Standard-setting dynamics are often studied from a demand-side perspective. Therefore modeling emphasizes network and installed-based effects (among others, cf. Katz & Shapiro, 1985, 1986, 1994; Shapiro & Varian, 1999a, b). In standard wars single integrators try to compel the market to adopt their proprietary technology. Furthermore, recognized literature on the economics of standards sheds light particularly on how de-jure standard stocks and national representation at international bodies contribute to growth of national economies, how they ensure quality, and also how standards facilitate inter-operability and modularity so that a variety of products and services can be developed from them (Blind and Jungmittag, 2008; Fraunhofer ISI, 2007; Blind, 2004; DTI, 2005; Swann, 2000). In extremis, standards turn into a competitive edge: they are deployed to solve firm or industry problems of incompatibility, quality, variety and information (Swann, 2000). Recent research in particular looks at de-jure standard-setting process design, firms’ behavior in de-jure bodies and formal standardization channels between national and global levels (among others De Lacey et al., 2006; Blind, 2006; Chiao et al., 2005; Eickhoff and Hartlieb, 2002). Another object of research is the field of intellectual property issues in standards negotiation (Staniszewski, 2007; Updegrove, 2007; Blind and Thumm, 2004; Lemley, 2002; Blind et al., 2002).

Conversely, supply-side standard-setting dynamics, particularly knowledge dynamics in standard-setting collaboration, have been neglected in recent models. This paper sheds light on how supply-side standard-setting dynamics affect dynamic capabilities in industrial automation. The provided case study set out here indicates that the systemic context represented by a portfolio of typical use cases [2] plays an essential role in how exploitation and exploration roles are distributed between members of a standard-setting community. As industrial automation represents a medium/low-tech industry, use cases are well-established. Field buses serve the automation of production processes and motions in factories and process plants. Therefore, in contrast with embryonic/immature industries such as cell cloning, the construction of a meaningful use case is not part of the standard-setting process [3].

Capabilities are “repeatable patterns of action in the use of assets to create, produce and/or offer products to a market” (Sanchez, 2004, p. 519). From a dynamic perspective, both standard-setting communities and their member firms are open systems in Luhmann’s (2005) and Sanchez, Heene’s (1996) terms. According to Luhmann’s system theory, “systems create internal problem solving mechanisms, which the environment cannot access” (Luhmann, 2005, p. 149). Standard-setting communities as systems in terms of select external problems with respect to criteria of relevance, contiguousness, ad valorem and concern (Luhmann, 2005, p. 149f). From a process perspective, organizations are open systems where the strategic logic creates value by a stock of specific activities or organizational routines (Sanchez, 2004; Sanchez, Heene, 1997; Nelson, Winter, 1982). In the case of PROFIBUS which is provided here, standard-setting communities do so to create a simplified frame of reference which turns problems into standards for attractive, new product offers. The advantage of a system approach to standard-setting organizational design is that it provides insights into how a community serves the firms’ ends, but it also explains why the community offers opportunities to the members which cannot be accessed through the market.

On the basis of a series of interviews, I am assuming that the purpose of a standard-setting community is both to embed strong technology as regards innovation into the standard’s new vintage “s_iv” (exploration of technology) and to achieve a fast rate of technology diffusion (i.e. achieve strong open standards which can be exploited by the value added strategies of each member firm). The purpose of this paper is to provide a model of how standard-setting capability and knowledge dynamics may explain the firm’s utility in a standard-setting community. Furthermore, we need to explain what characterizes capability and knowledge in a dynamic context of standard-setting. The section which follows introduces the industrial automation industry and major system integrators in the segment of field bus technology. Section two will describe the context and methodology of my study. In section three, I derive a new model of the standard-setting process which takes account of knowledge dynamics, defines the concept of standard-setting capability and conceptualizes research and standard-setting (R&S) collaboration. Finally, section four includes limitations of the model and conclusions.

The model described in section three builds on the case study of PROFIBUS which is a leading standard-setting community within industrial automation, a medium/low-tech industry. Industrial automation technology controls, monitors and executes automated motions, handling and measurement in factory assembly lines or in process industries. Field busses manage data exchange between machines or components and machines; they control assembly lines and processes in operation. The market for industrial automation can be technically separated into factory, process and building automation – each segment has its own requirements regarding safety, reaction times and functionality (i.e. real-time in motion controls, safety in explosive chemical processes).

Basically, world market shares in automation technology are distributed nearly equally between the United States, Western Europe and Asia (for detail see Figure 1). Recently, the field bus market has been dominated by three standard-setting user organizations: ODVA, CLPA and PROFIBUS. Each has about one-third of the world market share in the global PLC market [4].

The innovation race between field bus standards is driven by multinational firms which govern the standard-setting communities, such as Siemens (PROFIBUS User Organization, European market leader), Rockwell Automation, Omron, Schneider Electric and Cisco (ODVA, US market leader) and Mitsubishi Electric (CLPA, Asian market leader), hereafter referred to as “integrators”. The science, technology and knowledge-base of industrial automation, is characterized by a diverse array of capabilities from traditional manufacturing, mechanical engineering & physics. Nonetheless, segment boundaries are being reshaped by integrated solutions and challenged by overlapping high-technology (Gerybadze, Slowak, 2008). Note that inputs from many industries or multi-use contexts of standards may imply technology lifecycles varying in speed/rate of technological change and level of innovation output/input, but also come with different intellectual property regimes. The diverse array of capabilities required relates particularly to new, integrative technology domains such as mechatronics and productronics, nanotechnology or adaptive materials which are reshaping conventional automation control technologies. This consideration aside, mass consumer electronics integrated into industrial automation solutions intensify price competition and challenge industrial IT standards by consumer standards successors, e.g. IEEE WiFi for wireless networks.

PROFIBUS User Organization – Karlsruhe, Germany – maintains and develops the standard PROFIBUS (conventional field bus technology) and PROFINET (Ethernet field bus). PROFIBUS was created between 1987 and 1990, initiated by Fraunhofer-Gesellschaft, Research Center for Information Technology Karlsruhe, RWTH Aachen, TU Munich, Bosch, Honeywell and Siemens. It was supported by big German specialist associations for electrical and mechanical engineering, namely the Association of German Engineers (VDI) and Association for Electrical, Electronic & Information Technologies (VDE). At that time, a common understanding of what functionality a ‘field bus’ should be capable of was not yet present in the market. PROFIBUS consists of ‘PROFIBUS User Organization’ and ‘PROFIBUS & PROFINET International’. Whereas PROFIBUS User Organization (which is the German regional association within PROFIBUS & PROFINET International) holds exclusively the innovation mandate for PROFIBUS and PROFINET, PROFIBUS & PROFINET International distributes and implements the standard. The number of PROFIBUS & PROFINET members worldwide rose from around 250 in 1995 to today’s figure of more than 1400. Some 23% of them are members of PROFIBUS User Organization [5].

The PROFIBUS User Organization is led by a board of directors, represented by members of SIEMENS, Endress + Hauser Process Solutions and TU Munich. The advisory board is represented by WAGO Kontakttechnik, Mitsubishi Electric Europe, Pepperl + Fuchs, SICK, Phoenix Contact and FESTO. Working groups are assigned to five technical committees whose chairs are automatically members of the advisory board as well. Thus the firms Softing and ABB are also represented on the advisory board. Standards specification work is carried out by the PROFIBUS User Organization’s six Technical Committees – Test and Certification; Communication Profiles; Process Automation; Factory Automation; System Integration; and Marketing, and their 50-odd working groups. PROFIBUS working group projects in general improve basic standards technology (e.g. cabling and automation network physics, PROFIBUS/PROFINET integrated functions such as safety) or they specify device profiles to embed specific, industry-related functionality in PROFIBUS/PROFINET. Sometimes, however, projects are driven by a particular industry segment and do not primarily address just the competitive advantage of the PROFIBUS/PROFINET standards. The nearer a working group’s activities are to proprietary market offers and the more independent of the PROFIBUS/PROFINET protocol, the more a working group negotiates additional exclusion practice and temporary market monopolies for its founding firms. PROFIBUS User Organization tolerates these ‘exceptions’ owing to the project consortium’s market power.

West’s model on standard-setting indicates that only the combination of successful technology specification and successful implementation creates a strong standard candidate which nonetheless must be made a de facto standard by fast and broad market adoption. Whereas specification is derived from technology, implementation is also shaped by vendors and in particular by complementers. Inputs of a successful standard-setting process are market demands to be considered, participant goals, capabilities, business models, and complements and complementary products (West, 2007, p. 95 Table 3.2).

Given the case of industrial automation, it needs to be explained why firms collaborate on standards and do not pursue standard wars opposite to other industries such as consumer electronics (i.e. Blu-Ray versus HD-DVD). In order to describe the incentive structure which leads to the creation of standard-setting communities, the following questions are raised: What are the forces for cooperation with respect to the returns from collaborative R&S? How does a standard-setting community coordinate exploration and exploitation with respect to value creation and value capture? “Knowledge, unlike classic capital goods, has no fixed capacity in terms of impact of an additional quantity on the economy. Depending on the prevailing spirit of initiative, the situation of competition or the social organization, a new idea can trigger huge chance or have no effect.” (Foray, 2004, p. 9) Therefore, how do standard-setting communities transform knowledge stocks into essential know-how on standards? What is the knowledge dimension of standard-setting capability?

Table 1 illustrates that there are strong incentives for cooperation in R&D. These are particularly realized in terms of co-make and co-buy, but also through access to complementary assets across the boundaries of the firm. I would add that standard-setting communities as alliances may not only provide complementary assets, but a business system along the innovation chain to the market. From a resource-based view, I argue that standard-setting communities as cooperative populations of firms create standards variety by the amount of pooled knowledge stocks. Furthermore, collaborative standard-setting adds a new dimension to co-operation; it speeds up the diffusion process by a strong momentum of technology and provides a ‘club’ with respect to open standards as the basis for value added strategies.

Table 1
Collaborative R&S

Simcoe (2006) argues for a trade-off between value creation through open standards and value capture through appropriation of rents by licensing, aggressive patent trading, patent hold ups or ex-post unfair behavior. Business models which rely on aggressive intellectual property right strategies maximize the exploitation of firms’ own assets, but they fail to provide economic incentives for contributions from external parties. Thus, aggressive firms could have less access to external resources (i.e. open source communities, intrinsically motivated problem solving communities). [6]

Finally, competitors and implementers/their users are unwilling to commit to closed standards. Why? Simcoe (2006) argues that open standards create more value in terms of compatibility, increased quality, lower product prices for users, and ‘restrictions on taxes by technology licensors’. Whereas the “traditional mode” of dynamic capability, that is, exploration by closed research, bilateral alliances and mergers and acquisitions, and exploitation by closed technology, is well-known as a linear innovation model, dynamic capabilities in an open innovation and open standards business environment remain an unresolved issue. Unlike the traditional, linear innovation process, contemporary innovation races are characterized by more strategic options available to the firm such as markets for know-how and multiple paths to the market. This idea is conceptualized by the paradigm of ‘open innovation’ (Chesbrough, 2006a, chapter 3; Chesbrough, 2006b; Gassmann, 2006).

F_i: [1… I], member firms of standard-setting community SSC_j

dc_SSC: dynamic standard-setting capability of a firm deploying its abilities in R&D and process design (competence) to transform competition on standards into an ecosystem of firms collaborating on standards, but competing on implementation.

V*_crea(i,SSC): firm_i’s fraction of value created from technology which is explicitly related to the standard-setting activities of SSC_J. V*_crea expresses firm_i’s explorative activities related to the innovation & standard-setting agenda of the SSC.

V*_cap(i,SSC): firm_i’s fraction of V*_crea which is appropriated (i.e. patented technology, business secrets, incomplete/non-transparent disclosure of technological advantage); plus fraction of V*_crea derived from member or standards-relevant firms somewhat implicitly constrained in value capturing by firm f_i (i.e. if f_i can extort an unreasonable favourably license from f_i+1 because it could otherwise block patents); plus ß. In brief, V*_cap expresses all market activities of f_i which deploy the value created by the SSC in terms of solutions, complementary goods or value added (competing on implementation, but collaborating on standards). It stands for technology and know-how exploitation.

ß: technology externalities from collaboration (knowledge spill-overs, standards & market foresight, and knowledge flows). Therefore standard-setting communities may provide temporary club goods to their core member firms.

The above model is capable of representing both the case of standard wars and research and standard-setting collaboration. Industrial automation is characterized by collaboration on standards. I argue that incumbent firms compare the forces for cooperation with the forces for competition on standards in order to align exploration and exploitation activities within a specific industry context. In industrial automation users are indifferent to all but a few global, durable standards. They prefer standards which allow for continuous technological progress without disrupting their installed base in machines and automation systems rather than fundamental changes. Such a user environment promotes evolution, not standard wars. Competitive advantage in automation systems is, as has been briefly described before, often related to the variety of capabilities concerning a re-combination of assets and absorption of third industries’ high-technologies. Open standards simplify the access to multi-technology (legally and technically), but also the coordination of multi-technology within systemic products respecting industry solutions. Forces for competition could be profitable, velocity markets for technology, uncertainty on strategic options from open standards, or an excessively “scattered” patenting field where it seems unlikely that due collaboration processes can be established between multi competitors. Note however, that the term “open” is a problematic one. Dimensions of open, for instance, may include full participation and specification modification rights; a “due” process where nonetheless all participants have a vote; and no or reasonable royalties on a standard’s essential intellectual property rights (West, 2007); specifications open to change and fully accessible; or ongoing support (Krechmer, 2006, 1998). Foray (2004, p. 165) uses the term knowledge openness to describe “a system in which the principles of rapid disclosure of new knowledge are predominant, and in which a number of procedures facilitate and reinforce the circulation not only of codified knowledge but also of practical knowledge and research tools”. West (2007, p. 88f) concludes that “standards are rarely fully open or fully closed” – open and free are idealistic terminology. Illustrating case examples from IT-industry, he lists openness attributes such as “multiple vendors”, “low switching costs between systems”, “clear process fairness”, “no membership requirements” and others. Furthermore, the several dimensions of open may be correlated between each other, rather than fully orthogonal (p. 98f); standard-setters hence apply “bundles of openness” (p. 108). PROFIBUS, however, represents a hybrid between what he terms “open to the club” and “open to the public”: Some projects like the market-near IO-link consortium turn into communities of insiders [7], whereas the use of most PROFIBUS and PROFINET standard devices and the participation in regional chapters for technology adoption is open to all interested parties.

Figure 3 illustrates how members of a standard-setting community solve the trade-off between exploitation and exploration (from a process view) respecting value created and value captured (from a knowledge dynamics view) through switching from competition to collaboration on standards. This switch is moderated and maintained by dynamic standard-setting capabilities (dc_SSC). Point ‘A’ in Figure 3 expresses a scenario where SSC institutions such as established routines, policies (i.e. PNO [PROFIBUS User Organization] IPR policy, PNO working group guidelines) or organizational design lead to an unreasonably weak appropriability regime of a member firm. Note that the firm cannot move to V* because the other members have captured the value spread between points A and V*, and it can be considered a club good for the community. Therefore the firm either needs to convince the community that the rules of the collaboration need to be changed, or to negotiate exceptional rules applying to its own assets. B_t0 expresses a scenario where SSC institutions such as established routines, policies or organizational design lead to an unreasonably strong appropriability regime of a member firm. Note, however, that appropriability within the community does not necessary reflect or relate to appropriability against other communities and non-SSC members in the market. In the scenario marked by B_t0 in Figure 3, time-to-standard is probably delayed and tit-for-tat reactions of the other SSC members could disintegrate routines and capabilities built from collaboration. Therefore behavior which anticipates the other members’ reactions should converge to V* over time. Given stable forces for collaboration, a drawback to standard wars represents a behavioral accident of incumbent firms. V* is characterized by a somewhat ‘fair and reasonable’ value capture based on the firm’s contributions (value created) to the standard-setting community.

PROFIBUS IPR policy clarifies how members have to deal with other members regarding relevant intellectual property. The term relevant describes the intellectual property rights necessary to implement a PROFIBUS User Organization specification within a product or process. Joining the PROFIBUS community implies the disclosure of relevant patents within six months after a working group’s project start (PROFIBUS “call for experts”) and, in general, the granting of a royalty-free license to the standard-setting community: “In principle, members shall grant PNO a worldwide, non-exclusive, free of charge, permanent and irrevocable right to use. PNO is free to grant a license to its members and these rights shall persist even after the licenser has terminated his membership and/or the relevant intellectual property right has been transferred to a third party. … A member shall, in exceptional circumstances … also be entitled to … offer a license in exchange for reasonable and non-discriminatory (RAND) [8] license fees, the terms of which must be negotiated PNO IPR Policy.” (PNO [PROFIBUS User Organization] IPR Policy 2007)

PROFIBUS creates club knowledge in the sense used by Buchanan (1965). This knowledge is transformed into a public good (embedded in open standards) ex-post, not while technology is being developed. Transparent IPR terms protect against unfair behavior of other members such as patent hold-ups or activities by patent trolls. Note that these terms do not have any impact on non-SSC members which may own relevant patents. It is thus crucial that a standard-setting community includes the essential technology providers of an emerging industry standard from the very beginning. I furthermore argue that standard-setting communities deliver temporary monopolies of knowledge either as a club of all members or as a consortium within the community.

Besides the ability to switch from competition to collaboration on standards, another dynamic capability in the PROFIBUS case is the ability to synthesize timing between de-facto standard-setting at the market and standardization in de-jure bodies, in particular at the International Electrotechnical Commission.

How can we understand the knowledge dynamics which moderate standard-setting capability? It seems that PROFIBUS knowledge dynamics can be described as a virtuous cycle of exploration and exploitation respecting some trade-off between the deployment of current know-how and experimentation with new alternatives from the external environment [9] or else an interplay between variety generation, selection and replication (cf. Nooteboom, 2007; Hodgson, Knudsen, 2006). According to Hodgson and Knudsen (2006, p. 5), evolutionary system analysis should take into account the three Darwinian principles of variation, inheritance and selection: “[The] principle of inheritance … refers to a broad class of mechanisms … by which information concerning adaptations is retained, preserved, passed on or copied through time … Some adaptive solutions to such problems are retained through time and may be passed to other entities.” (Hodgson, Knudsen, 2006, p. 4)

“First, there must be some explanation of how variety occurs and how it is replenished in a population… Second, there must be an explanation of how useful information concerning solutions to particular adaptive problems is retained and passed on… There must be some mechanism that ensures that some such solutions (embodied in habits, routines or whatever) endure and replicate; otherwise, the continuing retention of useful knowledge would not be possible. Third, and not least, there must be an explanation of the fact that entities differ in their longevity and fecundity. In given contexts, some entities are more adapted than others, some survive longer than others, and some are more successful in producing offspring or copies of themselves. Here, the principle of selection comes in. Briefly, selection involves an anterior set of entities, each interacting with its environment and somehow being transformed into a posterior set where all members of the posterior set are sufficiently similar to some members of the anterior set, and where the resulting frequencies of posterior entities depend upon their properties in the environmental context.” (Hodgson and Knudsen, 2006, p. 5)

Furthermore, we can derive generic dynamic capabilities which from an evolutionary perspective are required in inter-firm collaboration, namely “the ability to find partners, at optimal distance, and to effectively understand and collaborate with them, in the governance of ‘relational risk’ ” (Nooteboom, 2007, p. 14). The argument extends to the “ability to transfer activity to novel contexts that yield opportunities to maintain exploitation while yielding novel challenges and opportunities for a step by step process of exploration” (Nooteboom, 2007, p. 16). Integrator firms such as Siemens or Rockwell provide high reputation and a variety in technology to standard-setting communities. More precisely, standard-setting communities can be understood as innovation ecosystems or “semi-open” clubs which specify and promote particular technologies in the context of particular use cases. They are arrangements where firms practice their standard-setting capabilities.

Knowledge dynamics in the PROFIBUS community can be separated along a virtuous cycle of exploration and exploitation. I distinguish between knowledge creation (exploration), knowledge alignment, knowledge narrowing and value distribution (co-ordination of a standard-setting community`s various knowledge stocks), and knowledge deepening (exploration by exploitation regarding value added strategies and learning effects). Note that the fraction of technology which is excluded from collaboration does not apply to this process of exploration and exploitation. Understanding technology as represented in knowledge, dynamics can be modeled as follows: each firm f contributes to the standard-setting community with I, a selection of knowledge stocks k_1f…k_if out of the firm’s stock portfolio, N. Conversely, the rest of the firm’s knowledge stocks, namely , are not disclosed to the community. The alignment of disclosed competencies and assets then represents the selection of particular knowledge stocks becoming dominant in the standard-setting community’s business system. In the PROFIBUS case, such dominant knowledge stocks refer to field bus network architecture (i.e. PROFIBUS DP, PROFINET IO or CBA, intelligent interfaces) or solution-relevant general functionality like safety automation. Knowledge narrowing in PROFIBUS, for instance, took place when the early standard PROFIBUS FMS was terminated while PROFIBUS DP was kept on, but also when Siemens terminated IQ-sense and started supporting IO-link actively. Both knowledge alignment of the different firms’ knowledge stocks and knowledge narrowing are mechanisms embedded in the technology specification phase. Knowledge alignment means creation of a common, consistent science, technology and innovation-base for the entire community. In a second step, collaborative research & technology specification allow for the deepening of these particular knowledge stocks. Knowledge narrowing represents the choice between different alternatives; not each and every knowledge stock related to the standard-setting purpose needs to be relevant to standards specification. After standards design has been negotiated, the members begin to deepen their relevant knowledge stocks in order to prepare for the innovation race (competition on implementation) [10]. That is, each firm applies its own proprietary market strategies based upon undisclosed know-how and appropriated assets in order to provide value added components, services, complements and advanced technology vintages beyond the open standard. Standards at the same time drive innovation and restrain it.

On the one hand, standards specify new technologies and therefore encourage their use. As argued here, integrators also use standards to separate technology development into inter-firm (collaboration) versus proprietary activity for competitive advantage (value added). On the other hand, standards devalue particular knowledge stocks (those which are rejected as unessential within the knowledge alignment mechanism), while making others essential. Utility in terms of created or advanced/refreshed knowledge stocks k can be modeled as follows:

where ΔUf(sv, t) represents firm f’s utility from contributing to standard s_v in period t, and Δki is defined as knowledge and utility added to a particular knowledge stock ki [11]. Ac represents the SSC’s advantage from organizational design and institutions & routines, λ the firm’s capacity capturing Ac ; and finally, c(r) are the firm’s costs of contributing resources to the community and c(r’) are the costs in a proprietary market offer-alternative.

Equations (2) and (3) express how each SSC member firm evaluates ex-ante registration if the relevant knowledge stocks cannot be better exploited and augmented by proprietary market strategies. k’ represents the shares of k which could be turned into successful products on the market if they were not relevant and thus revealed in open standards.

In order both to unfold and maintain knowledge dynamics there seems to be a pattern for success: First, the community must create a status hierarchy which reflects the value contributions of the main partners. It seems that Siemens’ experience in standardization at the International Electrotechnical Commission and the depth of a firm’s assets allow for a core position within the community: “A stable ‘market as field’ means that the main players in a given market are able to reproduce their firms. … Incumbent firms are those that dominate a particular market by creating stable relationships with other producers, important suppliers, customers, and the government. They exploit their position by reacting to what other dominant firms are doing.” (Fligstein, 2001, p. 17)

Collaborative standard-setting can be thought of as alignment against challenges from the market field. Standard-setting communities provide an institutional frame for replication of success by new, innovative but backward-compatible standard vintages.

Siemens represents the most influential PROFIBUS member in terms of PROFIBUS User Organization (Board of Directors, number of chairs of technical committees, chair of the working group “Standardization Strategy”, employees at the Business Office); it drives the innovation agenda and reveals knowledge in order to establish new core concepts in collaboration. The firm has a strong patent position in terms of variety (number of covered IPC fields) and depth (number of patents). “PROFINET Component-based Automation (CBA)” is one example of how Siemens’ patent disclosures define core concepts for the PROFIBUS User Organization. It describes how to design an integrated factory or process plant automation network through a set of components, whether they cover software or hardware-based functionality. To put it simply, CBA creates a library of factory-wide accessible functions for new PROFIBUS/PROFINET features to come: “[PROFINET CBA is] a method for generating a description of a component of an automation system comprises describing the component as a plurality of inputs and outputs, generating a vendor-independent component description file based on a description of the component as the plurality of inputs and outputs, updating the vendor-independent component description file to include vendor-specific hardware information and hardware control logic, and creating the component based on an updated vendor-specific component description.” (EPO Patent 1691245, “Component-based automation”, applicant: Siemens. European Patent Office, http:// ep. espacenet. com/ )

Second, there is a need for strategic flexibility which means that evolution builds on commitment to continuous change in technology. This implies that knowledge alignment phases need to take place on a regular basis so that new knowledge or know-how can be synthesized with the current standards vintage.

Third, in order to provide a strong standard in terms of innovation, the community needs to initiate and maintain a virtuous cycle between exploration in collaboration and each firm’s exploitation in the market.

These three mechanisms balance value creation and value capture across the boundaries of the firm. Within the firm, product strategies decide on what is open and thus pre-competitive and what is closed and crucial for delivering proprietary value added to the customer.

I have argued that dynamic capabilities in the context of collaborative standard-setting are an unresolved issue. The conceptual study and the model provided on value & knowledge dynamics indicate that forces for cooperation are primarily about new opportunities of collaboration at the pre-competitive phase, but also a crucial-to-competition creation of knowledge. More precisely, there is an interaction between exploration of assets and new use cases, and exploitation through value added strategies. It could best be described as a virtuous cycle which pushes the knowledge boundaries of a standard. Note that a standard-setting community equals a kind of innovation and technology diffusion-promoting ecosystem. Standard-setters thus need to design a business system capable of establishing a situation where more value is created than an exclusively proprietary scenario would deliver.

Standard-setting capability in a cooperative industry context is about establishing status hierarchies which allow us to control standard-setting processes, but also strongly to influence standards design. Variation, inheritance and selection are processes moderated by status implications, implicit relationships between value creation and value capture, and the community’s management of standards vintages to control standards lifecycles.

Limitations of this paper particularly concern validation and measurement of my model (i.e. causalities induced by cross-community affiliations or relationships between R&D ratios, patent citations and a firm’s status within the community). I have also not provided any empirical evidence that it can be generalized. Furthermore, future studies on standard-setting capability should conduct more comparative industry analyses. In particular, switching mechanisms between exploration and exploitation and evolutionary patterns in standard-setting capability require a more in-depth explanation. Future empirical studies can also analyze mechanisms which create and replicate status or which shape governance and value distribution within standard-setting communities. Nonetheless, this conceptual paper which was motivated by a single case study provides a preliminary model of collaborative standard-setting – a new and promising field of research.