One size does not fit all

OUT OF THE BOX

Mass customisation, an idea that first crystallised a decade ago, is finally showing signs of snowballing.

From products companies like Unilever and P&G to service providers like wireless companies (Sprint and Ericsson) and banks (Fleet and SunTrust), almost every company is dabbling in mass customisation.

The problem is few know how to pull off the balancing act. In an era of increasingly heterogeneous consumer tastes, how can a company produce goods and services in such a way that it meets individual customer needs and at the same time, retains the efficiency levels associated with mass-production levels?

The early experiments with mass customisation have quickly shown that it is a short hop from a buzz to a sting.

One of the high-profile pioneers to embrace the concept was Custom Foot, a Westport, Connecticut company that offered customers made-to-order Italian shoes, in a short delivery time of three weeks and at prices that matched off-the-shelf shoes.

Nearly everything that could go wrong did. Customer orders ran late by months. There were mix-ups in style and colours. And often, the shoes would not fit. In less than two years, by 1998, Custom Foot got the boot.

A happier experience with mass customisation emerged at Land's End, one of the biggest catalogue retailers for clothing in the US.

The company introduced mass customisation in 2001, offering customers made-to-order jeans, shirts and khakis.

While company executives had projected that in the first year of made-to-measure clothing sales might jump by 5 to 10 per cent, Land's End custom sales jumped by 40 per cent.

What is impressive is that Land's End has managed to balance the complexity of offering choice with the reality of delivering it cost-effectively. Land's End ships more than 3,000 different products a day, all of them within the $ 30 to $ 60 price point.

It should have been a nightmare. Instead, Land's End has successfully crossed nearly every hurdle of mass customisation that trips up other companies: inability to meet customer specifications; a drop in customer satisfaction; a ballooning of costs; and, in the worst case, complete chaos.

The polar differences between the two companies are no coincidence. A recent study by Booz Allen Hamilton, the global strategy and technology consultancy, shows that smart customisers do things differently from senseless customisers.

The study covered 50 companies across industries, with sales from $ 1 billion to more than $ 20 billion and found, not surprisingly, that as many as two-thirds of the companies dabbling in customisation failed at it miserably. The remaining third, the smart customisers, scored well because they focused on smart execution.

Says Matthew Egol, a principal with Booz Allen Hamilton in New York, and one of the authors of the study: "These companies created value for their customers in such a way that it didn't break the bank."

According to Egol, smart customisers had some key traits in common. One, instead of offering everything to everyone, they selectively targeted customers deserving of customisation, and filtered out the rest.

Two, they had disciplined processes and metrics to track the cost of customisation even if costs were never passed on to customers.

The study's three recommendations for smart customisation are logical "" but deceptively simple. Understand the sources of value that customisation provides to the customer.

Find the "virtuous variety", the point at which customisation adds value to both the company and the customer alike.

And tailor business streams "" such as product development, demand generation, production and scheduling, supply chain, customer care and so on "" in such a way that they are aligned to the sources of demand and provide customer value at least cost.

Unerringly, Custom Foot got it all wrong. The company failed to recognise that customers valued fit over everything else; shoes that pinched soon blistered sales.

Instead of virtuous variety, the company offered 10,000 variations in women's shoes and 7,800 in men's. The huge stocks of raw material were enough ballast to sink the company.

And Custom Foot's back-end operations failed to stay in step with its front-end. The Italian shoe-suppliers continued to follow a mass production system instead of a made-to-order system.

With the factory focused on economies of scale and scope, what chance was there that orders would be on time and according to one customer's specifications?

At the other extreme, Land's End Custom makes clothes in a factory geared to the made-to-order business.

The company appears to offer customers endless design options and variety; actually, it is more like a customised bundle of standard mass products.

And there is a symbiotic link between strategy and execution. Land's End executives routinely work on the production line to get a feel of what is happening on the shop floor.

Why bother with mass customisation if it is so tricky? The Booz Allen Hamilton study found that companies that did customisation smartly outperformed industry peers two to one in revenue growth and had profit margins 5 to 10 per cent above competitors.