Thursday, April 21, 2011

Cracking the Code of Mass Customization: 3 Strategic Capabilities to Make Mass Customization Work

Mass producers have traditionally offered a limited number of standard products because the cost of complexity make more tailored offerings too expensive. Of course, whenever customers are not getting exactly what they need, a business opportunity is created. Mass customization addresses this opportunity by leveraging complexity to drive rather than brake innovation.

We define mass customization as the development, production, marketing and delivery of affordable goods and services with enough variety that nearly everyone finds exactly what they want. But while companies like Dell, BMW or MyMuesli appear to have cracked the code, reality has been harsh for other organizations. Indeed, few firms are actually deploying mass customization beyond experimentation, and in many cases it has simply failed to deliver on its promises.

Consider Levi Strauss. The jeans maker was a pioneer in mass customization when it began offering tailored jeans back in 1994, yet its exercise could not be scaled up to become a sustainable business unit. It was dropped in 2003 when the company entered a period of financial turmoil and never came back.

But despite such failures, our research found that mass customization can be broadly applied to most businesses. The key to profiting from it is to see it not as a stand-alone business strategy that replaces today’s production and distribution systems, but as a set of organizational capabilities that can supplement and enrich an existing system.

What does it mean to mass customize?

Let’s first try to understand what it takes to mass customize. While specific answers are clearly industry or product-dependent, a decade of studying mass customization has led us to three fundamental capabilities needed for a firm to mass customize: solution space development, robust value chain design and choice simplification.

1. Solutionspace development

First and foremost, a company seeking to adopt mass customization needs to understand the idiosyncratic needs of its customers. This is in stark contrast to the approach of a mass producer, which focuses on identifying “central tendencies” among its customers’ needs. Indeed, a mass customizer needs to identify the product attributes along which customer needs most diverge. Once this is understood, the firm needs to clearly define its solution space: what it is going to offer and the dimensions along which the offering can be configured to meet individual customer needs.

2. Robust process design

It is crucial that increased variability in customers’ requirements does not lead to significant deterioration in the firm’s operations and supply chain. This can be achieved through a robust value chain design in which customized solutions can be delivered with near mass production efficiency and reliability.

Two enablers of a robust value chain are flexible automation and process modularity. Although this may sound like a contradiction in terms, automation today is no longer synonymous with rigidity. In the auto industry, for instance, robots and automation are compatible with previously unheard-of levels of versatility and customization.

The BMW factory that produces the Mini enables customers to specify a variety of options unrivaled for compact cars. It does this by integrating individual mobile production cells, called MobiCells, with standardized robot units into existing facilities. In this way, current capacities can be adapted flexibly and quickly without extensive modifications of production areas.

3. Choice navigation

Finally, the firm must be able to support customers in identifying their own solutions, while minimizing complexity and burden of choice. When a customer is exposed to too many choices, the cognitive cost of evaluation can easily outweigh the increased utility of having more choices.

This is the “paradox of choice”: Having too many choices actually reduces customer value, instead of increasing it. As such, offering more product choices can lead customers to postpone or suspend their purchases, and, even more worryingly, to classify the seller as difficult to deal with and hence undesirable.

Therefore, choice simplification is vital to simplify the navigation of the company’s product assortment. A key approach to this consists of assortment matching—having an IT system build the configuration for the customer, who then only has to evaluate it. The system does so by matching the characteristics of an existing solution space, or set of options, with a model of the customers’ needs.

Online jeans retailer does this by taking body measurements of a customer and then recommending the best fitting pair of jeans out of an assortment of many major brands. From users’ perspective, Zafu is offering something a lot like tailor-made jeans, but from a fulfillment perspective, it is merely matching standard inventory with individual needs.

Mass Customization as a Journey

Our experience with companies in many industries revealed that many managers reject mass customization on the simple basis that “it won’t work in my business.” This reaction results from a perception of mass customization as an ideal, unachievable state. However, we believe that pursuing it is akin to moving along a continuum whose limits are mass production and mass customization.

Mass customization, viewed this way, is therefore a process rather than a destination. Small steps can produce big results, even if the organization remains far away from the “pure” ideal.

As no firm can become a perfect mass customizer, the real question for most companies revolves around how solution space development, robust value chain design and choice simplification capabilities can be improved rather than perfectly achieved. Every company can do this, and add to strategic differentiation in the process.

Submitted by Prof. Dr. Frank T. Piller, Professor of Technology and InnovationManagement, at RWTH AACHEN UNIVERSITY, and Co-Director, Smart Customization Group, at MIT SLOAN. Dr. Piller will present "Strategic Positioning and Implementation of Mass Customization: Turn Customer Heterogeneities from a Thread into a Profit Opportunity" in the Storyteller Format at Think Differently Value Room during the The Front End of Innovation Conference.

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