Platt Perspective on Business and Technology

Innovation, disruptive innovation and market volatility 13: reconciling standardization and customization, and product portfolio management

Posted in macroeconomics by Timothy Platt on June 15, 2015

This is my 13th posting to a series on the economics of innovation, and on how change and innovation can be defined and analyzed in economic and related risk management terms (see Macroeconomics and Business, posting 173 and loosely following for Parts 1-5 and Macroeconomics and Business 2, posting 203 and loosely following for Parts 6-12.)

I began discussing product portfolios from a manufacturer’s perspective in my series: Building for an Effective Portfolio of Marketable Offerings (see Startups and Early Stage Businesses, postings 173 and loosely following for its Parts 1-6.) And I continued that discussion in this series in its Part 9 and Part 10. I then switched directions and began discussing standard and customized product offerings in Part 11 and Part 12.

My goal for this series installment is to at least begin to bring those lines of discussion together, to consider the roles that standardization and customization per se play in product portfolio design and management. And I begin that by more specifically considering:

• What customization actually means, in practice and in modern production line systems
• As run according to 21st century strategic considerations and 21st century marketplace pressures and constraints.

I focused in my above-cited postings on the finances of products, without any detailed consideration as to what does or not does not go into them, except perhaps as a measure of perceived sameness or novelty. Here I look at those products offered themselves in a bit more detail.

I have in effect already begun this discussion in Part 12 when I considered computerized devices, such as personal laptop and tablet computers, or smart phones. And I indicated that the type of hardware-standardized/software enabling customized paradigm that I first noted there, will almost certainly become more widely prevalent across wider ranges of basic product types, as more and more types of devices: household tools and appliances, automobiles and others become online connected as nodes in an increasingly prevalent and ubiquitous internet of things (see my series: Some Thought Concerning a Rapidly Emerging Internet of Things at Ubiquitous Computing and Communications – everywhere all the time 2, postings 211 and loosely following for its Parts 1-11.) But I clarify and widen this discussion here, by considering a non-hardware/software (at least as of now) working example, and the customization options that are increasingly available in products such as personal use automobiles.

I begin that with what can perhaps best be seen as the zero customization option baseline that Henry Ford built into his original Model T automobiles: the first mass produced automobiles that were built for and sold to the general public. Ford built and sold his new mass market automobiles as quickly and as frugally as he could so as to keep his products as affordable as possible to the average man on the street. His goal there was to keep his new cars so readily affordable that his workers who made them could buy and use them. One consequence of that was that he strived to keep everything that went into these vehicles, and every process that would put those parts into them, as simple and direct and as standardized as possible. Diversity of choice in either would have mean additional complexity and cost for both, and for his overall business operations, and that increased cost would have to be passed on to the consumer.

Ford is at least credited with having said that his customers could buy one of his cars in any color they wanted, so long as that was black. Whether or not he actually said that, at least as this story is remembered, is not important here. The important point is that you could buy one type and one build of a Model T, with only one paint color offered in that included. Ford chose black because he thought it would not show dirt on a car as readily as lighter paint colors would.

I have discussed this example at least in passing in earlier blog postings and series, and do so again here in the context of standardization versus customization. When paint color choice was first offered this was seen as an opportunity to customize a car bought, and not simply have it look like everyone else’s car. Now this is simply looked at as a standard choice option, and not as anything special in that.

• Novelty makes diversity of choice into customization, where an equal range of product design or feature options that are simply seen as routine, ceases to be marketable as customization per se.
• This is important: customization is not so much about diversity of choice as it is about perceived novelty of choice.
• And this perspective on what is viewed as real customization in a marketplace and to its customers, and what is viewed more as standard selection option availability does not in and of itself change the finances of offering product line diversity per se,
• Except perhaps insofar as that might correlate with lower production numbers that would be assembled for given product builds, and differences in opportunity to tap into economies of scale from producing them.

The average automotive manufacturer offers a very large number of optional features for the car and truck models they build. But for most of these points of product difference if they come from the original manufacturer they are not seen in the marketplace as customization per se. If they come from aftermarket providers – then they might very well be considered true customization per se. The type of product variety sourcing and the options that aftermarket providers bring, make their offerings fundamentally more novel and unusual.

And with this, I consider an exception that in effect proves the rule that I have been developing a case for here: options and features selections that are available to customers who purchase Scion automobiles, and certainly as that line of vehicles was seen when they first hit the marketplace. Scion is a separate brand that is offered by the Toyota Motor Corporation, principally for the North American market. And as a break from what had long since become the standard options diversity of most auto manufactures when building and offering their products, Scion and its leaders and managers specifically sought to offer what their customers would see are real customization. But in this, they still sought to maintain economies of scale by building what they offered as customization options to interchangeably fit into a basic car design and a basic core model framework.

I remember from when I was working as a consultant in automotive, when the Scion automobiles first came out, seeing a “dream car” presentation model of how far a customer could go in customizing one of these vehicles – and that hyper-customized model would have cost an off the street customer well over $100,000 at a time when a more basic model with a more “standard customizations” package would have cost them less than 20% of that total.

We all tend to think at least in the back of our minds, of customized as somehow meaning hand-built and one of a kind. In a one-off context that is valid, but in a more-assembly line world, customization simply means “wider range of options to choose from than usual, and in ways that the average consumer would see as distinguishing for its novelty, in comparison to what the competition would offer.” And with that, I return to a point that I explicitly made in Part 12 and earlier in this series as well, that real product differences are of necessity differences as perceived in the eye of beholder – and here the eye of the consumer. And a difference that does not present itself as a point of significant distinction there is not a real, meaningful difference, and certainly to the marketplace that decides where purchasable value resides.

I could just as easily have cited frozen yogurt shops with their seemingly endless selections of toppings here, and how they started as offering customization for their novelty, but how that quickly palled as all of their competitors did this too. So the novelty of this evaporated faster than those bowls of frozen yogurt could melt, and all of this simply became “standard selection-offering diversity.” And all of these businesses sold and still sell their products: bowls of their frozen yogurt of whatever size and with whatever blend and volume of toppings selected by the customer, by weight as a key element of their basic business models.

• Customization is about novelty; product pipeline design and management are all about the diversity of what is offered and whether or not perceived customization is involved,
• And they are about the finances of creating and maintaining an economically valid blend of product offerings and options over time, and both for what is offered in a business’ here and now and what it will offered next that is in its development pipeline.

I am going to circle back to the beginning of this series and its Part 1: considering businesses and outside investors and their dynamics. And my goal there will be to reconsider this series’ overall discussion, or at least key elements of it from the perspective of a wider stakeholder perspective than just that of the marketplace and consumers, and of manufacturers and their leadership. But before doing so I will acknowledge a recent and actively evolving factor that is reshaping the standardization/customization landscape: 3D printing. And I will focus on that as an example of how disruptive innovation is reshaping both manufacturing reality and expectations. I will at least begin a discussion of that in my next series installment. Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation.

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