KEY ISSUES FOR DIGITAL TRANSFORMATION IN THE G20

The development of standards and standards-based interoperability is no less than a linchpin to Industrie 4.0
proliferation. While some companies perceive competitive advantages and economic incentives in building
proprietary systems for the IoT, overall economic opportunities would be constrained in a marketplace of
disparate silos. In a World Economic Forum study, 47% of respondents indicated that establishing and
promoting common standards is an important action that governments can take to accelerate the adoption of
the Industrial Internet (WEF, 2015b). Ultimately, Industrie 4.0 will demand no less than a neutral, standardsbased
reference architecture, if the production industry is to successfully create value-added networks.
Moreover, appropriate standards and guidelines are also needed to maintain current levels of safety, ensure
trust based on enhanced levels of digital security and privacy, improve energy and resource efficiency, and
address emerging social and organisational challenges brought on by digitalisation.
As economies move towards an IoT-enabled future, reinforced by standards-driven interoperability and by
societal acceptance, the various actors involved need to think and act strategically and in a co-ordinated and
collaborative fashion so that the maximum advantages and benefits of Industrie 4.0 can be realised. It is likely
that unco-ordinated and non-collaborative standards-setting actions be it by public or private actors would
inhibit interoperability and slow down the adoption of better security and privacy practices, with potential
negative effects on human rights and ethics. If these concerns are not addressed in a way to garner user
confidence, IoT deployment and advances in sophisticated manufacturing could be significantly hindered.
While a co-ordinated approach is the best way in which to develop fully interoperable standards, it is not
always possible (or necessary) to do so. This is in part because buyers may be cautious in purchasing (and
using) products and services that are connected to the IoT ecosystem if the IoT integration mechanisms are
inflexible and they will in turn become “locked in” to the ecosystem, among other issues (Internet Society,
2015a). There are also additional concerns with respect to poorly designed and configured IoT devices and the
disruptive impact they could have on the broader Internet and the digital economy (Internet Society, 2015a).
Using standards that are generic, open, and widely available as technical building blocks for IoT devices and
services would benefit economic opportunities and innovation.
While such standards are not policy objectives unto themselves, they become a priority as a means to
transition technology to, and develop, markets and there is an increasing interplay between standards and
policy. Depending on the particular governance model, standards can provide support to many kinds of policy
actions, including innovation and productivity, trade and competition policy, investment policy, technical
regulation, consumer protection, security, safety, and environmental protection. In such ways, standards can
serve as powerful instruments of governance, because of the effects their use can have on regulations, goods,
services, and quality of life.
These effects are evident whether standards are employed by the private sector or by the public sector. In the
private sector, standards create market incentives for actors to follow internationally accepted practices by
applying competitive pressure (while allowing fair competition) and also encourage innovation and growth by
fostering technological development when based on broadly available and open technology platforms. In the
public sector, standards can enable greater transparency and competition in public procurement and provide
essential guidance for industry via their referencing into regulations and laws. In either context, standards can
considerably improve efficiency and cost-effectiveness and support consumer protection (in areas such as
security, privacy, safety, competitiveness, etc.) as well as reduce transaction costs (Hufbauer, Kotschwar and
Wilson, 2001).