Paper 2: Standardization as collective action: Evidence from the Shipping Industry
5.1. Flexibility vs. Inclusion
”If we use a standard that we’ve agreed to [only] between us... It’s basically not a standard it’s proprietary. So standards are created by adoption. Nothing else. Either by an option or because you have no choice. The difficulty is that if you take the shipping industry and you draw the supply chain [...], you’ll see [that] there’s a lot of partners. So of course, as a shipping line, we’re only a portion of that supply chain. Therefore, whatever we agree between ourselves is not sufficient. And then when you try to attract other parties, it’s quite, quite complex, because everybody has an
Even though both INTTRA and TradeLens espoused similar goals of eventually becoming a standard in the shipping industry, the two initiatives started on the opposite ends of the flexibility/inclusion spectrum. While INTTRA was started by some of the world’s largest ocean carriers, TradeLens was started by only one carrier, albeit the largest (Mærsk), and a technology provider (IBM). INTTRA’s foundational contract stated that every ocean carrier could only have one vote in the decision-making process. The governance structure further entailed that each member carrier held veto rights on the platform's development decisions. By 2005, however, Mærsk held 65 percent of the ownership shares of INTTRA47, which the company accumulated over time through the acquisition of other ocean carriers. Despite holding most of INTTRA’s ownership shares, the governance model still treated Mærsk as a single carrier, meaning it only carried a single vote. Former Mærsk representative at INTTRA highlighted the governance issues as one of the main impediments to INTTRA ultimately becoming a true industry standard:
“At some point, Mærsk owned 65% of INTTRA. Since it could only sell [shares] to other carriers, no one wanted to buy. But despite having 65%, it still got only one vote. INTTRA missed the boat.
Because of the ownership structure between carriers, it was impossible to achieve anything.”
This was just one glaring example of governance issues that have hindered the continuous development of INTTRA. Another challenge came with the financial crisis in 2008 when monetary concerns overshadowed the discussions regarding further updates and extensions to the standard that would accommodate emergent industry needs. A former member of INTTRA’s board of directors recalls:
47 Source: A.P. Møller - Mærsk A/S Annual report 2005
“[…]Then came 2008, and there was a big crisis. And in 2008, INTTRA ran out of money. And the carriers didn’t have the money to put back into the venture. And the board meetings we were having
were all about money and revenue, but not about products. And so for many years we didn’t develop the products. I think everybody was trying to continue to sell the same products or maybe to
bring some new products, but nobody could agree on how to do that.”
In contrast, TradeLens was initiated by a single ocean carrier and a technology provider. In that sense, Mærsk and IBM had the flexibility to proceed with the development phase quickly but ran into problems with the diffusion of their solution. Consequently, during the course of the present study, the governance structures for TradeLens have gone through several transformations. Initially, TradeLens consisted of separate initiatives sponsored by the CIO and CFO of Mærsk and by several organizational units within IBM. These initiatives were combined to form the project under the commercial name TradeLens, which represented a collaboration between the Mærsk IT division, an IBM consulting unit, and IBM research. In January 2018, Mærsk and IBM announced intentions to bring TradeLens to market by establishing a joint venture with a 51 to 49 percent ownership structure in favor of Mærsk. TradeLens became the official name of the new firm in August 2018. At that stage, the Mærsk development team was put in charge of running the business, while IBM contributed staff from their blockchain, cloud, and consulting units to drive the development of the technological solution. However, in mid-2018, Mærsk and IBM struggled to convince other ocean carriers to join their platform. Rival industry players cited the rights to intellectual property to which Mærsk and IBM have a full and equal claim as the main impediment to joining TradeLens, with some going as far as labeling TradeLens as “unusable” (Allison, 2018). The decision to develop a solution without the initial involvement of other ocean carriers was described by the Vice President of Blockchain Solutions at IBM. Similarly to several others, this interviewee implicitly pondered the trade-off between flexibility and early inclusion of other actors:
“Now, one of the big lessons that I learned is, in retrospect, maybe we should have gotten the buy-in from the top six carriers upfront before buildbuy-ing the platform because [there is] a lot of delay buy-in trying to bring the ecosystem together. […] However, somebody has to build a platform, [and] it’s always easier to build a platform with a small group rather than with a committee of ten or twelve
[members]. But you’ve got to talk about the platform and get some buy-in before engaging.
Otherwise, here right now, we go through many challenges trying to explain why we made certain decisions in building the platform.”
Consequently, TradeLens moved away from the initial joint venture structure in the fall of 2018. In addition to the issues with diffusion described above, the proposed joint venture faced legal obstacles.
It needed to obtain permission from governments to operate in their jurisdictions, which represented a costly and time-consuming process for a global solution like TradeLens. To address the dual problem of industry competitors’ unwillingness to join a platform operated by the Mærsk-IBM joint venture and the legal hurdles in numerous countries, Mærsk and IBM decided to change the ownership structure of TradeLens from a joint venture and establish a third-party entity called GTD Solution as a subsidiary within Mærsk Group48, with IBM serving as the technology provider. This was deemed expedient as it automatically allowed the new entity to operate in all the countries in which Mærsk already operated and because it created a business unit operating at arm’s length from Mærsk. This was described by the Head of Strategy and Operations at GTD Solution:
“So, basically what we did is within the Mærsk Group. There is a business unit that we have created called, literally just today, we are changing the name to GTD Solution, and it is a separate
business unit that operates at arm’s length from the rest of the Mærsk organization. So, when you interact with GTD, you are interacting with it as if it were its own company, even though it is part of Mærsk Group. And so, suddenly, you as a competitor to Mærsk no longer face the risk that the
data you’re giving to this platform will get in the hands of Mærsk itself because there is a separation of systems, separations of people, separation of legal constructs. So, that was one of the
parts [of the effort to drive adoption], that we made it so that they [rival ocean carriers] were working with a much more neutral partner in this rather than with one of their competitors. And then the second thing is we made sure that whatever terms that would be offered to one network member in our ecosystem, regardless of who they were, those same terms would be made available
to ocean carriers. So no matter what, everybody comes at this essentially with the same set of preconditions that allow them to get access to the platform under the same pretenses as everybody
Additionally, around the same time, to further limit the level of control Mærsk had over the platform, the TradeLens Advisory Board was established with the dual aim of incorporating inputs from a diverse set of industry actors, which would thereby partly shape the continuing development of
48 Mærsk Group is a publicly traded company hedquartered in Copenhagen with 83 thousand employees operating over
900 subsidiaries with $73 billion in total assets. Source: https://investor.maersk.com/static-files/47f6dd71-1125-4297-8709-043c5c0e2891
TradeLens, as well as building on the benefits of higher inclusion to drive the diffusion. The Head of Strategy and Operations at GTD Solution continued:
“[…] The other thing is we have created this customer advisory board whose job is to represent TradeLens customers, to ensure that the decisions we make are a result of collaboration. So, for example, around data standardization, the product roadmap, and things like that to make sure that
what we’re doing is aligned with the mission statements that we have for the company.”
In essence, our findings suggest that the trade-off between flexibility and inclusion entails the necessity of developing the ability to harness market forces to the standardization process while simultaneously preserving control and decision-making benefits of narrower committee-like structures involving key standard sponsors.