WisdomJunkie

Digital platforms vol. 2: Mass Customisation Strategies

The digital development towards connected products, or IoT, and platforms has led to realisation of a relatively new concept within the context of supply chain management known as mass customisation. Essentially mass customisation is creation of personalised and “customized products with production cost and monetary price simi-lar to those of mass-produced products’’ . In general, there are two main strategy approaches for achieving mass customisation, which are a tailoring strategy or a platform strategy.

Tailoring Strategy

A tailoring strategy implies that detailed information is analysed in order to create customised and personalised products for each individual user before entering the consumption space. An example of this are shoe manufacturers Nike and Adidas, with their tailoring platforms NIKEiD and miadidas (see featureing picture of this blog post). This means that intel on the real needs of the customer could be understood and utilised to fullest extent, in order to generate maximum value for the end user. This concept is obviously much more effective and valuable compared to how the traditional tailoring is done and performed, where the tailoring process is simply based on suggestion about existing varieties. However, note that the tailoring strategy is in this context closely related to the goods-dominant logic approach because of the focus on value-exchange.

Platform Strategy

A platform strategy distinguishes in that sense that it takes more of a service dominant logic, or value-in-use, approach compared to the tailoring strategy and that the customi-sation process can occur in the customisation space or postponed indefinitely. Thus the fundamental principle of a platform strategy is that the provider offers a standardized, or a “incomplete product”, that can flexibly be updated and boosted later on after the product has transferred and is being used by the consumer.

So What Are Incomplete products Then?

The concept of an incomplete product is an extension of a postponement strategy, which strives for producing standardized products and delaying much of the movement or configuration of the final product within the frame of the supply chain. The difference between postponement and incomplete products is that the customisation process can be executed even when the product has exited the traditional supply chain domain. In other words, the customisation takes place in the consumption space, which has been made possible thanks to the recent digital advancements. Thus an incomplete product is defined as “a physical product, design with a modular architecture, capable of dynamic reconfigurability allowing for the offering to obtain an optimal fit within the actors’ dynamic and ever changing context of use where the transaction boundaries are aligned with the context of use”. In the previous context the concept of “dynamic reconfigurability” for an incomplete product is referred to “the capability to modify their functionalities, adding or removing components and modify interconnec-tions among them”.That is to say, a software platform is the holistic core that provides with these new configuration features and customisations possibilities for the incomplete product.

An example of an incomplete product is Tesla cars. In 2013, there were concerns that the Tesla cars were to low, which resulted that the litium batteries could ignite and catch fire because of the heat. The solution to this problem was a code fix over “the air” which lifted the springs of the car by a few inches, so that the risk was fully prevented.

Summary

It can be concluded that both presented strategies may use a software platform for offering products and services with different variety. The actual distinction is in how the custom-isation and variety is executed: is it before the consumption space or in it? Therefore, the current school of mass customisation is mostly focused around tailoring strategies, despite the fact that numerous successful platform strategies already exist and has proven to be very profitable and effective, such as Apples iPhones in combination with the iTunes platform. Therefore, one can expect that more platform strategies and incomplete products concept will be applied on a greater scale in the future.

/Drill

10 types of Innovation

Innovation is defined by Oxford English Dictionary as “make a change in something established“ or “introduction of something new”, such as a method, idea or device. A similar but a more sophisticated definition is presented by Abernathy and Clark (1985), who illustrate it as:

”an innovation is the initial market introduction of a new product or process whose design departs radically from past practice. It is derived from advances in science, and its introduction makes existing knowledge in that application obsolete. It creates new markets, supports freshly articulated user needs in the new functions it offers, and in practice demands new channels of distribution and aftermarket support. In its wake it leaves obsolete firms, practices, and factors of production, while creating a new industry”.

Thus, this view clearly focuses on entering new unexplored domains and markets.

The Periodical system for Innovation

Keeley et al. (2013, here is the link to the book. I highly recommend if for anybody that is working with innovation) introduces an innovation framework, which is inspired by the periodical system from chemistry, that consists of three different main segments: configuration, offering, and experience. The first segment, the configuration aspect, focuses on the innermost workings of an enterprise and its business system. The second segment, the “offering category”, concerns with the core products and services of an enterprise, or a collection of these. Finally, the experience category focuses on the elements that the customers face in the regards to the enterprise and its business system.

All these three segments are also horizontally ordered as from left to right, according to its internal to its external impact and influences of the enterprise. In addition, the whole framework constitutes of further ten category types, which is grouped into the aforementioned three main segments (Figure 1).
The first type in the configuration segment is the “profit model”, which essentially involves how to convert “firm’s offerings and other sources of value into cash”. Hence fore, the focus in on having a deep understanding of what the customers cherish and aspire, in order to discover new revenue and pricing opportunities. It should be noted and clarified that a profit model differs significantly from a business model, mainly because a profit model only concerns with catching value and is not involved in the value creation process.

The second innovation type is “network”, which represents the opportunities that lies in both leveraging on one’s core competences and harnessing other firm’s strengths and assets to one’s advantage. This innovation type is thus closely associated with various co-creation and business ecology concepts, which will increase in an ever more connected global environment.

The third innovation type is “structure”, which focuses on how the company’s assets are organised in order to generate value. In other words, these innovations encompass the alignment and nature of company capabilities and assets, so that the configuration and management of these are structured and leveraged in the best possible manner.
The process unit refers to the primary activities and operations that are associated with producing the offerings of a company. Innovating in this division requires fundamental changes from “business as usual”, although the outcome, that is the offering, remains the same and unchanged.

The first innovation type in the offering segment is “product performance” which addresses the “value, features and quality of a company’s offering”. Often the traditional understanding of innovation is associated with this type, a goods-dominant logic perspective on innovation. The thumb of rule states that these innovations most often are easily copied by industry competitors, or reverse engineered, and therefore provide with only a temporary advantage.

The “product system” division refers to the bundling and connecting effects between products and services. The foundation for fostering these effects lies in interoperability, modularity and integration between otherwise distinct and separate offerings. Therefore, product systems are the blueprints for building valuable and protected and differentiated product offering entities, that strives for establishing ecosystem-like synergies within the company’s reach and boundary.

The first innovation type in the experience category is “service”. This division refers to the innovations that “ensure and enhance the utility, performance, and apparent value of an offering”. Thus, services function as a supporting element that improves the customer journey and reveals new overlooked value capabilities for the users.

innovationtype1 — Figure 1. Illustration of the innovation type framework with the three segments distinguished in different colours. The innovation types are ordered from left to right, according to its internal to its external impact and influences of the enterprise (from Keeley et al., 2013).

The channel division involves all the conceptual innovations associated with connecting the value offerings with the customers and users of a company. In short, channel innovations are various new infrastructure solution concepts that conveys the final products or services to the end users.

The “brand” innovations helps the customers to remember, recognize and prefer the offerings of a company over other similar substitutes. The goal is to seduce and attract the customer with a conveyed promise that will make the offerings distinctive and unique. By doing this the offerings gain an immaterial advantage over its competitors that gives rise to new exploitable value dimensions.

The “customer engagement” is the final innovation type, and strives for designing and implementing a deep relationship between the enterprise and its users that symbolises meaningfulness and endeavours aspirations beyond the original commercial incitements. This means that the paradigm encompasses and stimulates an emotional dimension to the offerings of a firm, which give rise to a symbiosis effect between the company and its users.

Periodical tables might change…

It is clear that the 10 types of innovation is a pragmatic model for classifying different innovations. However, innovations are obviously not as straightforward as the model suggests. The chategories may develop over time or new ones might be introduced etc., just like new elements are found and added into the periodical table, when new scientific breakthroughs are made . But the great value in this model is that it will help you seeing things from a different perspective. That in itself is a innovation!

/Drill

Firms Cannot and will Never Deliver Value!

There is a general accepted understanding that firms deliver and create value…which is complete corporate bullshit. This is a radical statement, but as you read further you will come to understand this point of view.

What is Value anyway?

The definition of value is perhaps the most ill-defied and elusive concept within the field of service management and marketing. There are several holistic approaches that tries to conceptualize the concept of value, though without any further establishments. This means that even though the word value is widely used in our everyday life, nobody really know what it is. Taking this abstract concept for granted is pure hipocripsy that serves no one well.

“There frankly don’t exist a clear and transparent definition of what value actually is…”

So what is my proposal, then? How do we get out of this swamp of confusion? There is a solution. It has been suggested that the focus should shift towards the value creation process, which in general terms is defined as a “process that increases the customer’s well-being, such that the user becomes better off in some respect “.

Value in Use – The Customer Delivers the Value

According to Grönroos and Voima (Click for full article) value emerges from a value-in-use perspective. Where the concept of “value-in-use” refers to the idea that it is explicitly only the consumers of a service, who has the exclusive right to determine and control the final and true value of a service, not the providers (see video 1). Thus value is generated and “created by users (individually and socially), during usage of resources and processes (and their outcomes)”, where usage is referred to as physical, virtual, or mental process, or a mere possession attribute. However, the providers of a service do play an important role as a provider of potential value, or as a value facilitator.

Video 1. Grönroos on Value-in-use

This view is aligned with Lusch and Vargo who also emphasizes that enterprises cannot create value alone themselves, but are instead very capable of deriving new lucrative value propositions. Therefore, an all-encompassing process in the aspect of value creation emerges, where all parties involved are co-creators of value.

Grönroos and Voima elaborate and develop this idea further and forms a frame-work constituting of three distinguishable value spheres: provider sphere, joint sphere and customer sphere (Figure 1). Despite the fact that the framework is showing and implying a linear structure, it does not apply in practice because the value spheres are dynamic and might show different sequences and patterns for realising the value creation process. In addition, the framework does take into consideration the two perspectives of value delivery (production) and value in use (value creation), which are illustrated in Figure 1.
The provider sphere generates only potential value or a value proposition, which a cus-tomer hopefully later extract and converts into real value (-in-use). Thus, it is justified that the fundamental function of the provider is to work as a value facilitator.

Figure 1. Value creation spheres.
The joint sphere is a union formed between the customer sphere and the provider sphere. The sphere represents the value creating process that emerges from interaction and dialogs between the two aforementioned spheres, which interacts either through direct or indirect procedures. Above all, the customer is always solely in charge of the actual value creation, although the provider may influence the process as a co-creator but only by implementing direct interaction methods. Hence, it is important that the provider truly understand how the customer uses and combines resources, processes, and outcomes in its interactions. This in order for the provider to shift from a mere value facilitator to a co-creator of value.
In the customer sphere the value creation appears as sole or independent process. In reality it “may take several forms in multiple temporal, spatial, physical, and social customer contexts, and it can encompass both individual and collective levels”. Therefore, by independently accumulating experiences, resources, and processes into different contexts; the customer is able to generate value(-in-use) paradigm. In addition, it is worth mentioning that the value is influenced and affected (indirectly) by the presence of a wider customer network or ecosystem, although this is always beyond the providers control.

The Customer is Always Right

It can be justified that a company or a firm cannot create value. Instead organisations must realise this new perspective of value-in-use, where “the customer is in charge”. Therefore the cliché – “the customer is always right” – has more truth into it than one might think. This is especially true in today’s modern time, where the traditional goods-dominant-logic is rapidly losing foothold to the service-dominant-logic (see my last blog post- What is a Service). Mainly because consumers have more rights and have more to alternatives to chose from.

Finally, I praise the great professor Grönroos, whose inspiring video can be found in the beginning of this article. He is truly a forerunner in the field of marketing and is a master at delivering his points, such as one cited below.

” ‘we deliver value’ is Garbage”

-Grönroos

On that note, we cannot and will never be able to deliver value. However by being a Value facilitator or Co-creator, one can improve the probability and circumstances that will/may contribute to increased value.

/Drill

What is a Service?

In recent decade we have observed a service revolution, where the advanced economies all have transitioned to so called service economies – servitazation. Cool, uh? But what is and are these services? It feel like the concept is one that everybody knows, but nobody when asked is able to define or explain it clearly. Often explanations are formulated like: “for example when eating att a restaurant there is a service…” etc. (In general, I can not stand explanations that starts with the phrase “for example” because often the one explaining do not know the earth nor sky about the subject)

Thus the word “service” is a business lingo used in everyday life, without any concern to what it actually represents. This blog post will try to shred some light on this vague issue.

Putting It All Together…

The best fast definition I found was from the Information Technology Infrastructure Library (ITIL) which defines a service as:

“a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks”

However, the presented definition is not universal because many different contradictive opinions and views exists. Service as a concept remains elusive and has of yet not reached a consensus, although common ground is found and agreed upon in which ways services are different from goods or products. Likewise, a consensus regarding the distinctive features of a service have been reached, which are referred to as “IHIP” – an acronym for intangible, heterogeneous, inseparable and perishable.

Intangible

The intangible feature points out that services are not physical things and are therefore humorously said to be “something that you cannot drop on your foot”. However, the intangible feature distinction between product and service is at times blurry. For example, both music and software have intangible features but the media files that are sold as tangible goods, therefore some ambiguity remains.

A service is “something that you cannot drop on your foot”

Heterogeneous

Services are complex bundles of activities, where each customer perceives and experiences a service differently. This is because there are numerous implementation varieties in the aspect of its context, nature, and requirements. In addition, services vary across different geographical regions, cultural backgrounds, and the char-acteristics of the providers. Thus, services are truly a multifaceted approach of delivering value to a consumer. Yet there are some discussions that some products are also gaining heterogeneous features, such as the Mercedes E Class car that is offered in 1024 different variations, and that some services in fact are homogenously similar to a product . For example, Mc Donald’s hamburger offerings are executed and performed in a standardised manner and has the same taste all over the world. Therefore, this distinction has flaws that needs to be considered.

Inseparable

Services are inseparable in that sense that both the production and consumption process occurs simultaneously and cannot be separated or distinguished. Essentially, this means that services cannot be produced without an engaged consumer – a counterparty- similar to the yin and yang dualism and therefore services cannot be owned.

Perishable

The last feature, perishable, refers to fact that service capacity cannot be stored for future use, like stocks or other fixed assets. For example, an empty unsold flight seat cannot be inventoried and sold in the future because it simply perishes after the flight.

Other Definitions

In Addition to these aforementioned features, Grönroos (2001) identifies further three basic characteristics of a service that is:

“services are processed using a series of activities (a business process) rather than things, services are to some extent produced and con-sumed simultaneously, and the customer participates in the service delivery process”.

This view shares many similarities with the postulates of IHIP, though complementing the conceptual understanding of services significantly.

What is Service Dominant Logic?

Professors Vargo and Lusch presented the idea in the beginning of the millennia, that marketers have transitioned from a goods-dominant logic (G-D) into a service-dominant logic (S-D) perspective. The G-D logic concerns primarily with value-in-exchange, where value is embedded into physical objects, also known as operand resources, on which an act or operation is performed to produce an effect. In G-D logic the consumer is also to be seen as a passive recipient of depreciating goods, whose production ends after its manufacturing process and where services are considered as a mere special cate-gory of marketing offerings.
In contrast, the S-D logic is a philosophy of reorientation that focuses on the actual value creation that is the process of co-creation with customers and other actors, rather than a conservative value production paradigm. A Similar view is shared by Grönroos who formulates himself as follows:

“The focus is not on products, but on the consumers’ value -creating processes, where value emerges for consumers, and is perceived by them…the focus of marketing is value creation rather than value distribution”

The S-D logic argues and contends that all products and services, both tangible and in-tangible, in the end are different vehicles for providing various services to the customer or consumer. In other words, service is the fundamental basis of all exchange activities because essentially “everything is a service” and thus all existing marketing offerings are applicable to the S-D logic. The concept of service can in this context be redefined as “the application of the knowledge and skills (competences) of one actor for the benefit of another”, hence S-D logic is a logic about “togetherness” where mutual benefits are generated through a foundation based on relationships, trust and a win-win exchanges.

Everything is a Service

The final explanation of “what is a service” is a fairly simple one: everything is a service. Sounds like a cliché, eh? But as we have seen the are many opaque views that are at times very complex and even philosophical at times. Therefore it is easier to just apply the “keep-it-simple- stupid” (a.k.a. “KISS”) principle. And there is nothing wrong with keeping things as simle as Eistein points out:

“If you can’t explain it to a six year old, you don’t understand it yourself.”
― Albert Einstein

/Drill