U.S. Automobile industry and mass customization

Andy Grove, former CEO of Intel, wrote an Op-Ed piece in the Wall Street Journal July 13, 2009, titled “What Detroit Can Learn from Silicon Valley.” I’d like to share several quotes and offer commentary:

There is a lot of information available on how companies have dealt with major changes in their business environments, but little is known about the transformation of entire industries.

So true. Most companies or industries simply fade away as they become less and less relevant. What companies have truly had to reinvent themselves, not just make incremental improvements as a way to differentiate themselves from their competition?

History shows that most companies do not deal well with transformation. One reason has to do with senior managers. They usually “don’t get it.” They have a difficult time accepting that the future will be vastly different from the present because they rose to power in the old business environment. They excelled in the old environment and didn’t acquire skills necessary to operate in the new.

And, so it will be with the automobile industry and mass customization. Everyone is stuck in an irrelevant business paradigm for the automobile industry: mass production.

It is also hard for managers to distinguish between an erosion in a companies competitive position and a change in the fundamental nature of an industry. Knowing the difference is one of the most difficult things to do, even though it is among the most important.

The mass production model for captial goods does not make sense. Mass production is about pushing finished goods out into the channel in the hope that a customer comes by and purchases the vehicle. Mass production is a “push” model; mass customization is a “pull” model where the customer influences the final configuration of the vehicle they purchase.

Further, the U.S. automakers have been caught in the headlights as foreign competitors have come in and taken market share from them. At one point, GM had 55% market share; today that market share is in the low 20’s. That would tend to confirm Andy Grove’s hypothesis that it is “hard for managers to distinguish between an erosion in a companies competitive position and a change in the fundamental nature of an industry.”

More and more, companies will be faced with making transformational changes that they cannot imagine. They cannot successfully make these transitions from within–they need external assistance to make the transformations take hold.

What do you think?

David J. Gardner Mass Customization Expert

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