No. 02 - May 2011

The financial impact of interoperability

The dynamic growth in information technologies since the late 1970s — including computing, telephony, networks, and enterprise systems — has highlighted the vital importance of interoperability and standardization between these systems.

Interoperability is the capability of such systems to exchange services and information, and to operate effectively in predictable ways without significant user intervention. Standards for equipment and information systems integration can play a vital role here by driving significant financial benefits, and reducing costs by as much as 3%.

Industry experience in the health, building construction, telecom and electric power sectors shows that interoperability can result in:

  • Lower costs per transaction
  • Increased operating efficiency
  • Improved reliability and security
  • Lower design and installation costs
  • Lower operations and maintenance costs
  • Lower support, systems restoration and upgrade costs
  • Higher quality of service with fewer mistakes
  • New services through competitive innovation.

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Interoperability – the key to global trade

Interoperability and standards make today’s connected world possible. Without them there would be many more obstacles to global trade. Here are some reasons why: Standards underpin the global communications network, and standardized electronic authentication makes the Internet possible. Interoperability of cargo containers has led to greatly reduced transport costs and a massive increase in international trade. Interoperability and standards promote free market competition — business, industry and government want standardized components from different vendors to give choice and better prices without vendor lock-in. With dramatic growth in international financial traffic, the pressure is on banks to improve interoperability. Electronic banking systems standardization has made it all possible.

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Interoperability promotes innovation

Markets have been transformed by globalization. Now, innovators must satisfy interoperability criteria to enable data exchange and the sharing of knowledge. New products and services must cooperate with other components or technical systems. The new “open innovation” paradigm requires cooperation in R&D to integrate technology suppliers and customers. Interoperable systems imply low barriers to market entry for innovative suppliers, products and services. When interoperability is limited, monopolistic structures can evolve that ultimately inhibit innovation. Standardization is an important instrument in transparent processes, and should be promoted by innovative companies. The better that industry applies the processes of interoperability and standardization, the less will governments need to intervene.

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Standards make the world go around

When product, service and system interoperability promoted through standards functions well it is taken for granted — and so are the resulting efficiencies and reduced costs. Globally harmonized international standards promote the compatability of a huge variety of products and services. But when interoperability fails the result can spell disaster — and often, the absence of a common standard is the cause. As a result, progress halts, inefficiencies abound and costs rise.

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Failure is not an option

Non-interoperability between products creates inefficiency and unnecessary cost. Most developing countries have economies of enormous potential, hindered by non-interoperability. Mobile phone chargers, print cartridges and medical products such as blood sugar test strips are just a few of many non-compatible products. Why does non-interoperability exist? The culprits are often brands that lock the vendor or consumer into proprietary designs, technologies or processes that create barriers to competition, monopoly and higher costs. Interoperability standards, guidelines and best practices can help overcome the problem, but achieving interoperability for products and services requires a change in mind set among key decision makers, product manufacturers and service providers.

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