Mass Customization: The New Frontier in Business Competitionby B. Joseph Pine
The mass production of standardized goods was the source of America's economic strength for generations. But in today's turbulent business environment mass production no longer works; in fact, it has become a major cause of the nation's declining competitiveness. As Joseph Pine makes clear, the most innovative companies are rapidly embracing a new paradigm of… See more details below
The mass production of standardized goods was the source of America's economic strength for generations. But in today's turbulent business environment mass production no longer works; in fact, it has become a major cause of the nation's declining competitiveness. As Joseph Pine makes clear, the most innovative companies are rapidly embracing a new paradigm of management - mass customization - that allows them the freedom to create greater variety and individuality in their products and services at desirable prices. New ways of managing, together with new technology, enable savvy businesses to provide each customer with the attractive "tailor-made" benefits of the pre-industrial craft system at the low costs of modern mass production. Companies that have discovered and successfully implemented mass customization are swiftly outpacing their competitors in gaining new customers and achieving higher margins. Among the firms that are leading their industries to this new frontier are McGraw-Hill, which can deliver custom-made classroom textbooks in quantities under 100 copies; Motorola, which can manufacture any one of 29 million variations of pagers within twenty minutes after receipt of order; and TWA Getaway Vacations, which offers custom-designed tours at the same price that others charge for standardized group tour packages. Pine explains mass customization in its historical context. He reviews the history of production in America, demonstrates why mass production cannot work in industries experiencing upheaval, and outlines how new forms of competition have led to greater variety and customization. Based upon academic and field research, his work is a thoughtful analysis and commentary on when and how managers in both service and manufacturing industries can make the crucial transition to mass customization. He details the strategies, methods, and organizational transformations required to develop, produce, market, and deliver individually customized goods and
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By Pine, B. Joseph, II
McGraw-Hill CompaniesCopyright © 1992 Pine, B. Joseph, II
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Once Upon a Time
THERE once was an economic power that dominated the world's industrial production. This country was the world's leading manufacturer and its predominant exporter of goods. Much of its success was based on its basic research, its ability to invent, and its unparalleled technological leadership. A time came, however, when it began to decline relative to its international competitors and was challenged by another country whose ships, filled with new products, arrived with increasing frequency.
Several decades earlier, the two nations had been engaged in a bitter war, but they had become allies. Some time after the war, the upstart country focused on its manufacturing prowess, eventually gaining renown for its new and unique production processes that turned out goods of high quality.
At first the dominant country had no fear of its lowly ally, which focused only on low-end products with small profit margins. It was not known for its quality, and all of its products were basically imitations; inventiveness or creativity was not its strong suit. But the upstart country kept plugging away, improving its manufacturing processes, quality, exports, and market share in a number ofindustries.
As the number of industries in which the upstart country challenged the dominant one grew, people began to examine how and why this was happening. Articles were written, reports were commissioned, and books were published to explain the new and powerful manufacturing processes of the upstart country and to recommend how it could best be emulated. Many factors were identified to explain its success, including:
* A focused, orderly, and systematic manufacturing process that depended on the combination of highly skilled workers, automated machinery, and a new way of moving materials and goods through the factory.
* Strong and continual gains in productivity and quality, thanks to the involvement of workers in improving the process.
* Highly skilled and well-educated workers who maintained clean work environments and had high marks for attendance.
* Continual, incremental technological innovations.
* A high level of cooperation among national competitors, which helped the rapid diffusion of process innovations.
* A high degree of reliance on subcontractors for innovations and production skills.
* A strong education system.
* A culture that was unique and relatively homogeneous.
Thoughtful individuals in the dominant country warned of dire consequences if the nation as a whole did not change its ways and rise to the challenge. But the nation's business leaders did not know quite how to respond. As the upstart country continued its march toward larger and larger market share, fears arose that it would eventually overwhelm its bigger ally and the rest of the world with its exports, putting domestic firms and even entire industries out of business. The dominant country was faced with the prospect of losing the economic superiority it had held for so long. Time appeared to be running out.
A Parable for Modern Times
In this story, the country that feared losing its dominance of world manufacturing is not America, but England in the latter half of the nineteenth century. The country whose manufacturing prowess it feared was not Japan, but the United States. The way of manufacturing developed in this upstart country was not known as "just-in-time" or "lean production" but as the American System of Manufactures.
Despite the efforts of many industrialists, the English never quite caught on to this new way of manufacturing, and England eventually lost its dominance over world production and exports. It did not happen overnight, but took many decades. While American pioneers were exploring and mastering the western frontier, industrial pioneers concentrated in New England were exploring and mastering a new frontier of business competition by focusing on the process of production, developing interchangeable parts, and utilizing the flexibility and ingenuity of American workers. By the 1880s, thanks to the American System of Manufactures, the United States had overtaken England as the world's leading manufacturer. By the turn of the century, the United States had one and a half times the industrial production of its rival. The America of the nineteenth century became the world's premier manufacturer thanks to its highly skilled and educated workers, quality goods, low costs, rapid innovations, and technological leadership.
In the twentieth century, the American System was itself transformed by Henry Ford and others into the system of Mass Production. This became the next frontier for American companies to master. This new way of producing goods--with its emphasis on the smooth-running flow and operational efficiency of the assembly line, specialized machinery and worker tasks, and great economies of scale through standardized products--not only solidified America's leadership position but propelled the country to become the world's dominant manufacturer and exporter. Through its system of Mass Production, America won the economic battle with England.
In hindsight, it seems to have been an inevitable victory. World dominance seemed to be America's birthright, as it had once seemed to be England's.
Need history repeat itself in the current battle between America and Japan? Must Japan become the world's leading manufacturer and exporter by the turn of this century? And if so, will it seem to have been just as inevitable to people a hundred years from now?
No, the battle has not yet been won; the outcome is not inevitable. England lost its leadership not through economic predestination, but through the daily decisions of the thousands of managers in English businesses, as well as those of their counterparts in America. And the daily decisions of American managers and executives today will determine whether this country retains its leadership position.
As in the English experience of a century ago, there is no shortage of explanations for what is happening. Numerous books and studies have investigated America's difficulties, and nearly all argue that they are not the result of purely short-term forces: something fundamental is happening. As an example, the MIT Commission on Industrial Productivity concluded:
Relative to other nations and relative to its own history, America does indeed have a serious productivity problem. This problem in productive performance, as we call it, is the result of major changes within and outside the United States in the past four decades. It is manifested by sluggish productivity growth and by shortcomings in the quality and innovativeness of the nation's products. Left unattended, the problem will impoverish America relative to other nations that have adapted more quickly and effectively to pervasive changes in technology and markets.
Similarly, there are no shortages of recommendations as to what America, and individual companies, can and should do to regain lost competitiveness. The list of "silver bullets" to which managers are supposed to subscribe grows every year. Too often, however, there is no recognition that the fundamental changes are not hitting all industries equally, and therefore there is little recognition that not all companies are facing the same circumstances and should not implement the same solutions in the same way.
What is really necessary is an understanding of the fundamental changes that are occurring in both market environments and business competition, and why they are happening now; where these changes apply and to what extent; and how executives, managers, and employees in individual companies can recognize these changes and transform their businesses to succeed in an increasingly turbulent world.
The New Frontier in Business Competition
The companies that responded properly to these changes are now exploring and beginning to master yet another frontier in business competition, one whose terrain is decidedly different from that of Mass Production. These companies have discovered that the silver bullets management gurus have been promoting can be integrated into a powerful new system of management. They understand that not only can higher quality yield lower costs, but so can greater variety. They have found that customers can no longer be lumped together in a huge homogeneous market, but are individuals whose individual wants and needs can be ascertained and fulfilled. They have determined that reducing product life cycles and fragmenting demand can yield powerful advantages for those causing these changes relative to those forced to react to them. Leading companies have created processes for low-cost, volume production of great variety, and even for individually customized goods and services. They have discovered the new frontier in business competition: Mass Customization.
In this new frontier, a wealth of variety and customization is available to consumers and businesses through the flexibility and responsiveness of companies practicing this new system of management. In the past twenty years, the number of different items on supermarket and pharmacy shelves has exploded, allowing manufacturers and retailers to reach ever-finer granularities of consumer desires. You used to go to a fast-food restaurant for a mass-produced cheeseburger, french fries, and a shake; now the same restaurant provides a half dozen varieties of burgers along with chicken sandwiches, salads, pizza, fajitas, burritos, submarine sandwiches, spaghetti, carrot and celery sticks, bottled mineral water--you name it and it is standard fare today, being test-marketed, or under development.
The most prototypical mature mass production industry, automobiles, is a hotbed of innovation and variety. As innovation advances, market segments fragment and models proliferate. The same is true in service industries such as telecommunications and financial services, which have long held to the same basic tenets of Mass Production as manufacturers. Henry Ford's dictum, "You can have any color car you want as long as it's black," is long gone from the automobile industry.
However, just ten years ago, you could have any level of phone service you wanted as long as it was pulse or Touch-Tone. Today you can have Call Forwarding, Call Waiting, and Voice Mail, while message forwarding, caller ID and caller ID blocking, and literally hundreds more services are on the drawing boards. By connecting a PC to your phone line, you can access numerous personal services, including travel agencies, catalogue stores, news providers, and message services.
In financial services, you can bank at automatic teller machines (ATMs) whenever and wherever convenient, and choose from among thousands of financial and insurance products those few that match your needs. You can do all your banking through your PC or TouchTone telephone.
The leading pioneers of Mass Customization are providing tremendous variety, and individual customization, at prices comparable to standard goods and services--and often better. Want to tour Europe? Call a local travel agency to choose one of a half dozen or so standard tours; or call the country's leading provider of tours to choose the individual elements of your vacation--when to leave, where to stay, what to see--for the same price. Want to purchase a high-quality book for a young granddaughter or niece? Find the right source and you can obtain a customized book with a story about her, her family, and her own friends. You may already be receiving a newspaper, magazine, or catalogue with text and advertisements different from the same issues other subscribers receive, precisely because your personal interests and desires differ from theirs.
In industry after industry undergoing turbulent change, the companies that have come out on top--domestic or foreign competitors--are those which have discovered the power of Mass Customization. In automobiles, apparel, lighting controls, power tools, refrigerated warehouses, travel services, midrange computers, watches, power supplies, pagers--the list could go on--the leading companies use flexible information, telecommunications, and manufacturing technologies, but more important, flexible, knowledgeable workers and new management methods to shorten their cycle times, lower their costs, enhance their flexibility and responsiveness, and increase their variety and customization--all to satisfy more closely the individual wants and needs of their customers. Not only are these companies the pioneers of the new frontier in business competition, they are at or near the top in market share in their industries.
Of course, not all companies in all industries need to achieve both low costs and high levels of variety and customization, for not all industries are undergoing the same changes at the same rates. But to choose to remain mired in the old ways of Mass Production when fundamental changes are altering the competitive landscape of a particular industry--demanding new management responses, new technologies, and new ways of doing business--is to court disaster. It can be equally disastrous to be unaware of the new possibilities for competitive advantage inherent in Mass Customization.
It is time to understand what fundamental changes are occurring, and what exactly are the possibilities opening up within this new frontier in business competition. But to understand where we must go, we must better understand where we have been.
Excerpted from Mass Customization by Pine, B. Joseph, II Copyright © 1992 by Pine, B. Joseph, II. Excerpted by permission.
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