What Is Standardization?
Let me explain standardization to you directly: it's a framework of agreements that all relevant parties in an industry or organization must follow to make sure processes for creating goods or performing services stay within set guidelines.
This approach guarantees that the final product maintains consistent quality, and any comparisons or conclusions about it match up with other similar items in the same category.
How Standardization Works
You achieve standardization by establishing generally accepted guidelines on how to create or support a product or service, how to run a business, or how to manage required processes.
The aim here is to enforce consistency or uniformity in practices within a chosen environment. Take generally accepted accounting principles (GAAP) as an example—these are standardized guidelines from the Financial Accounting Standards Board (FASB) that all U.S.-listed companies follow, ensuring financial statements are processed the same way for relevance, reliability, comparability, and consistency.
Examples of Standardization in Business
You'll find standardization across the business world when companies aim for consistent quality, production standards, manufacturing output, and brand recognition.
In franchises, for instance, fast-food chains document detailed processes so a burger gets prepared the same way no matter which location you visit.
For product standards, manufacturing businesses stick to agency guidelines to ensure products in the same category meet identical specifications across facilities or companies. In the wood products industry, international standards cover sizing, water-solubility, grading, and composite properties, meaning a two-by-four you buy is consistent regardless of the store or manufacturer.
With brand names, products sold internationally often use standardized marketing to maintain a uniform image across markets. The Coca-Cola Company, for example, keeps the product's appearance consistent globally, using the same design theme even with different languages, and maintains a steady marketing theme to reinforce its image.
Examples of Standardization in Trading
Standardization is standard in financial markets to facilitate trades and transactions among investors, brokers, and fund managers.
For stock orders, the minimum standard order on an exchange is 100 shares to avoid higher fees, set by exchanges like the NYSE for consistency and better liquidity—this means you can buy and sell shares without delays, cutting costs and making the process efficient for everyone.
In futures and options markets, which base their values on underlying assets like stocks or commodities, standardization applies too. One equity option contract covers 100 shares, so when you trade it, you're dealing with 100 shares based on the current market price.
Futures contracts have standardized sizes that vary by type, but they follow set parameters for size and delivery dates to keep things uniform.
Key Takeaways
- Standardization ensures that certain goods or performances are produced in the same way via set guidelines.
- Standardized lots are used in trading stocks, commodities, and futures to allow for greater liquidity, efficiency, and reduced costs.
- Standardization is used in accounting practices and for establishing quality and production standards in manufacturing.
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