What executives with configurable products & services want for their businesses, employees, and customers.
The following was adapted from Chapter 9 of Dave Gardner’s book Mass Customization: An Enterprise-Wide Business Strategy.
Executives want the following outcomes from their businesses:
- Increased market share
- Delighted customers
- Improved quality
- Improved operating margins
- Differentiation/Competitive advantage
- Lean the business–eliminate waste
- Happy employees
Let’s examine each of these items within the context of highly-customized products and services.
Market share is a measure of how well a company stacks up in comparison with its competitors for the same customers. It does not matter whether an industry is growing, shrinking, or flat. It doesn’t matter if the market share is measured in terms of unit sales or gross revenues.
For example, we know that Toyota has been gaining market share against U.S. automotive manufacturers for years. We interpret this as saying that Toyota is doing what the marketplace wants whereas the U.S. manufacturers are losing favor with the buying public.
Why is market share important for highly-customized products? If you are offering customers what they want (rather than asking them to “settle” for whatever you produce), this can have a positive impact on market share assuming, of course, the pricing is in the same ballpark as competitors’ offerings. And, there is a further underlying assumption that even with the highly-customizable offerings, the company is able to generate sufficient operating margins that make the business viable.
It’s not simply a matter of whether a customer buys your product today—the larger issue is will they come back the next time they need to make a similar purchase. Part of the decision for repeat business is predicated on the customer’s experience as a result of the business they have given you.
B. Joseph Pine II and James H. Gilmore discuss the importance of delighted customers in their book The Experience Economy. In this book, Pine and Gilmore discuss the importance of the total customer experience in terms of impacting the customer’s next buying decision. A customer who has to “settle” for something other than what they really wanted has to live with the consequences for months or years to come. A customer who has a less than satisfactory experience will feel less obligated to give the same manufacturer his/her business the next time a buying opportunity arises.
Why are “delighted customers” important for highly-customized products and services? A customer who gets what they want from an order configuration standpoint and gets it in the timeframe the company committed—commonly known as “on-time delivery—is likely to be a repeat customer. One of the key customer frustrations for highly-customized products is on-time delivery. Getting them what they want is only part of the operational challenge—meeting their delivery needs is just as important.
It is difficult to produce a quality product if what you are building is a unit of 1—essentially a prototype. There isn’t enough institutional knowledge available for building a single unit. Therefore, quality is often compromised.
Without predictability, it is difficult to drive operating margin improvements. If the company has little or no experience producing the order configuration, the company often relies on tribal knowledge rather than processes and work instructions. Mistakes lead to unplanned rework which further adds to labor hours. While labor may have been factored into the price quotation, the guesstimate is often wrong. There are no labor standards and, sadly, this is often the explanation for why it takes longer to get orders built. Operating margins suffer for the same reasons quality suffers—manufacturing never gets really good at manufacturing what the customers require.
Why should a customer buy from one manufacturer over another? What distinguishes a company in the marketplace from all the other manufacturers with similar offerings? There are, of course, many ways to differentiate a company in the marketplace but the key differentiation criteria with highly-configurable products and services are:
- Ease of doing business with the firm
- Offering what the customer wants in terms of configuration choices
- Delivery: lead time advantage or, at least, the ability to deliver on-time
- Competitive pricing
- Ability to support the customer’s product when a problem arises
Anytime a manufacturer can eliminate waste, you’ve eliminated time and non-valued-added cost. This only augments a company’s ability to create profits from operations, eliminate unnecessary rework, drive better margins, etc. This also increases the velocity of getting orders through the factory which again enhances a company’s ability to compete in its marketplace.
If a company is not set up to properly accommodate highly-configurable products, the result is frustration and poor productivity across the company.
One company I worked with had a VP of Sales who educated his salespeople to “get the order no matter what and put the pressure on the factory to figure out how to build it.” His team did just that. This practice frustrated customers to no end when they later learned that orders the company had accepted could not be built. It also caused a lot of frustration for Engineering and Operations trying to figure out if there was a way to produce the order so the sales representative wouldn’t have to go back to the customer and tell them the order could not be produced.
Another client I worked with hired a very competent Director of Customer Service who, unknowingly, walked into a minefield of angry and upset customers and sales representatives. Order execution to customer expectations was abysmal across the board. After 6 weeks, she left one evening and was never heard from again. She understood her future and concluded it wasn’t what she wanted.
If you leave it to the sales team to set expectations about what can and cannot be done, you are putting your relationships with your customers and employees at risk.
Thought for the week:
“Be so good at what you do that no one else in the world can do what you do.” – Robin Sharma