in the automotive sector

Sector Standards

Automotive  ISO 9001 Quality management

 ISO 16949 Application of ISO 9001 to the automotive industry
 OHSAS 18001 Occupational health and safety management
 ISO 14001 Environmental management
 Technical and testing standards, mainly ISO
 Design standards

Benefits in the supply chain

A key benefit of standards in the automotive sector is the contribution to improving the relationship
between suppliers and OEMs – through improved communication on product specification, improved
 63 63

quality outcomes and better recognition and allocation of individual and mutual responsibilities. Of the
companies surveyed, 45% reported that standards improved the client-supplier relationships, while 19%
disagreed.

The automotive sector is one of the highest exporting sectors in the UK, with around 80% of vehicles
manufactured in the UK being sold abroad. The UK exported £32.2 billion of road vehicles (including vans)
in 201433. Some of the benefits that standards deliver for exporting businesses include helping to meet
regulatory approval in new markets and easier communication with global customers through
standardized specifications. The survey asked companies that export to report the impact of standards
on the value of goods they sell abroad. Companies stated on average that they observed a 2.6% increase
in exports that can be directly attributed to the use of standards – equivalent to £970 million in
additional exports per year.
Table 6: Estimated financial benefits of standards for the automotive sector

Metric Value Rank34 (out of

7 sectors)

Reported % impact on turnover 3.8% 2

Annual impact on turnover (£m) £4,900m 4

Estimated direct GVA impact (£m) £540m 5

Reported % impact on exports 2.6% 5

Annual impact on exports (£m) £970m 4

Source: BSI Standards in Industry survey, Cebr analysis

A summary of the benefits that standards provide for the automotive manufacturing supply chain
revealed through interviews with industry experts is provided in Table 7.
Table 7: Summary of benefits from standards in the automotive manufacturing supply chain

Benefits

More efficient processes - More efficient utilisation of inventory and more efficient layout of units
means less interruptions in production and less in-process inventory - allowing more vehicles to be
produced per day i.e. higher plant productivity.

Higher quality of supplier’s products – Suppliers are required to certify to QMS standards and are
subject to auditing. This ultimately leads to lower defects in the completed vehicle, reducing recall
costs and inventory disposals.

33
Office for National Statistics, 2015, UK Trade - January 2015, ONS.
34
Sectors were ranked out of 7 relative to the other sectors under analysis, in terms of the financial benefits of standards. Rank 1 implies the
sector experienced the highest benefit of standards, relative to other sectors, while rank 7 suggests the sector experienced lowest benefit of
standards.
64 64

Benefits

Reduction of defects and waste – QMS equips companies to proactively seek out the cause of
defects and waste, and act to ensure they do not occur again. This results in lower vehicle recalls,
ultimately minimizing costs.

Standardized components – Allows purchasing time and time-to-market savings from standardized
specifications and design tolerances of components.

More efficient product development – Standardized parts and design processes allow design teams
to work more efficiently and to collaborate more easily with manufacturing and engineering teams.

Better environmental compliance – Adhering to environmental best practice and producing

sustainably helps the company image in the market.

Increased customer satisfaction – Higher quality vehicles, fewer recalls, better design quality and
shorter delivery time all help to improve customer satisfaction.

Faster customer service through standardized components – The automotive car dealer and after-
sales network relies on easy access to a catalogue of replacement parts to service vehicles.
Standardized parts and an efficient distribution network help to deliver a faster customer service

Assists in achieving regulatory approval, particularly in entry to new markets – Standards help
manufacturers to meet their regulatory obligations, for example CE marking legislation in the EU.
 65 65

Case study
GMM Luton Ltd.
GMM Luton Ltd produces light commercial vehicles sold under the Opel and Vauxhall marques. The
company is a subsidiary of Adam Opel AG which itself is a wholly owned subsidiary of General
Motors. Vehicles have been produced by General Motors at the Luton site since 1907 and the plant
currently produces 62,000 vehicles per year.

 Quality management is the lifeblood of the GMM Luton production process. General
Motors has a long established internal quality management system – the GM Global
Manufacturing System (GMS) – that is consistent with principles of ISO 9001 and other
standards. The GMS governs all aspects of GM and all plants within the General Motors
global company are required to fully implement the system. Each plant is frequently
audited to ensure that processes are compliant.
 The aim of the process of applying GMS to production is to ensure that every asset and
every employee is operating to the maximum of their capacity for the time they are
employed. Proactively reducing defects produces quantifiable savings for the company in
the form of fewer returned vehicles and lower warranty claims.
 GMS is focused on lean production and reduction of waste. The process facilitates
manufacturing managers to make investments to improve quality or reduce defects, and
distinguish between different solutions at different stages of the production line lifecycle.
 More efficient utilisation of inventory and efficient layout of units lead to improved
productivity which contribute to defining the overall efficiency rating of the plant relative
to competing facilities within the wider Adam Opel AG group.
 Another important focus of the GMS is reducing the risk of workplace accidents occurring.
One recent example is the installation of new vehicle lifts where there are additional
safeguards (motion beams) to prevent the operation of the lift when a person is in the
operational area. The company used standards such as BS EN 1493 vehicle lifts, ISO 13855
Safety of machinery -- Positioning of safeguards and ISO 13849 Safety of machinery Safety-
related parts of control systems, to develop an optimal solution that delivers a reduced risk
profile for processes where this is implemented.
66 66

6.3 Life sciences

Overview of the sector
The life sciences sector is comprised of
three sub-sectors: pharmaceuticals, Life Sciences
medical technologies (med-tech) and
Annual turnover (2013) £21 billion
biotechnology. The supply chain
consists of ingredient and component Annual Gross Value Added (2013) £8.5 billion
suppliers, manufacturers, and
distribution activities which are often Annual R&D spend (2012) £4.2 billion35
vertically integrated with
manufacturers. The sector has annual Number of UK businesses 2,400
turnover estimated at over £21 billion
and employs 96,000 people directly. Employment 96,000

There exists a substantial variation in Number of industry-relevant standards 1,700

the types of businesses that make up
these sub-sectors - the med-tech sub- Source: ONS Annual Business Survey 2013, ONS Research and Development
sector is dominated by SMEs in UK Businesses 2012, BSI British Standards Online (BSOL) database
representing 85% of companies while output in the pharmaceutical and biotech sub-sectors are
dominated by a smaller number of large companies.

How are standards used in the life sciences industry?

Regulatory compliance - The life science sector is a highly regulated industry – most products cannot be
sold without some kind of regulatory Figure 34: Proportion of companies using standards, by type
approval. Across all sub-sectors,
securing regulatory approval in multiple Quality management 86%
jurisdictions is crucial for the attaining
Health & Safety 77%
market access for new products.
Quality management systems and Technical 67%
testing standards (used by 86% of life
Management (other) 58%
science companies surveyed) help
demonstrate compliance with Codes of Practice 52%
regulations and directives. Regulations
Environmental 50%
do not normally preclude the possibility
of companies meeting the standards Organisational governance 39%
independently, however it is normally
considered that it is far easier to adopt 0% 50% 100%
the procedures and practices set out in Source: BSI Standards in Industry survey, Cebr analysis
the standard.

Quality testing - Standards are frequently used in the laboratory setting for the standardized testing of
production batches and the calibration of testing equipment. The methodology used allows for easy
demonstration of compliance to regulations.

35
Excludes R&D spend in the medical technologies sector. Statistics in the ONS R&D in UK businesses 2012 publication do not provide a
sufficient breakdown of R&D investment by sector to allow this to be defined.
 67 67

Management of production/ operations – Given the necessity for human safety, life sciences companies
need to maintain exceptionally high quality outputs to be able to continue to be permitted to sell their
products. Of the companies surveyed, 85% of SMEs and 100% of large companies use QMS standards.
Quality standards such as ISO 9001 and ISO 13485 (the application of ISO 9001 in the medical devices
sub-sector) incorporate lean manufacturing while allowing proactive detection of defects and risk
minimisation across the production process. Manufacturers normally require suppliers to certify to these
standards and audit their suppliers regularly with the frequency determined by the criticality of the
product, component or ingredient in the final product.

Research & development - In common across all sub-sectors is the necessity to develop new innovative
products. Life sciences is an R&D intensive sector, spending more on new product development as a
proportion of revenue than any other industry (£4.2 billion, 25% of UK total in 2012). This focus is driven
not only by clinical innovations but on the patent expiration cycle which drives the business model of
many pharmaceutical and biotechnology companies. Standards assist in the process of selection and
testing of prototypes (medtech) and candidate drugs (pharmaceuticals and biotechnology) and can help
reduce the need for clinical testing of products in some instances.

Packaging and labelling – Packaging and labelling standards are often referred to in regulation - in the
EU medical devices directive for example. These standards specify the types of information that must be
displayed on product labelling, and also describe the kind of sterilization that packaging and products
must be subjected to before they can be approved for sale.
Table 8: Typical standards used in the life sciences sector

Sub-sector Standards

Pharmaceuticals &  ISO 9001 Quality management

biotechnology  Packaging and labelling standards such as ISO 15378 Primary
packaging materials for medicinal products
 Testing standards, mainly from ISO

Medical technologies  ISO 13485 Quality management systems – medical devices

 ISO 14971 Application of risk management to medical devices
 Packaging & labelling standards, for example ISO 15223 symbols to
be used with medical device labels; and ISO 11607 Packaging for
terminally sterilized medical devices
 Sterilization standards, for example ISO 11137 Sterilization of
health care products - Radiation
 Clinical investigation standards such as ISO 14155 Clinical
investigation of medical devices for human subjects

Benefits in the supply chain

The extensive and complex regulatory requirements in the life sciences industry make it essential for
companies to apply a standardized approach to quality, production, labelling and testing. Standards
simplify the process for regulators to ensure products are compliant – for example medical devices
company Becton Dickinson, which manufactures blood collection products and systems at their
Plymouth facility, reports that their sites are frequently subject to unannounced inspections and that
their quality management systems allow for a more straight forward audit system.
68 68

Unsurprisingly therefore, 98% of life science companies surveyed reported that standards contribute to
the optimisation of compliance with regulations, higher than any of the other sectors profiled in this
report. Using standards also inevitably leads to higher costs of production – 50% of life science
companies reported that this is the case. However, this needs to be balanced against the knowledge that
it would be more costly for companies, particularly SMEs, to try and demonstrate compliance to
regulations using their own procedures.

As with other manufacturing sectors that involve high volume production operations, the use of
standards, particularly those related to quality management, help companies to improve efficiency at
their manufacturing sites. This is reflected in the financial benefits that companies report from standards.
Life sciences ranks third amongst the sectors surveyed in terms of reported increase in turnover that can
be directly attributed to standards. This amounts to an estimated 3.3% of annual turnover or £5.2 billion
per year in additional turnover for the sector.
Table 9: Estimated financial benefits of standards for the life sciences sector

Metric Value Rank

Reported % impact on turnover 3.3% 3

Annual impact on turnover (£m) £5,200m 3

Estimated direct GVA impact (£m) £1,800m 2

Reported % impact on exports 2.5% 6

Annual impact on exports (£m) £950m 3

Source: BSI Standards in Industry survey, Cebr analysis

The UK life sciences sector has a globalised supply chain and exports a high proportion of products to
markets around the world. In 2014, the UK exported £20.9 billion in pharmaceutical products alone. This
is reflected in the survey, which shows that 56% of companies surveyed are actively exporting. These
companies reported an average 2.5% increase in exports from standards, equivalent to £950 million per
year.

A summary of the benefits that standards provide for the life sciences supply chain revealed through
interviews with industry experts is provided in Table 10.

Table 10: Summary of benefits from standards in the life sciences manufacturing supply chain

Benefits

More efficient production processes – QMS standards help companies to proactively reduce waste in
the production process, achieve shorter lead times, reduce defects and minimise in-process inventory.

Quality of input products and components – Suppliers are required to submit to certify to QMS
standards and are subject to auditing. This leads to lower defects and batch recalls, helping to improve
overall plant productivity.

Environmental management – The use of standards can help reduce the cost of disposing of waste
 69 69

Benefits

materials, while lowering the cost of meeting environmental regulatory requirements.

Lower cost of meeting regulations – Without standardized processes which allow companies to
demonstrate efficiently their compliance with regulations and directives, the cost of meeting
regulations would be much higher, particularly for smaller companies.

More efficient product development – Standardized testing procedures allow R&D teams to work
more efficiently and to collaborate more easily with suppliers.

Reputational value – Companies use standards such as ISO 14001 environmental management to
demonstrate their commitment at a corporate level to environmental responsibility.

Entering new markets – Standards offers a signal of quality when entering new markets, and helps
with meeting regulatory requirements in countries where firms have not operated previously.
70 70

6.4 Aerospace & defence

Overview of the sector
The aerospace and defence sector is Aerospace & defence
comprised of civilian and military
aircraft manufacturing, military Annual turnover (2013) £32 billion
equipment manufacturing, naval
shipbuilding as well as civilian aviation Annual Gross Value Added (2013) £11.6 billion
36
services . Not included in this narrow
definition, but part of the wider sector Annual R&D spend (2012) £1.7 billion
are the specialist component and
Number of UK businesses 1,200
engineering companies that serve the
industry. The sector in the UK employs
Employment 126,000
126,000 people and had an annual
turnover of £32 billion in 2013, making Number of industry-relevant standards 3,900
it one of the largest in Europe. The
requirement for R&D and innovation
Source: ONS Annual Business Survey 2013, ONS Research and Development in
in the aerospace and defence sector is UK Businesses 2012, BSI British Standards Online (BSOL) database
high – with the sector ranking in the
top five for UK R&D spend in 2012.

The sector is characterised by a concentration of manufacturing in a small number of original equipment

manufacturers (OEMs), and the production and maintenance of technologically complex engineering
machinery which require a large network of interconnected suppliers, long lead times and programme
lifecycles. With hundreds of thousands of components coming together from hundreds of multinational
suppliers to build each aircraft, vessel, vehicle or piece of equipment, managing quality and risk across
the supply chain is essential. Managing relationships throughout the supply network requires operational
transparency and visibility and efficient validation of quality. Standards are the backbone of the industry,
informing nearly all parts that go into the production of aircraft and military vehicles, and the procedures
used for maintenance and to ensure
safety. Figure 35: Proportion of companies using standards, by type

Quality management 90%

How are standards used in the
Health & Safety 77%
aerospace & defence industry?
Technical 77%
Technical - Component specifications Environmental 53%
are exacting in the aerospace and
defence industry. Design of Management (other) 53%
components generally originates from Codes of Practice 53%
OEMs, who normally refer to ISO Organisational governance 20%
standards in their part specification
and also develop and use their own 0% 20% 40% 60% 80% 100%
standards. For the largest civilian
Source: BSI Standards in Industry survey, Cebr analysis

36
Respondents from the aerospace and defence industry make up a lower than average proportion of the total sample under analysis. As a
result, the findings relating to this sector are prone to large sampling error and are thus likely to be unreliable. However the findings are
presented for informational purposes.
 71 71

aviation OEMs, their catalogue of standards runs into the tens of thousands.

Regulatory compliance - Ensuring consistent quality in the production and maintenance of airplanes is of
vital importance. A quality management system (AS 9100, ISO 9001) is used throughout the industry for
maintaining an auditing and quality control system, one of its functions being to facilitate easier
compliance with air safety regulations. Aerospace firms frequently need to certify with multiple air safety
agencies. For OEMs, design and airworthiness approval must be obtained in the jurisdiction. The design
must also be certified in other markets where the aircraft is to be exported. To provide maintenance
services on aircraft based in a specific market, companies must be certified with the air safety agency of
that jurisdiction37.

Quality control – Aviation components require exacting precision and high quality. The outsourcing of
manufacturing to the supply chain means that OEMs rely on their multi-tier suppliers to deliver high
quality products on time and on budget. This represents a risk to the OEM, which is mitigated by
frequent auditing of supplier quality processes. OEMs normally require suppliers to comply with AS 9100
(quality management system for the aerospace industry)38. A frequent number of OEMs are also
requiring suppliers to accredit to NADCAP, an industry-managed approach to conformity assessment of
special processes and products for the aerospace industry.

Military interoperability – Separate portfolios of standards have been developed by many of the world’s
largest militaries to make it easier for armed forces to share and jointly procure equipment. The most
common military standard portfolios used by UK aerospace and defence companies come from the UK,
US and NATO. Military standards provide benefits such as minimising the number of types of
ammunition, ensuring compatibility of tools, and ensuring quality during production of military
equipment.
Table 11: Most important standards used in the aerospace & defence sector

Sub-sector Standards

Aerospace  AS 9100 Quality Management System Requirements for Design

and/or Manufacture of Aerospace Products
 Thousands of technical standards, for example BS EN 3475
Aerospace series. Cables, electrical, aircraft use. Test methods.
 OHSAS 18001 Occupational Health and Safety Management

Defence  AS9100 Quality Management System Requirements for Design

and/or Manufacture of Aerospace Products
 ISO 9001 Quality Management System
 Military standards from the UK Defence Standards portfolio
(DStan), NATO Standardization Office and other militaries

37
EASA (the European Air Safety Agency) which has jurisdiction over the UK has bilateral agreements in place with Brazil, Canada and the USA
where there is reciprocal acceptance of air safety approvals. This has made it easier for UK firms
38
ADS (the trade body of the UK aerospace and defence industry) have initiated the SC21 programme in collaboration with the UK industry - a
key industry venture that aims for all ADS members to gain certification to AS/EN9100 (or applicable standard) by 2021.
72 72

Benefits in the supply chain

Of the sectors surveyed, the aerospace and defence sector has the highest proportion of companies that
are actively exporting (87% of total). This translates into a reported impact on exports attributed to
standards representing 4.4% of total, equivalent to an additional £970 million per year in sales abroad
(see Table 12). The drivers for these relatively large impacts on exports are likely to be linked to the
assistance that standards give to helping UK aerospace and defence companies to access the largely
globalised supply chain.
Table 12: Estimated financial benefits of standards for the aerospace & defence sector

Metric Value Rank

Reported % impact on turnover 1.7% 7

Annual impact on turnover (£m) £760m 7

Estimated direct GVA impact (£m) £200m 7

Reported % impact on exports 4.4% 3

Annual impact on exports (£m) £970m 2

Source: BSI Standards in Industry survey, Cebr analysis

Collaboration and cooperation between clients and suppliers can provide substantial benefits in the form
of improved risk sharing and more efficient and transparent exchange of information. This is seen in the
survey; where 63% of companies agreed (and 17% disagreed) that standardization improved the client-
supplier relationship.

In terms of turnover, the reported impact of standards in the aerospace and defence sector is low,
ranking seventh among the seven sectors profiled in this report. The benefits reported by survey
respondents amounted to 1.7% of turnover equivalent to £810 million per year. Despite this, 53% of
companies indicated that they considered that standards produced a net benefit for their business,
second highest amongst the sectors profiled. This finding combined with the relatively low reported
impact on turnover from standards suggests that a substantial amount of benefits are non-monetary.

For example, predominantly non-monetary benefits are derived from improving interoperability in the
sector. A total of 37% of companies agreed (compared to 33% that disagreed) that standards boosted
compatibility between products and systems, the second highest proportion among the sectors surveyed
after ICT.

A summary of the benefits that standards provide for the aerospace and defence supply chain revealed
through interviews with industry experts is provided in Table 13.
 73 73

Table 13: Summary of benefits from standards in the aerospace and defence supply chain

Benefits

Higher quality of supplier’s products – Suppliers are generally required to certify to QMS standards
and are subject to auditing by OEMs. The allows a high level of quality throughout the supply chain

Lower cost of meeting regulations – Without standardized processes which allow companies to
demonstrate efficiently their compliance with regulations and directives, the cost of meeting
regulations would be much higher, particularly for smaller companies.

Standardized components – Allows purchasing time and time-to-market savings from standardized
specifications and design tolerances of components

Environmental management – The use of standards can help reduce the cost of disposing of waste
materials, while lowering the cost of meeting environmental regulatory requirements.

Accessing the global supply chain – Standards are normally a prerequisite for supplying components
and services in the aerospace and defence sector. By certifying to standards required by OEMs,
companies can gain access to new markets.
74 74

6.5 Energy
Overview of the sector
The UK has one of Europe’s largest Energy
energy sectors, with annual turnover
reaching £159.5 billion in 2013. The Annual turnover (2013) £159.5 billion
upstream industry, composed of the
oil and gas exploration sector and Annual Gross Value Added (2013) £48.9 billion
support services, contributed £48.9
billion of GVA in 2013. Not included in Annual R&D spend (2012) £0.4 billion
this narrow definition, but part of the
wider sector are the specialist Number of UK businesses 3,700
manufacturing and professional
services companies that serve the Employment 191,000
industry. Although oil and gas
production in the UK continues to Source: ONS Annual Business Survey 2013, ONS Research and Development
in UK Businesses 2012, BSI British Standards Online (BSOL) database
decline, the industry is expected to
remain an important player in the global energy industry for years to come. The necessity to develop
innovative engineering solutions to access deep water North Sea fields has served the industry well, with
strong expertise retained in the industry, allowing companies to successfully compete for business
internationally. The offshore strengths of the UK industry have also allowed businesses to diversify into
the growing renewables sector.

The middle and downstream portion of the supply chain, which includes gas storage, refining, electricity
generation, and energy distribution contributed £25.7 billion to the UK economy in 2013 and employed
155,000 staff. The power generation sector will require substantial investment over the next twenty
years to replace power plants that are reaching the end of their productive life. The electricity
distribution system will also require significant upgrades to manage future patterns of generation and
demand.

How are standards used in the energy industry?

Health and safety – The nature of Figure 36: Proportion of companies using standards, by type
activities in the energy sector, which
involves dealing with hazardous materials
Health & Safety 88%
and working in dangerous environments,
means that the health and safety of Environmental 79%
employees is a top priority. The OHSAS
Quality management 75%
18001 health and safety management
standard is widely used in the supply Codes of Practice 71%
chain, as are industry developed codes of
Technical 67%
practice, for example the Energy
Institute’s codes of practice for offshore Management (other) 60%
safety.
Organisational governance 38%
Quality management – Quality
management standards are widely used in 20% 70% 120%
the energy sector, and particularly for Source: BSI Standards in Industry survey, Cebr analysis
companies supplying the industry.
 75 75

Demonstrating QMS compliance is commonly a pre-qualifying requirement to tender for manufacturing

or services contracts. Many of the largest oil and gas companies have developed their own internal
quality management systems. For example, Exxon Mobil has developed the ExxonMobil Global Product
Quality Management System which provides internal standards on all aspects of production, from fuel
testing to logistics to accident prevention.

Technical specifications –The oil and gas sector was one of the first industries to become globalised, pre-
dating the establishment of international standard bodies. This generated a need for standardized
methods and procedures, which led to the establishment of several organizations that publish standards
specifically for the industry. The set of standards used by companies such as Sembmarine SLP, which
manufactures oil and gas platforms and offshore wind farm substations, are driven nearly entirely by
client requirements which are in turn determined by where the platform will be located – projects in the
Gulf of Mexico use mostly U.S. standards,
those on the UK continental shelf
predominantly use standards from Norway “All fuels manufactured at our refinery are carefully
and the EU. produced to meet the required standards and
specifications”
Oil and gas refining/ processing requires an
extensive array of technical standards for Nigel Elliot – ExxonMobil Fuels Technical Advisor
fuel testing and parameters for fuel
classifications. In oil refineries and gas
processing plants, technical standards are used extensively to define the specifications and tolerance for
individual components such as pressure vessels and piping.

The interoperability requirements in the electricity generation and distribution sector mean that
technical standards are essential for access to the national grid. In the renewables sector, several
standards have been developed to standardize specifications and terminology for a range of
technologies.

Table 14: Typical standards used in the energy sector

Sub-sector Standards

Oil & gas  Quality management standards including ISO 9001 and ISO 29001
quality management systems for the petroleum, petrochemical
and natural gas industry supply chain
 ISO 14001 Environmental management
 Health and safety standards, including industry developed codes of
practice for safety in the workplace
 Technical standards from multiple standards bodies, including
standards developed specifically for the industry from
organisations such as EEMUA, DNV, American Petroleum Institute
and the Energy Institute (UK).
 Design standards

Distribution & storage  ISO 9001 Quality management

 ISO 14001 Environmental management
 OHSAS 18001 Occupational health and safety management
 Technical standards for energy distribution. For example, BS EN
76 76

Sub-sector Standards

50160 Voltage characteristics of electricity supplied by public

distribution systems

Refining  Quality management standards including ISO 9001 for suppliers

and smaller refineries and internally developed quality standards
for multinationals
 Health and safety standards, including industry developed codes of
practice for safety in the workplace
 A large array of testing standards, for example ISO 2719
Determination of flash point
 Fuel specification standards such as ISO 8217 Specifications of
marine fuels

Figure 37: Case study- ExxonMobil Research & Engineering

Case study
ExxonMobil - Fuels
ExxonMobil operates the UK’s largest refinery at Fawley near Southampton, which produces a full
range of petroleum products including petrol, diesel, non-road gasoil, jet fuel, marine fuel and
lubricant base stocks. The company operates nearly 700 kilometres of pipeline in the UK with a
network that connects to distribution terminals and airports around the country. Retail operations
serve around 800,000 customers every day through a network of over 1000 Esso branded service
stations.

 Standards are essential to nearly every aspect of ExxonMobil’s refinery operations. They
are used in fuel testing, making sure that fuels meet standard specifications and grades, for
the pressure vessels and components in the refinery itself, and for the safe and reliable
functioning of the plant.
 All the fuels that ExxonMobil produces are subject to a hierarchy of regulations and
customer requirements, starting at the EU and national level which sets environmental
regulations and performance, moving to the ISO and CEN standards where standard
specifications and testing are met, and then to specific customer and internal requirements
where appropriate.
 As one of the largest companies in the world, ExxonMobil has developed its own Global
Product Quality Management System (GPQMS). This system governs all aspects of
ExxonMobil’s fuel production process through to its final delivery to the customer. Many of
the requirements in the GPQMS reference or are consistent with the principles of well-
known industry standards.

Benefits in the supply chain

In contrast to most of the sectors profiled in this report, the use of health and safety standards and
environmental standards are more common-place in the energy sector than quality management and
 77 77

technical standards. This is reflected in the survey, where the findings indicate a stronger emphasis on
the benefits to companies from easier compliance with health, safety and environmental regulations,
and less on performance and efficiency benefits. For example, energy is one of the few sectors where
more companies disagreed than agreed with the notion that standards increased productivity. Despite
this, 48% of companies reported they agreed that standards produced a net benefit (relative to 15% that
disagreed). These findings imply that the while standards are producing benefits for companies, these
are often non-monetary, in the form of better safety performance, improved environmental
management processes and easier compliance with regulations.

As reported in Table 15, the reported percentage impact of standards on turnover and exports is low in
the energy industry, ranking sixth and seventh respectively. Yet due to the scale of the industry, these
relatively small impacts translate into much larger monetary impacts, amounting to £5.7 billion in annual
turnover and £970 million in gross value added.

The proportion of companies exporting in the energy sector (38% of total) is the lowest amongst the
sectors surveyed, which is reflected in the reported impact of standards on exports (0.3%, £110 million
per year), the lowest amongst the seven sectors (see Table 15).
Table 15: Estimated financial benefits of standards for the energy sector

Metric Value Rank

Reported % impact on turnover 2.2% 6

Annual impact on turnover (£m) £5,700m 2

Estimated direct GVA impact (£m) £970m 4

Reported % impact on exports 0.3% 7

Annual impact on exports (£m) £110m 7

Source: BSI Standards in Industry survey, Cebr analysis

A summary of the benefits that standards provide for the energy supply chain revealed through
interviews with industry experts is provided in Table 16.
Table 16: Summary of benefits from standards in the energy supply chain

Benefits

More efficient production processes – Quality standards help companies to improve the efficiency of
production processes

Environmental management – The use of standards can help reduce the cost of disposing of waste
materials, while lowering the cost of meeting environmental regulatory requirements.

Technical components – Standardized specifications of components used in upstream, midstream and

downstream operations helps companies to meet the requirements of customers and regulators, and
to meet internationally established specifications that ensure the safe operation of facilities.

Technical specifications – Standardized technical specifications are common-place throughout the

industry. The benefit companies by allowing for efficient communication of the technical parameters
of a product, providing confidence for the customer, simplifying the production process and reducing
78 78

Benefits

the number of varieties that need to be produced.

Testing – Standardized procedures for product testing allow companies to demonstrate that the fuel is
fit for purpose and will meet performance requirements.

Health and safety – Standardization helps to improve determination of responsibilities, aid regulatory
compliance, and proactively identify health and safety risks, thus reducing the potential of an accident
occurring.
 79 79

6.6 Food & drink manufacturing

Overview of the sector

The food and drink manufacturing Food & drink manufacturing
sector is the UK’s largest
manufacturing industry, generating Annual turnover (2013) £95.3 billion
£95.3 billion of turnover in 2013 and
employing 412,000 staff. The sector Annual Gross Value Added (2013) £25.7 billion
covers a significant section of the food
chain, from ingredient manufacturers Annual R&D spend (2012) £0.36 billion
such as meat processors to
manufacturers of final products such Number of UK businesses 8,200
as soft drinks. The manufacturing focus
of the sector means there is a higher Employment 412,000
concentration of large companies, with
Number of industry-relevant standards 1,400
the average business employing
about 250+ employees.
Source: ONS Annual Business Survey 2013, ONS Research and Development
in UK Businesses 2012, BSI British Standards Online (BSOL) database

How are standards used in the food & drink manufacturing industry?
Food safety - Central to the food and Figure 38: Proportion of companies using standards, by type
drink manufacturing business is the
necessity to demonstrate that food is Health & Safety 88%
safe, traceable and of good quality. By
law, all food businesses must put in Quality management 75%
place, implement and maintain a food Environmental 70%
safety management system based on
Hazard Analysis Critical Control Points Codes of Practice 60%
(HACCP) principles to ensure that food Management (other) 48%
products are safe to eat. Food safety
management standards such as ISO Technical 48%
22000 food safety management system Organisational governance 43%
are designed around the principles of
HACCP and ISO 9001 to ensure food 0% 50% 100%
safety, meet the specifications of food
chain customers downstream, and Source: BSI Standards in Industry survey, Cebr analysis
provide consumers with a high level of
confidence in the products they purchase. Quality marks such as Red Tractor have been developed to
demonstrate that food has met responsible production standards and is fully traceable back to
independently inspected farms in the UK.

Quality management – QMS standards are important in the industry, driving changes in plant
performance, reducing waste and encouraging continual improvement which ultimately drives down
cost. Companies in the sector are commonly certified ISO 9001 and to BRC (British Retail Consortium)
Global Standards, a safety and quality certification programme spceifically designed for the food
industry. The programme is an industry-wide benchmark for quality and food safety, ensuring
80 80

standardization of operational, safety and quality criteria and ensuring that manufacturers fulfil their
legal obligations and provide protection for the end consumer. Companies are normally obliged to certify
to BRC Global Standards in order to qualify as a registered suplier of leading retailers.

Regulatory compliance – The UK food and drink manufacturing sector is governed by national, EU and
international regulations. These regulations cover areas such as food labelling, ingredients, food safety,
traceability and rules on food recall. Companies must demonstrate compliance to these regulations.
Food safety management standards make it easier for companies to comply with the necessary
regulatory requirements.

Ingredient and product testing – Product testing standards are used to ensure that trace amounts of
certain ingredients are not in batches, that acceptable limits of other ingredients are not exceeded and
to ensure that the composition of the product is consistent with labelling. Ingredient testing standards
are used to ensure that ingredients from suppliers are of sufficient quality for use in the final product.
Table 17: Typical standards used in the food & drink manufacturing sector

Sector Standards

Food & drink  ISO 9001 Quality management

manufacturing  ISO 14001 Environmental Management
 BRC Global Standards (safety and quality certification programme)
 ISO 22000 Food Safety Management System or similar, based on
HACCP principles
 BS OHSAS 18001 Occupational health and safety management
systems
 Product testing standards - for example, BS 4401 Methods of test
for meat and meat products
 Ingredient testing standards - for example, ISO 2450
Determination of fat content in cream

Benefits in the supply chain

Similar to other manufacturing sectors that involve high volume production operations, the use of
standards, particularly those relating to quality management, help companies to improve efficiency at
their manufacturing sites. These benefits to production are revealed in the survey results, where the
food and drink manufacturing sector has the highest reported financial benefits of any of the sectors
profiled in this report. Food & drink manufacturing ranks first amongst the sectors surveyed in terms of
reported increase in turnover that can be directly attributed to standards (see Table 18). This amounts to
an estimated 5.3% boost to turnover for the sector representing approximately £10.2 billion per year.
Direct GVA impacts are estimated at £1.1 billion per year.

The sector also has the highest reported benefits in terms of exports – 62% of exporting food & drink
manufacturing companies reported an increase in exports as a result of using standards. Companies
surveyed reported on average a 9.9% increase in exports that can be directly attributed to standards.
 81 81

Table 18: Estimated financial benefits of standards for the food & drink manufacturing sector

Metric Value Rank

Reported % impact on turnover 5.3% 1

Annual impact on turnover (£m) £10,200m 1

Estimated direct GVA impact (£m) £1,100m 3

Reported % impact on exports 9.9% 1

Annual impact on exports (£m) £2,100m 1

Source: BSI Standards in Industry survey, Cebr analysis

The survey findings reveal that a large part of these monetary benefits lie in the relationships between
companies within the supply chain - 62% of survey respondents reported that standardization has
improved the relationship between client and supplier, while 43% indicated that standards had
enhanced the whole supply chain. Standards also contribute to more productive processes within the
firm, with close to half (47%) of companies surveyed reporting an increase in productivity in their
operations as a result of standards.

An important non-monetary benefit is in the area of risk prevention (food safety, quality), where 84% of
companies reported an improvement in the determination of supplier-client responsibilities and 91%
reporting that standards are helpful in contributing to optimisation of compliance with regulation.

A summary of the benefits that standards provide for the food and drink manufacturing supply chain
revealed through interviews with industry experts is provided in Table 19.

Table 19: Summary of the benefits from standards in the food and drink manufacturing supply chain

Benefits

More efficient production processes – QMS standards help companies to proactively reduce waste in
the production process and achieve efficiency improvements

Quality of input products and components –QMS and food safety standards allow for lower costs of
validating the quality of inputs. This leads to less product recalls, lower auditing costs and helps to
improve overall plant productivity.

Food safety management - Allows companies to demonstrate to their customers that they have a
food safety management system in place. Recognition of international food safety management
standards by national regulators has helped to reduce barriers to trade across borders, allowing
companies to develop new markets. Food safety management systems can help demonstrate
compliance for food safety and quality audits.

More efficient product development and testing – Standards allow easy compatibility of ingredients,
makes for a simpler innovation process; and reduces confusion on the specification of formulations
and ingredients between suppliers and customers.
82 82

Benefits

Helping companies to meet food safety regulations and customer requirements – Without
standardized processes which allow companies to demonstrate efficiently their compliance with
regulations, directives and customer requirements, the cost of meeting regulations and passing audits
would be much higher, particularly for smaller companies.

Entering new markets – Standards offers a signal of quality when entering new markets, and helps
with meeting regulatory requirements in countries where firms have not operated previously.
 83 83

6.7 Construction
Overview of the sector
The construction sector is composed of
three sub-sectors: construction Construction
contracting which relates to the
construction of buildings and Annual turnover (2013) £285.9 billion
infrastructure, construction products -
the manufacture of construction Annual Gross Value Added (2013) £119.5 billion
products such as cement, plastic pipes
Annual R&D spend (2012) £0.15 billion
and glass; and construction services
which involves ancillary activities such
Number of UK businesses 353,600
as engineering and architecture.

The sector has an annual turnover of Employment 1,918,000

£258.9 billion and employs 1.9 million
Number of industry-relevant standards 5,800
staff. Construction activity made up
8.1% of UK gross value added in 2013,
Source: ONS Annual Business Survey 2013, ONS Research and Development in
making it the fourth largest industry in UK Businesses 2012, BSI British Standards Online (BSOL) database
the economy after retail,
manufacturing and professional services.

Construction contracting makes up the majority of activity in the sector (71% of turnover and 68% of
employment39). The contracting sub-sector is composed of a large number of micro (0 – 9 employees)
and small (10 – 49 employees) companies. Usage of standards tends to be much lower amongst these
companies although their use is increasing, driven by the quality requirements of the major contractors40.

How are standards used in the construction industry?

Health & safety –The construction
Figure 39: Proportion of companies using standards, by type
sector has some of the highest usage
of health & safety standards amongst
the sectors surveyed, with adoption Health & Safety 83%
levels at 84% for SMEs (up to 249
Quality management 73%
employees) and 88% for large
companies (250+ employees). Technical 72%
Environmental 68%
Quality management – QMS standards
such as ISO 9001 are used throughout Codes of Practice 66%
the construction industry. Naturally, the Management (other) 48%
highest concentration is amongst Organisational governance
30%
construction product manufacturing
companies, where enhancing 0% 20% 40% 60% 80% 100%
productivity, proactively reducing waste
and improving production processes Source: BSI Standards in Industry survey, Cebr analysis

39
Office for National Statistics, 2014, ‘Annual Business Survey 2013’, ONS.
40
Due to the relatively low level of standard usage in the construction contracting sub-sector (with the exception of larger contractors) and for
sampling reasons, this sub-sector was excluded from the BSI Standards in Industry 2015 survey.
84 84

help boost revenue and reduce cost.

QMS standards also offer companies substantial benefits in terms of cost reductions through improved
management systems and improved processes. Usage of QMS standards is much higher among large
companies, with 100% of large companies surveyed (250+ employees) using these standards compared
to 67% for SMEs (up to 249 employees).

In the contracting sub-sector, QMS standard certification is increasingly becoming a pre-requisite for
tendering, with customers requiring companies to demonstrate their commitment to quality
management. Large contractors are also working in partnership with sub-contractors to help transfer
their knowledge and experience of implementing standards. For example, at project sites operated by
Costain (one of the UK’s largest contractors), 85% of staff working at project sites are subcontractors. To
ensure quality in their supply chain, Costain has established a supply chain academy to train SMEs free of
charge in areas such business administration, commercial and financial best practice, insurance, health
and safety, and quality.

Regulatory compliance - The construction industry is unique amongst the sectors, in the sense that it is
the only sector where standards are mandatory on nearly all construction products sold in the EU.
Manufacturers must utilise a harmonised European standard where it is specified directly in legislation
and all products must carry a CE marking41. This is a major departure from the previous EU construction
products directive, where use of standards was voluntary. The sector also has the highest number of
sector specific standards in the BSI catalogue, most of which are technical specifications and codes of
practice, making it one of the most standard-intensive of all sectors in the economy.

Building information management – Building Information Management (BIM) offers a new approach to
designing, creating and maintaining built assets. The system embeds key product and asset data and a 3
dimensional computer model that can be used for effective management of information throughout a
project lifecycle. The code of practice for implementing BIM is set out in the PAS 1192 standard. Cost
savings from the standard are generated in the design and construction phase, through greater
predictability, faster project delivery, reduced safety risk and reduced financial risk. Substantial savings
are also achieved in the post-construction maintenance phase, when the BIM model is handed over to
the asset manager. Each component is tagged and the manager is informed by the system when
maintenance and replacement needs to take place.

41
The CE marking indicates that a product is consistent with its Declaration of Performance as made by the manufacturer. By making a
Declaration of Performance, the manufacturer, importer or distributor is assuming legal responsibility for the conformity of the construction
product with its declared performance.
 85 85

Table 20: Typical standards used in the construction sector

Sector Standards

Construction contracting  ISO 9001 Quality management

 ISO 14001 Environmental management
 BS OHSAS 18001 Occupational health and safety management
 Systems
 Building Information Modelling standards such as PAS 1192-2
Specification for information management for the
capital/delivery phase of construction projects using building
information modelling

Construction products  ISO 9001 Quality management

 ISO 14001 Environmental management
 BS OHSAS 18001 Occupational health and safety management
systems
 Thousands of construction products standards such as BS 1090
Execution of steel structures and aluminium structures

Construction services  ISO 9001 Quality management

 Building Information Modelling standards
 Civil engineering standards such as BS 5489 Code of practice for
the design of road lighting, and BS 752 Drain and sewer systems
outside buildings

Benefits in the supply chain

The evidence from the survey shows that while turnover impact of standards in the construction
manufacturing and services sub-sectors is low relative to other sectors, the impact on trade is
considerable, amounting to 5.2% of exports. Harmonised European construction product standards have
made it easier for companies to access other European markets which is likely to have contributed to
these reported impacts on exports.

Table 21: Estimated financial benefits of standards for the construction manufacturing & services sub-sectors

Metric Value Rank

Reported % impact on turnover 2.8% 5

Annual impact on turnover (£m) £1000m 6

Estimated direct GVA impact (£m) £170m 6

Reported % impact on exports 5.2% 2

Annual impact on exports (£m) £150m 6

Source: BSI Standards in Industry survey, Cebr analysis
86 86

An important area where standards have benefited companies is in the relationship between companies
in the supply chain. More than half (52%) of companies surveyed reported that standards have improved
the client-supplier relationship and 48% report standards improve communication between companies.

Given the high usage of health and safety standards in the sector, many of the benefits experienced by
companies are likely to be non-monetary. Although the reported monetary benefits are low (in terms of
turnover), the proportion of companies that agreed that standards delivered a net benefit (49% of total)
is far higher than those that disagreed (22% of total).

Non-monetary benefits of standards in the construction manufacturing and services sub-sectors include
allowing greater control over environmental problems (75% of respondents) and contributing to the
optimisation of compliance with regulations (85% of respondents).

A summary of the benefits that standards provide for the energy supply chain revealed through
interviews with industry experts is provided in Table 22.
Table 22: Summary of benefits from standards in the construction supply chain

Benefits

Quality of products and services – Assists companies to minimize failure rates in production/delays in
construction schedules, while delivering high quality products and services, leading to a more
competitive product/service, increases in productivity and higher revenue.

Environmental management – Helps reduce the cost of disposing of waste materials, while lowering
the cost of meeting environmental regulatory requirements.

Improved management systems - Allows better documentation and continual improvements of

processes and procedures, resulting in cost savings. Allows optimization of processes in terms of time
and costs

Customer satisfaction – A by-product of the success companies achieve in streamlining processes and
improving delivery times is an improvement in customer satisfaction and repeat orders.

Corporate reputation – Companies such as Costain have found that adopting standards like ISO 14001
environmental management gives the ability to differentiate from competitors, allowing them to win
contracts on criteria other than lowest cost.

Workplace safety – Standards help companies to implement systems that reduce workplace
accidents. Standards such as BS OHSAS 18001 help drive a safety culture across the organisation
preventing accidents from occurring in the future.
 87 87

Case study
H+H UK Ltd.
H+H UK Ltd is the largest manufacturer of aircrete products in the UK and a market leader in
sustainable production. Aircrete blocks are an environmentally friendly sustainable building
material and are produced from a mixture of pulverised fuel ash (the residue from coal-fired power
stations), sand, cement, quicklime, anhydrite, aluminium powder and water. As a result of careful
planning, around 80% of the finished product is made from recycled material. Aircrete is widely
used in UK construction due to its lightweight nature, high thermal efficiency and flexibility of use
in construction.

 H+H trades with many of the UK’s leading developers and house builders. External
certification to the international standards (ISO 9001, ISO 14001, and OHSAS 18001) is a
pre-requisite for maintaining partnership agreements with their customers. H+H UK is an
industry leader in sustainable sourcing and production. For example, the company’s two
manufacturing sites in East Yorkshire source water from nearby canal as part of the
production process.
 The company was the first in the construction industry to obtain a ‘Very Good’ product
rating when adopting BES 6001 certification. Using the BES 6001 standard, H+H can
demonstrate that raw materials are sourced from suppliers who themselves can prove
sustainability. Being known for its environmental and sustainable credentials is an integral
part of the H+H philosophy and supports the efforts of the company when competing with
other building materials. An important company strategy has been to focus significant
resource on improving energy efficiency throughout its operations. The company is also
certified to ISO 50001 energy management, which has produced some significant benefits
as energy use is a major factor when producing aircrete. To further improve efficiency a
wind turbine is being installed at the company’s East Yorkshire site to provide electricity
for the manufacturing process.
 H+H’s desire to adopt certification and perform within those standards offers major
benefits. Standards such as ISO 9001(quality management), ISO 14001 (environmental
management) and ISO 50001 (energy management) - with their emphasis on continual
improvement - encourages the development of new innovative processes and solutions,
helping to reduce the cost of production and increase output. H+H has used BSI as its
external certification body since 1989.
88 88

6.8 Information & Communications Technologies (ICT)

Overview of the sector

The UK Information and ICT
Communications Technologies (ICT)
sector is composed of three broad sub- Annual turnover (2013) £159.1 billion
sectors; communications (wired and
wireless networks), computer Annual Gross Value Added (2013) £83.1 billion
hardware and computer services
(including software development, IT Annual R&D spend (2012) £3.7 billion
consultancy and web services).
Number of UK businesses 145,300
Innovation levels are high in the sector;
ranking second in terms of annual R&D Employment 890,000
spend (£3.7 billion, 21% of UK total)
with the majority of this expenditure Number of industry-relevant standards 3,300
(51%) in software development and
information services. Source: ONS Annual Business Survey 2013, ONS Research and Development
in UK Businesses 2012, BSI British Standards Online (BSOL) database
The UK ICT sector ranks third in the
EU after Germany and France42 in terms of annual value added generated and is one of the largest
sectors in the UK. In 2013, ICT value added represented 8.2% of the UK non-financial business economy
in 2013 making it slightly larger than the whole of the manufacturing sector43. Annual turnover in the
sector was £159.1 billion in 2013, dominated by telecommunications (39% of total) and computer
services (55% of total).

How are standards used in the ICT industry?

Interoperability standards – Standards Figure 40: Proportion of companies using standards, by type
form the fundamental architecture of
the ICT industry. The sector is the Health & Safety 75%
business of transmitting, storing and
retrieving data using computers and Quality management 69%
telecommunication equipment. To
Codes of Practice 59%
effectively share data, each device
must be able to send and receive Technical 56%
information using a standardized
format or software language. This Environmental 52%
requirement for interoperability has
precipitated the establishment of Management (other) 44%
industry-led organisations to develop
open standards. Internet standards are Organisational governance 41%

0% 20% 40% 60% 80%

42 Source: BSI Standards in Industry survey, Cebr analysis

European Commission Digital Agenda Scoreboard 2014
43
ONS Annual Business Survey 2013
 89 89

predominantly led by organisations such as the Internet Engineering Task Force (TCP/IP, SMTP) and
World Wide Web Consortium (XML, http, HTML, CSS and WAI) which bring together users and
companies to determine voluntary open standards through a consensus process. Communications
standards are predominantly led by organisations such as the International Telecommunications Union
(ITU), ISO, Institute of Electrical and Electronics Engineers (IEEE) and International Electrotechnical
Commission (IEC). ITU also has the role of coordinating the shared global use of radio spectrum. IEC, IEEE
and ISO standards are commonplace in computing and communication equipment and in a wide range of
information technology standards.

Quality management – Many UK ICT companies use quality standards in the production of products and
for the delivery of high quality services to their customers. For example, Inmarsat (a global satellite
telecoms company) uses ISO 9001 to optimise costs, improve operational performance and ensure a high
quality of service for customers. At software companies such as Sage Financial Software, use of quality
standards has a stronger emphasis on risk and group-level quality procedures, with the standard used to
promote good corporate governance, facilitate internal audit processes, differentiate products from
competitors and minimise the risk of product errors. In some instances, particularly with large public
sector clients, ISO 9001 certification is a pre-requisite to bid for contracts.

Health and safety – Occupational safety is an important consideration for ICT businesses and is the most
common standard type used by companies in the sector (75% of companies interviewed).

IT security – Company data are a valuable asset. The security of sensitive information and internal
networks is becoming an increasing concern within businesses, prompting action to identify risks and
improve controls. This has been seen in the growing popularity of the ISO/IEC 27001 Information security
management standard, which sets out best practice for maintaining a secure network and putting the
necessary controls in place. While this standard has been adopted by companies in a wide range of
sectors, its use is particularly high in telecommunications and computer services companies.

Customer service – For companies that have operations in different locations serving multiple markets,
quality management systems are used to ensure consistent quality of service for each customer,
regardless of where the customer is located. This also allows for a more integrated global company,
where each business unit is applying the same procedures and processes.
Table 23: Typical standards used in the ICT sector

Sector Standards

Telecommunications  ISO 9001 Quality management system

 TL 9000 Quality management system for supply chain quality
requirements of the global information and communication
technologies industry
 ISO/IEC 27001 Information security management systems
 ITU, IEEE, IEC and ISO technical standards for communication
technologies

Computer services  ISO 9001 Quality management system

 ISO/IEC 27001 Information security management systems
 ISO/IEC 20000 IT Service Management

Computer hardware  ISO 9001 Quality management system

 ISO/IEC 27001 Information security management systems
90 90

Sector Standards

 IEC and ISO technical standards for electronic equipment

 IEEE, IEC and ISO technical standards for network connectivity

Benefits in the supply chain

The ICT sector has a relatively low reported impact of standards on turnover (see Table 24). The benefits
reported by survey respondents amounted to 2.8% of turnover equivalent to £5,400 million per year.
However, as the most productive industry among those profiled in this report in terms of the extent to
which value added is generated from each additional pound of turnover revenue, the industry has the
highest estimated GVA impact from standards (£2.1 billion per year). Standards also have a strong effect
on boosting productivity in the ICT sector, with close to half of companies (48%) reporting that standards
increase productivity, the highest among the sectors profiled.
Table 24: Estimated financial benefits of standards for the ICT sector

Metric Value Rank

Reported % impact on turnover 2.8% 4

Annual impact on turnover (£m) £5,400m 5

Estimated direct GVA impact (£m) £2,100m 1

Reported % impact on exports 3.1% 4

Annual impact on exports (£m) £800m 5

Source: BSI Standards in Industry survey, Cebr analysis

In total, 51% of companies indicated that they considered that standards produced a net benefit for their
business, the third highest amongst the sectors profiled. Part of the reason for the difference between
the reported net benefits and turnover impact may be related to how the benefits from standards are
dispersed in the sector. Network effects (as explained in section 2.3) are important in the ICT sector and
standards have a strong role in creating networks, by diffusing common standards that facilitate
interoperability.

Open standards makes it possible for products and software produced by different individuals and
companies to work seamlessly with each other. This facilitates the creation of new markets and can
release huge benefits for both consumers and customers. For example, the internet has facilitated the
creation of entirely new industries focussed on the delivery of online services. The survey results
confirmed the importance of standards to interoperability in the sector, with 43% of respondents
agreeing that standards improve compatibility of products and systems, the highest amongst the sectors
surveyed.

The survey shows that standards are particularly important for facilitating technology transfer in the ICT
sector, with 65% of companies agreeing that standards make technology more accessible and thus
making it less costly for companies to innovate.
 91 91

A further area where standards help businesses is in the minimization of risk, particularly in the area of IT
security - 74% of companies in the ICT sector reported that standards allow greater control over security-
related problems, the highest amongst the sectors surveyed.

A summary of the benefits that standards provide for the ICT supply chain revealed through interviews
with industry experts is provided in Table 25.
Table 25: Summary of benefits from standards in the ICT supply chain

Benefits

Quality management – QMS standards help companies to improve workflows and streamline
processes. They also provide reputational value for the company, in that they signal the quality of the
product to the customer.

Product & software development- Standards help shorten development times for products and the
cost of research and development

Technical components – Standardization of components generally tends to improve competition in

the market, which reduces the cost of the completed product.

Technical interoperability – Standards that facilitate interoperability can create new markets, with
benefits increasing with the size of the network of users

Sales & marketing - Standards help companies demonstrate the quality and compatibility of their
products, thus providing assurance to customers about the performance of the product or service.

6.9 Conclusions - contribution of standards to the success of UK companies

The combined evidence from the BSI Standards in Industry survey and in-depth interviews with industry
experts gives a comprehensive understanding of the importance of standards to companies.

Using responses from the companies surveyed and re-weighting the results to correspond with the size
distribution of companies in each sector, it was also possible to build a picture of the financial benefits of
standards at the sector level. The sector level financial impacts of standardization in the seven sectors
covered in the analysis were estimated at £6.9 billion for 2013 in GVA terms.

Besides supporting the productivity of UK companies through enabling the optimisation of business
operations, one of standardization’s most important roles is in supporting trade. By opening up new
markets, linking UK companies into global supply chains, reducing technical barriers to trade and through
strengthening the basis for non-price competition, standards help companies to enter new markets at
home and abroad.

The analysis illustrates the extent to which standards are essential to the functioning of UK businesses,
sector supply chains and markets. The sector analysis reveals the extent to which standards are essential
to the functioning of businesses and markets. Standards enable savings through enhanced client-
supplier relationships and better communication between companies which fosters the overall healthy
functioning of markets. The analysis also provides evidence for the role of standards as a catalyst for
innovative activity through the diffusion of knowledge.
92 92

From the findings, we can make some useful conclusions:

 Standards are for many of the sectors an integral part of the functioning of businesses. In many
cases, companies simply would not be able to operate the same way they currently do, or it
would become uneconomical to do so, if standards were not widely used in the sector. For
example the business model of large aircraft manufacturers (OEMs) has evolved to outsource the
production of a vast array of components, and to focus on the design and assembly of aircraft.
This allows for substantial cost savings to be achieved. Without standards to allow easy
verification of quality and to distribute technical information, manufacturers would need to
revert to a traditional vertically-integrated model of business structure, which would reduce the
capability of the industry to produce aircraft in sufficient volumes.
 The study reveals that being involved in the standards development process produces
surprisingly large benefits for participants, and it raises the questions as to why there is not more
widespread involvement among UK companies. In some countries where demand to participate
is high, companies pay for the right to sit on technical committees whereas in the UK this is not
the case. This may be a result of UK companies simply not being aware of the specific benefits
that accrue to companies that get involved in standards development.
 The evidence from the sectors covered in this report shows that standards have been hugely
influential in boosting the sales of UK products and services abroad, with reported impacts
averaging 3.2% of annual exports, equivalent to £6.1 billion per year in additional exports. Given
the current Government emphasis on re-balancing the economy towards export-led growth, this
highlights the importance and benefits of further promoting standardization throughout the UK
economy.
 93 93

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Jungmittag, A., Blind, K., & Mangelsdorf, A. (2011). The Economic Benefits of Standardization. DIN.

Mitchell, B. (1988). British Historical Statistics. Cambridge University Press.

Romer, P. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5), S71-S102.

Sefton, J., & Weale, M. (1995). Reconciliation of National Income and Expenditure: balanced estimates of
national income for the United Kingdom,1920-1990. Cambridge University Press.

Solow, R. (1956). A contribution to the theory of economic growth. The quarterly journal of economics,
65-94.

Spencer, C., & Temple, P. (Forthcoming 2015). Standards, Learning and Growth in Britain, 1901-2009.
Economic History Review.

Swan, T. (1956). Economic growth and capital accumulation. Economic record, 32(2), 334-361.

Swann, P. (2000). The Economics of Standardization. Manchester: Manchester Business School.

Swann, P. (2010). International Standards and Trade: A Review of the Empirical Literature. OECD Trade
Policy Working Papers(97).

Swann, P. (2010). The economics of standardization: An update. London: UK Department of Business,

Innovation & Skills (BIS).
94 94

Swann, P., & Lambert, R. (2010). Why do Standards Enable and Constrain Innovation? 15th EURAS
Annual Standardization Conference "Service Standardization". University of Lausanne.

Temple, P., Blind, K., Jungmittag, A., & Spencer, C. (2005). The empirical economics of standards. DTI
economics paper, 12. London: DTI.

Temple, P., Witt, R., & Spencer, C. (2005). The Empirical Economics of Standards - Project 1: Standards
and Long-run Growth. DTI Economics Paper No. 12.

The Conference Board of Canada. (2007). Economic Value of Standardization. Standards Council of
Canada.
 95 95

Appendix
Data sources for the econometric analysis
Standards: We source our data on standards from the British Standards Online (BSOL) database. This
database provides a list of all standards published by BSI in the period 1902 to 2014. The database
provides information on the year each standard was published and withdrawn (if applicable), industrial
sector (ICS classification) and the publishing body (e.g. ISO, CEN, ETSI). We used these data to produce a
long run time series for the net stock of standards.

Output: Gross domestic product at 2006 basic prices, chained volume measure (ONS code ABMI) [1920
to 2013]. Data prior to 1948 sourced from the data annex to the Bank of England 2010 Q4 Quarterly
Bulletin article "The UK recession in context — what do three centuries of data tell us?" by Sally Hills,
Ryland Thomas and Nicholas Dimsdale. The composite time series in the data annex was constructed
using data from (Sefton & Weale, 1995) for the period 1920 to 1948 and ONS Blue Book for the period
1948 to 2013.

Employment: Number of persons in employment age 16+ (ONS code MGRZ). Data prior to 1971 were
sourced from the data annex to the Bank of England 2010 Q4 Quarterly Bulletin article as cited above.
The composite time series in the data annex was constructed using data from Feinstein44 (1972) [1920 to
1965] and ONS Blue Book [1966 to 2013].

Capital stock: Non-dwellings whole economy capital stock and asset capital services growth. (Feinstein &
Pollard, 1988) and (Mitchell, 1988) for capital stock data and Bank of England calculations for capital
services growth [1920 to 2009]. Capital is defined as the non-housing whole-economy capital stock prior
to 1963 and non-housing whole-economy capital services thereafter. Capital services are defined as the
flow of services into the production of output that are generated by the capital stock. The data series
was extended up to 2013 using data from the ONS publication ‘Capital Stocks, Consumption of Fixed
Capital, 2013’.

Detailed methodology
Following the approach of the 2005 DTI study and previous national level studies on the impact of
standards on economic growth, the model starts with the stylised Cobb-Douglas production function
which describes how the economy produces output through the inputs Capital (K), Labour (L) and
technological progress, otherwise known as Total Factor Productivity (TFP).

The time-variant version of the Cobb-Douglas production function45 is presented in equation 1 below:

1
To convert this function into a form that can be used in an econometric model and estimated statistically,
the Cobb-Douglas function must be transformed into a linear function by taking natural logs of both sides
of equation 2:46

44
Feinstein, C H (1972), National income, output and expenditure of the United Kingdom 1855-1965, Cambridge: Cambridge University Press.
45
For the purposes of simplifying the estimation procedure, constant returns to scale have been assumed for the factors of production i.e. a
10% increase in the amount of labour and capital applied would yield a 10% increase in output.
46
Where Yt represents output of the economy at time t, Kt represents capital input at time t, Lt labour input at time t and At total factor
productivity (TFP) at time t. We assume constant returns to scale and α and (1-α) represent the elasticity of output to a change in one of the
factors.
96 96

2 ( )

Next, the model is re-written in terms of labour productivity. The model can then be expressed as:

3 ( )( )

4 or in simplified form: ( )
Where represents output produced per worker employed at time t, represents TFP and
47
represents the capital-employment ratio , the amount of capital per worker employed at time t.

 In practice, TFP is the product of many complementary components, which together drive increased
productivity. The DTI 2005 study explored the inclusion of patents and technology licences along
with standards in their model. The authors of that report found that patents are co-linear with
standards, making their addition to the equation unnecessary because it did not enhance the model.
The data available for technology licences were only available from 1964 onwards. As a result, the
DTI (2005) study (and this study) specifies a model where standards are the sole determinant of TFP
in the production function. This model is presented in equation 5:

5 ( )

Where st represents the net stock of standards, λt represents a time trend, represents a recession
(binary) variable, ϵt represents the residual portion of TFP and c represents a constant.

 An Augmented-Dickey Fuller (ADF) test and a Phillips-Perron test were conducted to confirm the
stationarity of the residuals from the model specified in equation 5. The null hypothesis of a unit
root48 is rejected and so we were able to conclude that estimation using Ordinary Least Squares (OLS)
should not lead to spurious results. OLS estimation methods were therefore used to estimate the
model specified in equation 5.

 A recession variable is included in the model, designed as a binary variable, to control for the effect
that economic downturns have on productivity – that are unlikely to be related changes in the stock
of standards but may have an impact on the results. A time trend variable was also included to
control for the clear trend exhibited within the data.

 The results enable the identification of the contribution of the net stock of standards st to
productivity between 1921 and 2013. By applying the results to observed trends in the growth of
the stock of standards and the growth in labour productivity, the economic impact of standardization
can be estimated.

 Further, to confirm the long-run relationship between productivity, the capital-employment ratio
and standards, an Error-Correction model (ECM) is used49. A three-step procedure is employed, as
outlined below:

47
When the capital-employment ratio is increasing, this is often referred to as capital deepening – where the amount of capital per person
employed in the economy is increasing.
48
The presence of a unit root implies that the time series is non-stationary. The ADF test tests for stationarity, with the null hypothesis being
that the data series is trend stationary and that this conclusion is statistically significant. The alternative hypothesis is that the data series is not
trend stationary.
 97 97

 The data series is tested for the presence of a stationary stochastic process i.e. current values of a
series depend linearly on past values of the same series. Using the ADF test and Phillips-Perron test
for stationarity, it was found that neither labour productivity, the capital-employment ratio nor the
net stock of standards exhibited this property.

 Next, to verify that the data used for this study also exhibits a causal relationship, a Johansen Test
was conducted. The results of this test confirm that a long-run relationship exists, and that it runs
from standards to productivity.

 Finally to identify the long-run equation, an ECM model is implemented, the results of which are
described in Table 26. The table illustrates the speed of adjustment factor and the short-run effects.
The long run equation is presented here:

 The equation implies that a 1% increase in the stock of standards is likely to lead to a 0.151%
increase in productivity in the long-run, and this estimate is statistically significant50. In addition the
speed of the adjustment factor, equivalent to 0.229, means that the 0.151% increase in productivity
that results from a rise in the stock of standards will occur at a rate of 23% per year.51 This is
consistent with economic theory, which suggests that standards contribute positively to productivity
in the long-run.

 The short-term relationship between productivity, the capital-employment ratio and the stock of
standards are presented in Table 26. These results are not statistically significant, further supporting
our hypothesis of the long-run effect between productivity and standards.

50
The OLS regression illustrated in equation 5 confirms the correlation between standards and productivity through identifying and quantifying
the average linear relationship between standards and productivity between 1921 and 2013. The econometric exercise detailed in equation 6
aims to identify, specifically, the long-run impact of standards on productivity.
51
This implies that productivity will rise by 0.03% in the first year after a 1% increase in the stock of standards (23% of the estimated 0.151%).
Productivity will rise in this way until the whole 0.151% increase has occurred.
98 98

Table 26: ECM model estimates

Dependent variable

A B C

Labour Productivity Capital- Employment ratio Stock of standards

Explanatory variable
growth growth growth

Speed of adjustment 0.229 0.058 0.032

Labour Productivity
- 0.118 0.041
growth (t-1)

Capital-Employment Ratio
0.126 - 0.247*
growth (t-1)

Growth in stock of
0.034 0.193* -
standards (t-1)
* Denotes a significant relationship at the 5% level. ** Denotes a significant relationship at the 1% level.
 99 99

Sample structure
Between January 2015 and March 2015, JRA Research was commissioned by Cebr to conduct the BSI
Standards in Industry survey. This involved a survey of 527 decision makers within firms about the impact
of standardization on business operations. The survey involved a common questionnaire and was
conducted through telephone interviews. The sample was asked about the monetary and strategic
benefits of standards use to individual firms and the supply chain and industry as a whole. Views relating
to involvement in the standards development processes were also surveyed. It should be noted that
some responses to survey questions do not add up to 100%, either because of rounding or because
respondents were able to provide multiple answers to some questions. The sample structure can be
broken down as follows:
Figure 41: Survey sample structure: breakdown by industry and by size

Construction manufacturing/services 54% 24% 10% 12%

Aerospace and Defence 30% 50% 17% 3%

Automotive 23% 43% 11% 23%

Life Sciences/ Healthcare 42% 35% 14% 9%

ICT 54% 34% 5% 7%

Food and drink manufacturing 47% 24% 14% 15%

Energy 38% 31% 19% 12%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 to 9 10 to 49 50 to 249 250 and over

Source: BSI Standards in Industry survey, Cebr analysis

100 100

Figure 42: Extent to which involvement in the standards development process varies by size of business

50%
50%

40% 37%
32% 32% 32%
29%
30% 26%

20%
15% 15%
13%
10%
10% 8%

0%
Highly Moderately Not at all

1 to 9 10 to 49 50 to 249 250 and over

Source: BSI Standards in Industry survey Cebr analysis

Figure 43: Proportion of exporting and non-exporting firms in each sector

Construction manufacturing/services 42% 58%

Aerospace and Defence 88% 13%

Automotive 66% 34%

Life Sciences/ Healthcare 71% 29%

ICT 41% 59%

Food and drink manufacturing 46% 54%

Energy 40% 60%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Exporting Non-exporting

Source: BSI Standards in Industry survey, Cebr analysis

 101101

Methodological note for Section 5.2

Responses from the BSI Standards in Industry Survey were combined with official sector level revenue
exports revenue and GVA data to estimate aggregate increases to revenue, GVA and exports at the
sector level.

The survey asked firms to identify the average increase to revenue and exports that had occurred as a
result of standardization, in percentage terms.

The survey responses were adjusted to reflect the true UK population of businesses: the survey appeared
to over-sample large businesses (employing more than 250 people) an under-sample small firms relative
to the UK population of firms. For example, 10% of the BSI Standards in Industry survey sample consisted
of large businesses. By contrast, large firms make up only 2% of the total UK business population. This
meant that responses to the survey would be skewed, over-representing the views of large businesses
and under-representing the opinions of other firms. To account for this, proportions of large and small
firms within each industry were obtained from the Business Population Estimates (ONS). These were
used to scale the survey responses, adjusting them downward to be reflective of the whole UK business
population. As a result, the findings reflected results that would be found had the whole UK business
population been surveyed rather than 527.

To estimate the increases to revenue, exports revenue and GVA at the national sector level, the
following steps were implemented:

1. The adjusted survey responses, detailing the average percentage increase to revenue as a result
of standardization were applied to revenue data at the sector level, obtained from the Supply-
Use Tables 2012. These results reflected 2012 volumes and prices. Using ONS GDP Low Level
Aggregates 2014, and the rate at which GVA of each sector grew between 2012 and 2014,
increases to revenue as a result of standardization was obtained in terms of 2014 volumes and
prices.
2. The adjusted survey responses, detailing the average percentage increase to exports as a result
of standardization were applied to exports revenue data at the sector level, obtained from the
Supply- Use Tables 2012. These results reflected 2012 volumes and prices. Using ONS GDP Low
Level Aggregates 2014, and the rate at which GVA of each sector grew between 2012 and 2014,
increases to exports revenue as a result of standardization was obtained in terms of 2014
volumes and prices.
3. Increases to GVA were calculated using the ratio of sector revenue to sector GVA, obtained using
ONS GDP Low Level Aggregates 2014 data. Using the estimated increase to revenue as a result of
standardization (calculated in step (1)) and the revenue to GVA ratio, increases to GVA were
estimated at the sector level.
102 102

The results of this analysis are summarised in the table below:

Table 27: Estimated financial benefits of standards for all sectors

Annual Estimated Annual

impact direct Reported impact
Reported % on GVA % impact on
impact on turnover impact on exports
Sector turnover (£m) (£m) exports (£m)

Automotive 3.8% £4,915 £536 2.6% £967

Life Sciences 3.3% £5,233 £1,797 2.5% £950

Aerospace & defence 1.7% £760 £205 4.4% £1,022

Energy 2.2% £5,730 £972 0.3% £112

Food & drink manufacturing 5.3% £10,224 £1,113 9.9% £2,061

Construction 2.8% £1,044 £167 5.2% £155

Information & Communication 2.8% £5,365 £2,130 3.1% £802

Source: BSI Standards in Industry survey, Cebr analysis
 103103

Sector definitions
A total of seven sectors were covered in the BSI Standards in Industry survey. These sectors were chosen
because they represent some of the most standard-intensive sectors in the UK economy. A summary of
the definitions used for these sectors broken down by standard industry classification (SIC) code are
provided in Table 28. These definitions are largely informed by those used by the Department
for Business, Innovation & Skills. It should be noted that while construction contracting companies (SIC
41 to 43) are referred to in the analysis of the construction sector (section 6.7), they were not
included in the survey due to the relatively low level of standard usage in the construction
contracting sub-sector relative to other sectors (with the exception of larger contractors) and for
sampling reasons.
Table 28: SIC code definitions

Sector SIC code SIC group

Automotive
29 Manufacture of motor vehicles, trailers and semi-trailers
22.11 Manufacture of rubber tyres and tubes; re-treading and
rebuilding of rubber tyres
Life Sciences
21 Manufacture of basic pharmaceutical products and
pharmaceutical preparations
26.6 Manufacture of irradiation, electro medical and
electrotherapeutic equipment
32.5 Manufacture of medical and dental instruments and supplies
72.11 Research and experimental development on biotechnology
Aerospace and Defence
25.4 Manufacture of weapons and ammunition
30.3 Manufacture of air and spacecraft and related machinery
30.4 Manufacture of military fighting vehicles
Energy
51 Mining of hard coal
52 Mining of lignite
61 Extraction of crude petroleum
62 Extraction of natural gas
81 Quarrying of stone, sand and clay
91 Support activities for petroleum and natural gas extraction
19.2 Manufacture of refined petroleum products
35.1 Electric power generation, transmission and distribution
35.2 Manufacture of gas; distribution of gaseous fuels through
mains
Food & drink manufacturing
10 Manufacture of food products
11 Manufacture of beverages
Construction manufacturing & services
23.3 Manufacture of clay building materials
104 104

Sector SIC code SIC group

23.5 Manufacture of cement, lime and plaster
23.6 Manufacture of articles of concrete, cement and plaster
23.7 Cutting, shaping and finishing of stone
25.1 Manufacture of structural metal products
27.4 Manufacture of electric lighting equipment
16.21 Manufacture of veneer sheets and wood-based panels
16.22 Manufacture of assembled parquet floors
16.23 Manufacture of other builders' carpentry and joinery
22.23 Manufacture of builders’ ware of plastic
23.11 Manufacture of flat glass
23.12 Shaping and processing of flat glass
23.42 Manufacture of ceramic sanitary fixtures
23.99 Manufacture of other non-metallic mineral products n.e.c.
25.21 Manufacture of central heating radiators and boilers
25.72 Manufacture of locks and hinges
27.33 Manufacture of wiring devices
28.14 Manufacture of other taps and valves
28.25 Manufacture of non-domestic cooling and ventilation
equipment
71.11 Architectural activities
74.901 Environmental consulting activities
74.902 Quantity Surveying Activities
ICT
26.1 Manufacture of electronic components and boards
26.2 Manufacture of computers and peripheral equipment
26.3 Manufacture of communication equipment
26.4 Manufacture of consumer electronics
58.2 Software publishing
63.1 Data processing, hosting and related activities; web portals
63.9 Other information service activities
58.29 Other software publishing
62.01 Computer programming activities
62.02 Computer consultancy activities
62.03 Computer facilities management activities
62.09 Other information technology and computer service activities
63.11 Data processing, hosting and related activities
63.12 Web portals
105105
106 106
107107
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