“It is the customer who determines what a business is” (Drucker, 1954). In the very sense of Drucker’s statement, the ability to manage the value chain from the customers’ point of view determines the competitiveness of many companies. An important part of this ability today are strategies to cope with the increasing heterogeneity of demand of customers.
In particular, consumers with great purchasing power are increasingly attempting to express their personality through individual products. Explanations may be found in the growing number of single households, a changing demographic structure, an orientation towards design, and a new awareness of quality and functionality that demands durable and reliable products corresponding exactly to the specific needs of the purchaser. Thus, manufacturers are forced to create product portfolios with an increasing wealth of variants, right down to the production of units of one. Companies have to process their customers’ demand individually.
Since the early 1990s, mass customization has emerged as one leading idea for achieving precisely this objective. In accordance with Joseph Pine, an IBM-executive turned consultant and author who is the father of the mass customization concept, we define mass customization as “developing, producing, marketing, and delivering affordable goods and services with enough variety and customization that nearly everyone finds exactly what they want.”
…the goal is to provide customers what they want, when they want it.
In other words, the goal is to provide customers what they want, when they want it. As a business paradigm, mass customization provides an attractive business proposition to add value by directly addressing customer needs and in the meantime utilizing resources efficiently without incurring excessive cost. This is particularly important at a time where competition is no longer just based on price and conformance of dimensional quality.
When the subject of mass customization is raised, the successful business model of the computer supplier Dell is often cited as one of the most impressive examples. The growth and success of Dell is based on this firm’s ability to produce custom computers on demand, meeting precisely the needs of each individual customer and producing these items, with no finished goods inventory risk, only after an order has been placed (and paid for).
But beyond Dell, there are many other examples of companies that have employed mass customization successfully. Consider the following examples:
…In the consumer market, we today know almost no large consumer brand that has not at least one mass customization initiative.
In the consumer market, we today know almost no large consumer brand that has not at least one mass customization initiative. Nike, Adidas, Lego, P&G, Unilever, Nestle, Mars, Lego, and many others, all have invested in profiting from mass customization. In this series of articles, we will introduce some of these examples in larger detail.
The heritage of mass customization, however, is in the business-to-business market. The success of the German machine tool industry, driving the German economy in these turbulent times, for example, is a direct outcome of the ability of these firms to customize their products efficiently to the needs for very different customers around the world.
Consider as an example of great BtoB customization the case of American Power Conversion (APC). APC sells, designs, produces, delivers, and installs large complex infrastructure systems for data centers, and components for these systems. At the heart of its mass customization strategy of this company are a module-based product range and the use of product configuration systems for sales and order processing. In addition, the company has implemented a manufacturing concept, which involves the mass production of standard components in the Far East, and customer order-based final assembly at various production sites around the world within close customer proximity.
The results of applying mass customization principles included a reduction of the overall delivery time for a complete system from around 400 to 16 days. Also, production costs were significantly reduced. At the same time, the company’s capability for introducing new products has increased dramatically. Due to the modular system architecture, new component technologies can be integrated within a matter of days, and not months as before.
What do all of these examples have in common? Regardless of product category or industry, these companies have turned customers’ heterogeneous needs into an opportunity to create value, rather than regarding heterogeneity as a problem that has to be minimized, challenging the “one size fits all” assumption of traditional mass production.
Profiting from the fact that all people are different is the essence of mass customization.
Profiting from the fact that all people are different is the essence of mass customization. However, to apply this apparently simple statement in practice is quite complex. In this series of articles, we build on the results of the Customization500, the largest benchmarking study in the field of mass customization (www.mc-500.com). This study has allowed us to analyze some of the facts that distinguish the companies succeeding in mass customization from those that are just trying.
We will explore the common elements and characteristics of successful mass customization strategies. We will show that mass customization means to develop processes and capabilities for aligning an organization with its customers’ needs.
In our research, we found that companies that benefit from mass customization have implemented three fundamental capabilities:
We will describe some methods and measures that companies can undertake to establish these capabilities in later contributions to this series (Part 3, 4, 5 and 6). Before we move into a deeper discussion, a brief comment on the relationship between mass customization and innovation management. Implementing mass customization demands both product innovation and process innovation. We will see during the later discussion of solution space development that it is not an easy task to determine where people want choice and to transfer customers’ heterogeneities into meaningful product architectures. Even more, we find that many companies struggle with the process innovation required in setting up a mass customization system. Mass customization per se can be regarded as a business model innovation, with large requirements for change with an organization. We will discuss this aspect in larger detail in Part 7 of this series.
By Frank Piller
Frank Piller is a chair professor of management and the director of the Technology & Innovation Management Group at RWTH Aachen University. He also is a founding faculty member and the co-director of the MIT Smart Customization Group at the Massachusetts Institute of Technology, USA. Frequently quoted in The New York Times, The Economist, and Business Week, amongst others, Frank is regarded as one of the leading experts on mass customization, personalization, and open innovation. Frank’s recent research focuses on innovation interfaces: How can organizations increase innovation success by designing and managing better interfaces within their organization and with external actors.
Introduction: A special series of articles on mass customization and customer co-design
→ Part 1: Competing in the Age of Mass Customization
Part 2: The market for mass customization today
Part 3: Solution Space Development: Understanding where customers are different
Part 4: Robust Process Design: Fulfilling individual customer needs without compromising performance
Part 5: Choice Navigation: Turning burden of choice into an experience
Part 6: Choice Navigation in Reality: A closer look into the Customization500
Part 7: Overcoming the Challenges of Implementing Mass Customization
Part 8: A Balanced View: Conclusions and Key Learnings