Historical shift in global practices of production
Through the evolution of time, production has gone through several historical shifts. From the emphasis on cost reduction through mass production and economies of scale to the increasing need to satisfy customers’ wants due to intense competitions in both the global and local market, companies worldwide has yet to come up with the most optimal way to gain the competitive advantage in the market. Not until the emergence of the “Mass Production” practice do companies finally find a solution to achieve two primary objectives-Mass Production (Achieving cost minimization) and Customization(Achieving Revenue maximization).
Shift of production methods
For thousands of year, people use craftsmanship as production methods, which all based on handmade production of goods.
In the end of 18th century and in the beginning of 19th, hand tools were replaced by machines.
Industrialization reduced the importance of craftsmanship. It transformed into craft production, and later mass production.
In the 20th century, because of the changes in market, customer preferences and technology advance, mass production is no longer a competitive advantage. The manufacturers started to adopt variant production - offer various options for same product.
However, it drives the costs of production, storage and delivery costs. The more complex strategy - mass customization come out to overcome the problems and gain competitive advantages.
Source: Patryk Babiarz, M. P. PREREQUISITES FOR SUCCESSFUL INTRODUCTION OF MASS.
>Standardization(Adoption of generally accepted procedures to all products) -->Customization(Modifying products and services to suit the needs of individual customers)-->MASS CUSTOMIZATION
What is MASS CUSTOMIZATION?
Application
Coordination has to be good among different departments. Marketing will be responsible for contacting customers and turning the order data into internal information for developing customer insights. Products Development will then have to make use of the special orders to match with the existing product family to see how they can allocate the company’s resources to develop new products better suit the customers’ tastes in the market. Production has to implement the new order mass production and adjust the production line timely.
"Cosmetic customization - firms produce a standardized physical product, but market it to different customers in unique ways"
Cosmetic customization is focusing on the customization of marketing the products to customers. There are shifts in the strategies. In the past, the marketing channel was mainly graphic advertisement, TV, etc. It was rather unilateral, which only the company promotes the products without interaction with the customers. Nowadays, products are marketed in multiple channels to get in touch with customers. For instance, McDonald’s had once launched a tongue twister competition in Hong Kong. It was very popular at that time. The campaign also helped promote the products of McDonald’s. At that time, many people, from children to elderly, were playing the tongue twisters. The campaign was successfully marketed McDonald’s products through the words-of mouth. Its marketing strategy customised to the needs for affiliation which is important for Hong Kong people.
On the other hand, the marketing strategy and campaign have also shifted to stimulate customer needs on the products. Take another commercial advertisement from Coca Cola. In 2009, Coca Cola released an advertisement in Hong Kong(打邊爐飲「可口可樂」，爽到震！電視廣告, 2009) . The commercial message was shot with numbers of the famous Hong Kong artists and singers who were enjoying Hot Pot, which is a common cuisine in Hong Kong. They emphasised on the enjoyment of Hot Pot with drink Coca Cola. The CM is specially for Hong Kong people, who enjoy having Hot Pot than anywhere else in the world.
Cosmetic customization is therefore shifted in the way that adapt and cater to the cultural differences and atimulate the needs for the products.
Companies provide individual customers with unique goods or services without letting them know explicitly that those products and services have been customized for them.
The transparent approach is appropriate when customers' specific needs are predictable or can easily be deduced, and especially when customers do not want to state their needs repeatedly.
Transparent customisers observe customers' behaviours without direct interactions and then inconspicuously customise their offerings within a standard package.
"Mass customization is enabling a customer to decide the exact specification or personal attributes of a product or service, at or after the time of purchase, and have that product or service supplied to them at a price close to that for an ordinary mass produced alternative, or have this exact requirement supplied using the vendor's knowledge of the individual customer's needs"
Mass Customization is the customization and personalization of products and services for individual customers at a mass production price
Success examples of mass customization include:
§ Dell's famous "build-to-order" model, which facilitated its rise to dominance in the PC direct-purchase industry
Best possible customer experiences=Directly selling standards-based computing products and services+a wide selection of computer assessories (programs and models at your choice)
Best possible customer experiences=Directly selling standards-based computing products and services+a wide selection of computer assessories (programs and models at your choice)
§ The Architectural Skylight Company, a Maine firm using CAD to automate the production of windows to architects' specifications.
§ Companies throughout the tourism industry, offering package holiday alternatives through mass customization
According to Joseph Pine II (1992) (who wrote the book Mass Customization: The New Frontier in Business Competition) , there are 4 approaches to mass customization
Adaptive Customization and Creativity
How did Globalization lead to the rise of “Mass Customization”?
Globlization has given rise to global trade and global commerce, which helps customers through lower prices and pushes domestic businesses to become more productive and efficient. (Globalization 4.0 and the new logistics) With this being the case, the global market is becoming increasingly competitive, international firms start to realize the need to implement the successful global strategy to build sustainable competitive advantages in the market. To do so, global companies need to address 4 major drivers that determine its globalization potential.
Drivers companies need to address to maximize their globalization potential:
1) Cost Drivers
1) Cost Drivers
– Potential for economies of scale
-Location of strategic resources
-Differnces in country costs
2) Customer Drivers
-Common customer needs
-Global Customers
-Global channels
-Transferable Marketing
3) Competitive drivers
-Existence of global competitors
4) Government drivers
-Trade policies
-Technical standards
-Government Regualtions
With Competitive and Government drivers being relatively uncontrollable factors, the only way for global companies to capitalize on the globalization trend is to maximize their economies of scale and try their best to cater to the needs of the global customers through customization practices. This is how “Mass Globalization” has attracted the attention of many.
4 Approaches to Globalization
4 Approaches to Globalization
According to Joseph Pine II (1992) (who wrote the book Mass Customization: The New Frontier in Business Competition) , there are 4 approaches to mass customization
Adaptive Customization and Creativity
“Adaptive customization offers one standard, but customizable, product that is designed so that users can alter it themselves. This approach is appropriate for businesses whose customers want the product to perform in different ways on different occasions.”
Applications
Embedding different customers’ needs into one single product, adaptive customization is a good choice. The end product for adaptive customization is an adaptive product which can be adapted for customers or by customers themselves. In fact, adaptive customization can be applicable to a variety of industries. One of the typical examples is its application in the training industry where the learning needs of individual learners are addressed in a focused manner.The rise of the “mass customizing training programs”, for example, are created as a solution to fit the conflicting needs between the two customer sets—the buying organization and the learners with the same product offerings. Learning online programs, in particular, is a good example of adaptive customization. They are designed to create an intelligent learning environment which is adaptive to learner's various needs and changing situations in a learning process.Adaptive features such as user interfaces adapting to user's learning styles, the development of tutoring media, recording of interactions between the learner, the learning system and with other learners all aim to provide an adaptive environment tailoring to the specific needs of different learners in the world.
Historical Shift from traditional learning to online learning
In the past, learning is basically formal and monotonous. Under the instructional learning approach, apart from textbooks and teaching materials, there are not many chances for interactions, nor is there much media to facilitate learning. Everyone, regardless of their abilities and learning needs, will receive the same training.
Nowadays, online learning is provided by almost all profit-making or non-profit education institutions (eg. Universities) worldwide. Not only can learning cater to the learning needs of individuals, there is an array of media and designs to provide learners with additional resources and support. Studies have shown that interaction in the online learning environment may lead to positive educational outcomes, (Bocchi, Eastman & Swift, 2004; Lenning & Ebbers, 1999), and increased effectiveness of distance education (Flottemesch, 2000; Kearsley, 2000; McLoughlin & Luca, 2003).Learning becomes more fun, tailor-made and most importantly more practical.
How Globalization has facilitated the shift?
Globalization brings the world together, increasing the need for exchange of information and interactions between people in diverse geographical locations. With the help of the advancement in technology, online learning is made available for people to take courses in an institution/ University without being physically present. What’s more, the emergence of new technologies such as the Internet boosted global commerce during this decade of growth (Globalization 4.0 and the new logistics). It’s high time for the institutions to exploit the golden opportunity and enter new markets in other geographical regions by providing them with virtual education.
As such, learning provided by the same institution can be open to a wide variety of people with different learning needs, educational standards and cultural backgrounds, and thus, the diversity of learners greatly increases. Therefore, uniform teaching materials can no longer satisfy the needs of all the learners. There is an increasing need for offering customized learning experiences to learners to tailor the course contents to a variety of learners. Offering standard course contents to all learners, but at the same time, allows learners to choose the user interfaces and various features that suit their learning approaches, the adoption of adaptive customization in online learning is proven to be gaining increasing popularity worldwide.
Creativity and adaptive customization
Creativity and adaptive customization
In fact, creativity is enabled by adaptive customization with an appropriate design. Take the online learning as an example, customized learning allows the creation of different learning experiences for different individuals. Interactive learning, learning through discussing with and sharing with tutors and other learners not only solidifies their knowledge and clarifies their misunderstandings, it also helps learners spark creativity. “People learn from and inspire each other. Creativity involves a large number of people from different disciplines working effectively together to solve a great many of problems.”(How Pixar fosters collective creativity) Because of the diverse backgrounds of learners available in the online learning environment, learners can contribute to each others’ learning by complementing the skills and experiences of each other. And eventually, through discussions and interactions, they are likely to come up with creative solutions to challenging problems.
On the other hand, adaptive customization is itself an essential component if one is to fully capitalize on the benefits of adaptive customization. In adaptive customization, users independently derive their individual values. Whether or not customers can derive values from a standard product and make it customize to their own needs greatly depends on the customers themselves and whether they have the creativity to make innovations out of an ordinary product and come up with new methods to use the product. The universe of customer demand spans an enormous set of possibilities.Indeed, most adaptive customization examples One dull and mediocre design can become extraordinary and super if it is used creatively!
Collaborative Customization and Knowledge Management
Firms talk to individual customers to determine the precise product offering that best serves the customer's needs
Firms talk to individual customers to determine the precise product offering that best serves the customer's needs
Thanks to the globalization of market, goods originated from one country can now possibly be sold all over the world. Cultures of different countries are influencing one another and having “fashion” to change swiftly in a dynamic manner. In such a huge global market, consumer preferences are likely to be diverse and ever-changing. As a result, manufacturers can find it increasingly difficult to anticipate consumer demand accurately and mass customization has recently emerged as a new production solution.
Mass customization has a dual advantage: meeting unique customer needs, yet keeping the production cost low. The critical point rests on: based on a configuration design, how to offer the flexibility of choice to customers with the aid of variant parts that can cover ideally all customers’ needs. To provide an assortment with the right breadth, manufacturers essentially have to acquire a great deal of design knowledge and pass it on to different departments through knowledge management for production.
In fact, knowledge in the context of mass customization can be referred to as the knowledge object and the process of learning. First, when knowledge is viewed as an object, there are two types of knowledge: explicit, knowledge that can be easily communicated and shared with others, such as the components of product, ( e.g. design, color, size, performance, etc.) and design standards; and tacit knowledge which is hard to formulate and difficult to cmmunicate to others(Knowledge Management and Organizational Learning in MNC's), that is the patterns of customer preferences concluded from customer orders. Second, knowledge can be viewed as a process through which companies, employees, and suppliers are actually learning together by integrating information collected from customers. NikeiD is an example in case.
NIKE IDNIKEiD is a service allowing customers to customize clothing purchased from Nike. Customers become a designer of their own end-products as they can change a selected item and add a personal look to it. The service can be accessed both online from their homepage and in select physical branches. Acquisition
The company establishes an interface to receive orders and collect customers’ requests for their unique product knowledge.
The company establishes an interface to receive orders and collect customers’ requests for their unique product knowledge.
Storage and Processing
Knowledge of product configuration and variant design as well as the special needs of the customers’ will be centrally stored for further processing and analysis.
Knowledge of product configuration and variant design as well as the special needs of the customers’ will be centrally stored for further processing and analysis.
Application
Coordination has to be good among different departments. Marketing will be responsible for contacting customers and turning the order data into internal information for developing customer insights. Products Development will then have to make use of the special orders to match with the existing product family to see how they can allocate the company’s resources to develop new products better suit the customers’ tastes in the market. Production has to implement the new order mass production and adjust the production line timely.
Organizational Learning can help the company to stay competitive as knowledge is a kind of organization resources that is hard to be imitated and building a competitive advantage on knowledge capital can then be more sustainable.
Cosmetic customization and International Marketing"Cosmetic customization - firms produce a standardized physical product, but market it to different customers in unique ways"
Because of globalization, Economy is integrated as a whole (Globalization: A World Systems Perspective), business can get in touch with different suppliers and customers all over the world. This expands the potential profits and market share that a firm can capture. Different businesses are targeting different regions differently as an approach to gain the advantage of globalization of production as well as globalization of market.
Due to the globalization of production, production processes can take place all over the world. Outsourcing and off-shoring are being used in order to lower the production cost. Where material cost is low, products get to be produced there. To master it, companies may produce different parts in different countries or regions, then merger parts into a product in one place (Chong & Yu, 2002). The lower the cost of production, the easier the business can customize their products to suit customers’ personal needs.
Also, under globalization, different markets can easily be reached. Products can be sold all over the world. In order to capture more market share , companies need to use appropriate marketing strategies. There are two main marketing strategies for business to make the products reach potential customers: one is global marketing, which is no adaptation to cultural differences; another one is international marketing, which is the reverse. Culture varies from places to places. It represents the norms and practices in the places. “Brands that are identified with local culture will perform better than others” (Rethinking Globalization).
In the past, business would use mass marketing to promote the products. Products were sold in their features or goodwill. With the globalization embedded, customers tasted in different location of the world also have effect on the products of a company - it will sell good domestically does not equal to the same in some culturally different location. Working diversity with an organization also help the business to understood various perspectives and learn the differences and cultural competencies (Thomas & Ely, 1996, p. 80) . It also helps the company to gain knowledge for developing stratgetic on customizing the products and get them reach the potential customers.
Application
Cosmetic customization, as one type of mass customization, is recognized as standard products being marketed differently to different customers (Pine II, 1992). Coca Cola has standardized products. In Contrast, its marketing strategies are different across the world. It is a typical example of cosmetic customization. In the USA, where it began, it was advertised as an image – brainwashing that Coca-Cola is the drink. In Hong Kong and China, where collectivism and family senses are high, Coca-Cola promotes the sense that it is for friends and family gathering.
Cosmetic customization is focusing on the customization of marketing the products to customers. There are shifts in the strategies. In the past, the marketing channel was mainly graphic advertisement, TV, etc. It was rather unilateral, which only the company promotes the products without interaction with the customers. Nowadays, products are marketed in multiple channels to get in touch with customers. For instance, McDonald’s had once launched a tongue twister competition in Hong Kong. It was very popular at that time. The campaign also helped promote the products of McDonald’s. At that time, many people, from children to elderly, were playing the tongue twisters. The campaign was successfully marketed McDonald’s products through the words-of mouth. Its marketing strategy customised to the needs for affiliation which is important for Hong Kong people.
On the other hand, the marketing strategy and campaign have also shifted to stimulate customer needs on the products. Take another commercial advertisement from Coca Cola. In 2009, Coca Cola released an advertisement in Hong Kong
Cosmetic customization is therefore shifted in the way that adapt and cater to the cultural differences and atimulate the needs for the products.
Transparent customization and Risk Mnagement
Companies provide individual customers with unique goods or services without letting them know explicitly that those products and services have been customized for them.
The transparent approach is appropriate when customers' specific needs are predictable or can easily be deduced, and especially when customers do not want to state their needs repeatedly.
Transparent customisers observe customers' behaviours without direct interactions and then inconspicuously customise their offerings within a standard package.
"Mass customization is enabling a customer to decide the exact specification or personal attributes of a product or service, at or after the time of purchase, and have that product or service supplied to them at a price close to that for an ordinary mass produced alternative, or have this exact requirement supplied using the vendor's knowledge of the individual customer's needs"
Due to the changes in markets, customers’ preferences and the advancement of technology, manufacturers introduced mass customization to enhance product diversity. The manufacturers expect that higher variety will lead to higher prices which will increase their market share and profits.
However, mass customization also involves a certain degree of risks in production. First of all, mass customization requires higher level of employees’ skills and manufacturing technology. The company need to adopt radical changes inmanufacturing and information technology to match the new strategy. For manufacturers, they need to develop responsive production systems to cater to the customers’ needs, at the same time, train its employees to use the system instead of depending solely on production skills. Without sophisticated whole supply sourcing and production workflow plan, the company may suffer from infeasible changes and underestimated costs. Also, the cycle time of production will be a critical point determining the success of customization. Long lead time may reduce the customers' purchase desires if there are similar products available in the market. As a result, the companies should balance the benefits provided by customization and the risks caused by the challenges in technology and supply chain .
Normally, companies expect that offering higher variety will imply higher prices because they need to satisfy customers’ needs and differentiate their services from competitors. This assumption is not necessarily true, depending on the industries and expectations of customers. Since the products from customization can only cater to a narrow group of customers, the risks and costs will be increased. The bargaining power of the manufacturers will also be lessened because of the reduction in demand for raw materials and sales volume. Besides, from Patryk Babiarz, not all kinds of products or services require customization in the market, such as jewelry and toys. In contrast, computers, music and electronics are the top products chosen by customers for customization. Therefore, it is too general to say customized goods need to be charged higher prices as whether this is the case will depend on product nature and the powers that companies have.
Although the companies aim to fulfill customers’ preferences by customization, there are potential risks- troublesomeness of purchase process and uncertainties of final products, will likely frighten customers away. For purely customized goods, the customers may need to clarify all the detailed parts of the desired products. Imagine that you need to specifically clarify the dimension, materials and color of each tiny part in your new home to the interior designer, it may take you several weeks to decide only on a draft design. This does not only waste a long period of time, but will also make the customers frustrated as they usually lack professional knowledge in that area. Besides,sometimes the customers can only receive the products after their purchasea. The uncertainties on the quality of the products may hinder their desire to purchase. Therefore, the risks of customers perceived limit the benefits and preferences of customization, at the same time; is the risk that companies need to consider.
Overall, customization may lead to more challenges and emergencies. To tackle these challenges, the companies should do more preparations on risk and crisis management, including four areas – brand elements, crisis situation, company initiatives and results in terms of recovery / relaunch. This helps companies recognize the potential impacts and the recovery plans to minimize the influences to the companies as well as their reputation. (Greyser, 2009)
In conclusion, customization becomes an inevitable option for different industries to satisfy the increasinly fragmented customers and generate higher profits. However, customziation does not limit to catering the needs of customers; the companies should also adopt its strategy to implement numerous changes in the ares of marketing, innovation, knowledge management and risk management. As Timothy A. Luehrman said, strategic options are like growing tomatoes in unpredictable climate. (Strategy as a profolio of real options), companies with customization strategies should actively review the business and make right decisions at the right times.They should not follow the trends blindly but need to assess the nature of products and the characteristics of target customers so as to decide on a rational action.
Reference
Brutto D.,(2010). Globalization 4.0 and the New Logistics, Foreign Press Association, 512-514.
Chase-Dunn, C., Kawano, Y., & Nikitin, D. (n.d.). Globalization: A World-Systems Perspective.
Chase-Dunn, C., Kawano, Y., & Nikitin, D. (n.d.). Globalization: A World-Systems Perspective.
Catmull E.,(2008) How Pixar Fosters Collective Creativity, Harvard Business Review, pp65-72
Chong, B. & Yu, E. (2002). Li & Fung: The Global Supply Chain Manager.
Cohen S.L. & Pine II B.J., (2007). Mass Customizing the Training Industry, ASTD, pp50-54
Gilmore, J. H.; Pine II, B. J. Markets of One, Harvard Business review book series, ISBN 1-57851-238-7, 2000
Hao Y.& Liu M., Students' attitudes toward online interaction, BNet. April 13, 2011. Web<http://findarticles.com/p/articles/mi_hb3325/is_4_10/ai_n29328217/>.
Cohen S.L. & Pine II B.J., (2007). Mass Customizing the Training Industry, ASTD, pp50-54
Gilmore, J. H.; Pine II, B. J. Markets of One, Harvard Business review book series, ISBN 1-57851-238-7, 2000
"Mass Customization.",Help for Non-Profits. April 13, 2011.Web. http://www.gb3group.com/mass-customization.php.
Hao Y.& Liu M., Students' attitudes toward online interaction, BNet. April 13, 2011. Web<http://findarticles.com/p/articles/mi_hb3325/is_4_10/ai_n29328217/>.
Hollis, N. (2009). Rethinking Globalization. Marketing Research, pp. 12-18
Jaques, T. (2009). Issue and crisis management: Quicksand in the definitional landscape. Public Relations Review 35.
Kasper, H.& Halmeyer,B. Knowledge Management and Organizational Learning in MNC's. Web.<http://epub.wu-wien.ac.at/>
Kim Y.S., Kim. S, Cho.Y.J., &Park S.H., (2005). Adaptive Customization of User Interface Design Based on Learning Styles and Behaviors: A Case Study of a Heritage Alive Learning System, ASME Digital Library, pp 555-559
Luehrman, T. A. (1998). Strategy as a Portfolio of Real Options. Harvard Business Review.
Patryk Babiarz, M. P. PREREQUISITES FOR SUCCESSFUL INTRODUCTION OF MASS.
Pine, B.J, Gilmore J H,(1999). The experience economy: work is theatre & every business a stage, P89.
Pine II, J. (1992). Mass Customization: The New Frontier in Business Competition. Boston, Mass.: Harvard Business School.
"Global Strategic Management.",QuickMBA, April13,2011. Web. <http://www.quickmba.com/strategy/global/> .
Scribd, Consumer Preference: Standardization or Customization, April 13, 2011. Web.<http://www.scribd.com/doc/38077411/consumer-preference-standardization-or-customisation>.
Thomas, D.A., & Ely, R.J. (1996, Septmeber-October). Making Differences Matter: A New Paradigm for Managing Diversity. Harvard Business Review, pp. 79-90.
打邊爐飲「可口可樂」，爽到震﹗電視廣告. (2009, February 10). Retrieved April 20, 2011, from Youtube: http://www.youtube.com/watch?v=v8zhQ5qo4zk
Kim Y.S., Kim. S, Cho.Y.J., &Park S.H., (2005). Adaptive Customization of User Interface Design Based on Learning Styles and Behaviors: A Case Study of a Heritage Alive Learning System, ASME Digital Library, pp 555-559
Luehrman, T. A. (1998). Strategy as a Portfolio of Real Options. Harvard Business Review.
Patryk Babiarz, M. P. PREREQUISITES FOR SUCCESSFUL INTRODUCTION OF MASS.
Pine, B.J, Gilmore J H,(1999). The experience economy: work is theatre & every business a stage, P89.
Pine II, J. (1992). Mass Customization: The New Frontier in Business Competition. Boston, Mass.: Harvard Business School.
"Global Strategic Management.",QuickMBA, April13,2011. Web. <http://www.quickmba.com/strategy/global/> .
Scribd, Consumer Preference: Standardization or Customization, April 13, 2011. Web.<http://www.scribd.com/doc/38077411/consumer-preference-standardization-or-customisation>.
Thomas, D.A., & Ely, R.J. (1996, Septmeber-October). Making Differences Matter: A New Paradigm for Managing Diversity. Harvard Business Review, pp. 79-90.
打邊爐飲「可口可樂」，爽到震﹗電視廣告. (2009, February 10). Retrieved April 20, 2011, from Youtube: http://www.youtube.com/watch?v=v8zhQ5qo4zk
