Mass Customization & Open Innovation News

Cracking the Code of Mass Customization: New MIT SMR Paper

Most companies can benefit from mass customization. The key is to think of it as a process for aligning an organization with its customers’ needs.

In the current issue of the MIT Sloan Management Review (Spring 2009 Issue), Fabrizio Salvador, Pablo Martin de Holan and I discuss how mass customization should be not any longer seen as a specialized business strategy but as a bundle of capabilities that could make sense for most businesses.

In the paper, we suggest that mass customization is not some exotic approach with limited application. Instead, it is a strategic mechanism that is applicable to most businesses, provided that it is appropriately understood and deployed. This kind of thinking also is the underlying logic of our upcoming Mass Customization Executive Education Class at IE Business School.

In the paper, we suggest three common capabilities that will determine the fundamental ability of a company to benefit from mass customization thinking:

(1) Solution Space Development.  A mass customizer must first identify the idiosyncratic needs of its customers, specifically, the product attributes along which customer needs diverge the most. (This is in stark contrast to a mass producer, which must focus on identifying central tendencies so that it can target those needs with a limited number of standard products.) Once that information is known and understood, a business can define its “solution space,” clearly delineating what it will offer -- and what it will not.

(2) Robust Process Design.  Next, a mass customizer needs to ensure that an increased variability in customers’ requirements will not significantly impair the firm’s operations and supply chain.  This can be achieved through robust process design -- the capability to reuse or recombine existing organizational and value-chain resources -- to deliver customized solutions with near mass-production efficiency and reliability

(3) Choice Navigation. Lastly, a mass customizer must support customers in identifying their own problems and solutions while minimizing complexity and the burden of choice.  It is important to remember that, when a customer is exposed to myriad choices, the cost of evaluating those options can easily outweigh the additional benefit from having so many alternatives. The resulting syndrome has been called the “paradox of choice,” in which too many options can actually reduce customer value instead of increasing it.  In such situations, customers might postpone their buying decisions and, worse, classify the vendor as difficult and undesirable. To avoid that, a company can provide choice navigation to simplify the ways in which people explore its offerings

But a company does not have to apply all three capabilities in full scope together. For many companies, it already is a great step forward to just work on one of these capabilities to get more customer-centric without, however, having to master the full complexity of a mass customization system.

Read the full article and learn more how these capabilities can be implemented in practice. MIT offers the full paper for free after registration on the SMR website. You also can purchase it there  ($6.50) for further distribution.

Context:

• Posting about the paper in the MIT blog.
• Reference to the article: Fabrizio Salvador, Martin de Holan and Frank Piller: Cracking the Code of Mass Customization. MIT Sloan Management Review, 50 (2009) 3 (Spring 2009): 70-79.
• Free online access to the paper.

Why Mass Customization Fails: It is the human factor, Ben Moore and Clint Lewis propose in a new book

In a new book, Ben Moore and Clint Lewis are looking on the success factors of mass customization and customer-centric manufacturing strategies (The Consumer’s Workshop: The Future of American Manufacturing). Their main finding: People matter most for successful mass customization. This may sound like a simple truth, but confirms an understanding I got from working with many companies in the area as well. MC is enabled by technologies, but put in place by dedicated people.

Ben is the President of Agent Technologies, Inc., and Clint the President of Lewis Group Consultants (LGC), two operations and manufacturing consultancies in the United States (a more detailed bio can be found here).

Ben offered to summarize his key findings in a small guest article to my blog, which you find in the previous posting. In an additional interview, I asked him what motivated their research on mass customization and how they did derive their findings.

What did motivate your research on mass customization?

Ben Moore: I've always had an interest in mass customization even before my participating in a Defense Advanced Research Projects Agency (DARPA) project entitled Autonomous Agents at Rock Island Arsenal (AARIA) back in 1995; in this project we built a simulation to demonstrate a factory scheduler capable of mass customization based on autonomous agents that actively represent each step of manufacturing a part. Since this project and the growth of personalization tools, I've researched mass customization tools and techniques in an attempt to find the best system for consumers to create unique products and for manufacturers to efficiently manufacture these products.

What is an example of a company "that got it", i.e. that has a sustainable mass customization strategy that is both scalable and build-to-last -- and that understood the HUMAN FACTOR.

BM: I've found the HUMAN FACTOR to be the least understood and valued of companies. John Deere gets mass customization tools and techniques, but their people systems don't compare to the people systems in companies like Procter & Gamble (P&G) and General Electric (GE). P&G and GE don't focus on mass customization, but focus on customization through standardization and systemization that allows the creation of new products and machines; P&G and GE really get it with their people systems.

What would be your main advice for a manager that wants to start a mass customization initiative?

BM: I recommend really looking at the reasons and financials for a mass customization initiative versus some level of customization initiative. In some manufacturing companies, like capital equipment manufacturers, each product/machine is different so it makes sense to create processes and tools to efficiently manage the customer requirements and deliver these unique products/machines profitably. In many other companies, I've found that creating an agile manufacturing system that can be reconfigured / customized to make a wide variety of products to be more profitable.

What is, in general and beyond your industry, the greatest mass customization offering ever - either one that already exists or that you would like to get in the future?

BM: I believe the greatest mass customization offering ever will be health related. People are becoming more health conscious around the globe. Companies that find a way to capitalize on providing a health regiment specifically designed for the individual based on age, weight, diet, family history, lifestyle and behaviors that fits with the delivery system that they are looking for and at a price they find affordable, will win in this space.

Context: Continue reading with an excerpt of Ben's book.

Guest article: Why Mass Customization Fails

A Guest article by Ben Moore & Clint Lewis

Adapted from their book "The Consumer’s Workshop: The Future of American Manufacturing"

Ben Moore is the Founder and President of Agent Technologies, Inc. a firm specializing in eCommerce 4 Manufacturing (sm) through manufacturing consultants and software applications. His prior experience has included managing global software projects with Procter & Gamble and leading the Pampers.com e-Commerce initiatives.

For over 17 years Clint Lewis was instrumental in the start up and expansion of many product lines at Procter & Gamble such as Pampers, Rely, and Luvs. Clint is the Founder and President of Lewis Group Consultants (LGC), an operations and technical manufacturing consultancy with a business philosophy that centers on "Maximizing the Merger of People and Machinery."

We all know that Mass customization aims to provide goods and services that meet individual customers' requirements with near mass production efficiency. We also know the importance of Systemization, the process of defining what range of products will be made and what range of production processes will be employed and Standardization, the process of defining what specific products will be made and what specific production techniques will be used to make these products.

We even know how to build product configurators and structure the product choices we present to the customer. Since we know all these things, then why after the incredible financial justification has been made that many mass customization/product configuration projects fail and/or don’t provide the anticipated return on investment? What is typically missed is the HUMAN FACTOR.

No matter how great the systemization, standardization, product configuration implementations are, it still requires PEOPLE to run the system. Most of these major technology projects give more emphasis on the technology than the people and hence are more likely to fail and/or underperform.

I know what you are thinking…We provided customized training so the workforce would know how to use our product. However, systems that transform a company require much more than just training, but changing how the workforce actually works together. People can MAKE a system work or people can LET a system fail. Yes, the system NEEDS people and people can’t be managed like things….they must be led, engaged and energized.

Now how do you engage your workforce (which is typically our largest ongoing costs) to MAKING your systems work. This is not a foreign concept, as many of today’s leading corporations discovered many years ago, the key is creating an environment where employees are:

Valued: Employees are not only fairly compensated but also routinely solicited for their ideas regarding day-day business activities, growth opportunities and innovative concepts.

Empowered: This environment flourishes as a result of an “institutionalized” work system that actively recruits, hires and develops people who demonstrate superior people, technical and leadership skills. Workers are expected to make keys decisions at the lowest possible level and are accountable for results. They make production, quality and improvement decisions. Teams police each other and develop their own team and individual improvement strategies.

Educated: Workers are immersed in the continuous improvement philosophy from day one. They are provided “state of the business” information in a timely fashion both through their own initiative as well as through formal business discussions. They are provided the most current technology training and also given the necessary tools to allow them to effectively utilize this training.

Stakeholders: Simply stated, team members execute the running of the day-day business as though they are the primary owners. Their philosophy is to always provide a product or service that is consumer focused and as consumers, they would be first to purchase.

Sounds so simple….but it’s not. Some companies can’t make this change because of the culture that has been setup within the company. There is a science to setting up these types of systems to support major systematic changes within an organization. The answer to the future of American Manufacturing and manufacturing in all developed countries is full utilization of each human resource due to the global pressures from lower cost workforces around the world.

For a practitioner’s guide on implementing a major initiative like mass customization within an organization, read Ben and Clint's book – The Consumer’s Workshop. http://www.theconsumersworkshop.com

Context: Interview wit the authors.

Puma BBQ for Millionaires: Puma cooperates with Italian luxury brand Schedoni to offer special collection of customized shoes

Earlier this week, I was in London for a workshop. As I had some time to spare, I browsed through Harrods which was just opposite my hotel. In te store, I found at least ten different customization offerings, including custom gold clubs and a “mi adidas” sales unit. But in the men’s shoe department (not in the Sports department!), I discovered a new Puma mass customization offering which was already launched in April of this year, but apparently is so exclusive that I did not discover it before.

To upscale its BBQ offerings, Puma cooperated with Italian luggage maker Schedoni, one of the top Italian luxury brands. The company has a special line of luggage for your new Ferrari, or offers bullet-proof briefcases used by the Italian secret service, and, since a few years, also hand crafted shoes (shoe manufacturing was the original core of the company).

To supplement your Ferrari (or Volkswagen) experience, Schedoni is now teaming up with Puma to offer a line of driving shoes that can be customized with regard to color. In London, I now saw this system in operation. Fitting to the craft nature of the product, the configurator is a low-tech high-touch system. In London, I could play around with the shoe building "Puzzle Kit" which allows you to choose from a wide variety of leather colors for both the outer leather, and a contrasting leather color that shoes through the familiar PUMA logo in the side of the shoe.

The Motortrend blog knows that “no more than 500 of each combination will be made, and each numbered and personalized.” But for 350 British pounds a pair (almost 700 USD), I personally found this a bit to expensive for a pair of high-end sneakers.

Like with the Puma BBQ system, the Puma-Schedoni configurator will rotate in 50 Puma stores worldwide and will be introduced in selected high-end department stores. The production process will take about 4-6 weeks, and will be performed in the Modena factory of Schedoni. Shoes will be shipped to the customers’ home afterwards.

While the press and blog reports that I found about this system all claimed this great combination, the actual display at Harrods was a bit disappointing. Indeed, they had this great leather traveling trunks shown in the picture left (all pictures from PUMA via Pumatalk.com) but sample shoes (in the boxes left and right) and leather patches were unorganized and looked used – and this even in the high-end atmosphere of the Harrods footwear department. This is a typical other example of using mass customization as a brand building exercise. Such a system does not really demand much effort in introduction, but has large press appeal and underlines the fashion appeal of Puma.

What the benefit for Schedoni is, I am not sure. They could have made this as a profitable stand-alone business with much higher margins, I believe, and perhaps a better positioning in the market.

Context:

More pictures and reports in Motortrend and Pumatalk
And my previous posts on customized sneakers.

Report on State of Mass Customization Implementation and Cost Drivers

Only 67% of BTO/ETO manufacturers know how much it costs to produce customized products, and 73% don't know the cost of engineering change orders

A new report on mass customization and build-to-order manufacturing has recently been published by Cincom Systems, a manufacturer of configuration and quote-to-order solutions. The study is based on 72 interviews with senior engineering managers at manufacturers of complex industrial, electrical, and transportation equipment and systems between January and February 2007.

While such an industry-driven report is biased by the perspective if its sponsor (and also its interview base is pretty small and probably not representative), the study contains a number of interesting data which, from my experience, represent the state of many companies offering customized industrial products (b-to-b).

The report found that only 67% of build-to-order and engineer-to-order manufacturers know how much it costs to produce customized products, and 73% don't know the cost of engineering change orders. Only 27% had figured out the cost of engineering change orders. But despite the lack of cost information, more than half of the survey respondents believe that they have the ability to charge a 10-25% or higher premium with a product customization strategy.

Customization rates will increase in the future

The disconnect between pricing assumptions surrounding product customization and traceable costs becomes a barrier to sustaining momentum with mass customization strategies into the future. This is especially true as the broad majority of managers interviewed by Cincom for this report state that requests for customized products have been increasing over the last five years, and 26% anticipate that the growth rate will be between 25% and 50% in the next two years. Managers quote the following corporate objectives which are driving customization efforts (in ranked order of importance): (i) Meet specific customer requirements, (ii) Demonstrate product leadership, (iii) Improve positioning against lower-cost competitors, (iv) Improve internal efficiencies, and (v) Enhance margins or price premiums.

Some other key findings, as quoted from the report:

“Product customization strategies are predominantly relied on by manufacturers to both increase production efficiencies at the low end of their product lines and drive up premium pricing at the high end. 73% of total respondents see product customization as critical for products over $100,000; 25% also see them as critical for products under $1,000.

There is a significant knowledge gap between what engineering needs to contribute to a mass customization strategy and what existing systems are delivering. While only 50% of respondents use any type of software for managing the product customization processes, 56% do not have service information, 55% do not have catalog and selling information, and 50% do not have product development information critical to support product customization.

One of the greatest risks to mass customization is the intensive amount of intellectual capital that engineers have, yet it is not captured anywhere (64%). Additionally, 35% of respondents report that there is no method in place for sharing knowledge throughout the company.”

Automated Product Configuration

The study asked managers about the tools they use to support mass customization. Not surprisingly, CAD is the primary tool used to support the customization process (92%). The implication is that the customization process is primarily drawing-driven based on tribal knowledge with heavy engineering involvement in the specification process. Beyond the CAD system, most manufacturers are using ad hoc technologies such as spreadsheets (51%) or manual processes supported by documentation (41%) to support the customization process. Few companies utilize automated configuration systems. Of those who do, 30% use homegrown systems and only 24% use third-party packages.

These numbers indicate that there is rather little integration of tools within the customization process, and the level of integration decreases significantly as you move from manufacturing (ERP at 30%) through engineering (CAD at 24%) into the sales channel (Selling Systems at 14%). The lack of integration implies that there is a significant amount of manual intervention within the customization process requiring time and resources, and leaving opportunity for errors.

Barriers to Mass Customization

According to the study, most engineers believe that product complexity is not the primary barrier to customization. They cite lack of knowledge of options by the customer (67%) as the primary barrier to customization efforts. The implication is that the knowledge required to effectively sell customized products is not being effectively transferred to the customer. This is not surprising given the often technology-focused implementation of configuration systems. There are huge opportunities for improvement in sales and operational effectiveness to be gained by addressing this issue. Of the surveyed respondents, 43% indicated that inadequate systems are also a barrier to customization.

As written before, these numbers and findings have to be interpreted from the perspective of its originator: a company selling exactly those systems to improve the gaps identified in the survey. But despite all sales buzz, the study shows that many companies still have a long way to go to change their (craft) engineer-to-order systems to true mass customization operations.

Context:
Download the report.

A special issue of the IJMassC (4/2006) has a number of case studies that demonstrate how MC pioneers closed these gaps. Read especially the paper by Lars Hvam on the configuration system of APC, a provider of data center equipment.

Trend: Ultra-Cheap Custom Clothing – How Ziami uses multi level marketing schemes to sell custom goods (UPDATE)

(This is an updated version of the original post.)

I always have argued that mass customization has large potentials for huge cost savings along the entire supply chain. Established companies like Dolzer in Germany have shown since 25 years that custom made clothing can have the same price tag as conventional standard apparel (in the 200-300 Euro range for a custom suit, 50-70 Euro for a custom shirt). Most mass customization clothing offerings, however, come in a price range of 800-1000 Euro (far beyond the price of bespoke tailoring, but with a premium to your average Boss suit).

But as everywhere in retail, there seems to be also a trend of discountization in mass customization: New players like Ziami or Aston offer CUSTOM made shirts for 29 Euro, and a custom suit for 99 Euro. Especially Düsseldorf, Germany based Ziami seems to enter the market aggressively with its range of custom apparel items. Manufacturing is done in China and Thailand, measurements are taken by sales associates by hand, fabrics are cheap and limited, but the customization options quite large. Ziami's approach is based on a multi-level marketing (or: pyramid) approach. This means, all products are sold by independent sales associates who purchase a 50 Euro starter package that enables them to become a custom shirt seller. This package includes everything to sell Ziami shirts, like a "How to measure"-DVD, one sample shirt, fabric samples, measuring tape, needles, 50 ordering flyers, 50 promotion flyers, a brochure containing all the necessary information and the official license to sell Ziami clothes. Distribution partners purchase a custom shirt for 22 Euro, and resell it for the suggested 29 Euro. In addition, they are motivated to recruit further sales associates, as they will participate also on the margins generated by those 2nd tier partners.

One of the more active Ziami partners, Stangl in Vienna, Austria, has described this system very neatly in an English presentation on their web site. And another motivated promoter of the company has even created a nice YouTube Video that describes the system and provides some insight in the rather easy measurement process.

Can you make a custom shirt for 29 Euro? Yes, of course, given that consumers are willing to wait (as for this price, you cannot use single item air-fright from Asia to Europe) and compromise for the quality of the fabric. Reviews and feedbacks by customers on the internet are mixed. Some really love the system, others are rather annoyed and complain about unstable quality, bad customer service and poor fabrics (just Google Ziami and you find numerous forums and newsgroups discussing Ziami's shirts).

According to their own claim, Ziami, founded in 2003 by Designer Ersin Canga and Philip Kamp, have risen to become Europe's #1 Producer of Custom Tailored Shirting (however I could get no proof for this, interview requests with the founders were not answered). Ziami most recently expanded its offerings to include Custom Designer Jeans and Cashmere Sweaters available for $29.95 each. Also belts and other accessories are offered in "custom designs". But what really astonished me was the price for their custom shoes which will be offered soon: "The shoe is made from the highest quality leathers to your exact foot measurements for just $79.95 ($600 retail value)". From everything I know from footwear customization, this price is not possible, neither with manufacturing in China or elsewhere, given that this is a real custom shoe.

Is this good or bad mass customization? Well, I am not quite sure. I think the danger of such a system is that it cannibalizes the efforts of higher-quality vendors of mass customized apparel. It also is a low-tech version that depends strongly on the personal skills of each sales associate (this I reagrd as the largest challenge of this model). It may also discourage customers to try more custom goods once they purchased a Ziami shirt, waited for 4-8 weeks to get it delivered, and then were disappointed by the cut and quality.

On the other hand, this system shows what you can do if you really rethink the value chain in the apparel industry. Extreme cases, as this ultra-discount mass customization offering, are always great examples to study and to test the boundaries of a system. As such a case, I really appreciate this experiment and will observe curiously where this will lead us.

Update:
Just by chance I had the opportunity to order a custom shit from Ziami recently. I will report here how this works out and how it fits. And I learned that the 29 Euro retail price for the custom shirt is just marketing: You always have to pay a 5 Euro handling & shipping fee per shirt, also if you order several at one time. And then there is a 10 Euro "measuring" fee for you firs shirt. So in total, you pay 44 Euro -- which sounds not as spectacular as the 29 Euros before (and there are many players in this price range -- with local manufacturing and professional tailors taking your measurements -- and MUCH faster delivery).

Also, Ziami's headquarters seem to make most profit not from selling the custom products but from selling marketing materials, order forms, web hosting, etc. to their resellers. These standard items are much more expensive than the shirts (in comparison).

The distributor selling me the shirt told me that the start phase for custom suits (99 Euros plus hidden costs), custom jeans (29) and shoes (79) has just started -- meaning that in the moment only the independent distributors can order.

UPDATE TWO: Eight weeks later, the shirt was delivered. As I ordered it in Europe and was in the US when it came, I only today (Feb 2007) can evaluate the fit: To make it short, this shirt does NOT fit. The arms are at least an inch too short, and the shoulder area too tight on the bottom and too long on the top. The quality of the fabric, the finishing of the shirt, the buttons etc. are, however, good. It also came in a nice package, and I liked the feature that I got an extra piece of the fabric for my pocket.

This experience reveals one of the largest challenges of mass customization: get the configuration process correctly. Ziami relies on independent sales agents, and the quality of your products will depend on their personal skills. I always preach that the basic principle of mass customization is process stability, and this is what Ziami lacks totally in the order taking process.

In my case, the sales agent was a very nice, but apparently "fresh in the business" management student from Vienna who probably lacked the correct skills to get the measurements correctly. Established, vertical integrated mass customization providers often report from the difficulty to get qualified sales persons with adequate skills for the measurement job (or they just invest in 3D scanners to avoid this problem), and so I do not not see how an independent part-time Ziami reseller shall learn this without much "trial-and-error" learning using his or her first customers.

Also, prices are calculated in a way that for 99% of all Ziami agents this business will only be a small side business. With about 35% margin (based on very cheap goods) and a personal sales process, you can not become rich or make this your full business -- and thus only few Ziami agents will develop strong learning effects to get an expert in the order taking.

So my conclusion: This is an interesting concept, prices are very good. The product I got was nice, but did not fit. The main problem: The Ziami system lacks the most important aspect of a mass customization business: stability in the configuration process (and I do not see how you can add this with their pricing model in a multi-level marketing scheme). Thus, if you order, do so only with an experienced agent, probably someone who is from the clothing business and not just your next-door neighbor.

Kraft Foods Crowdsources its Innovation Process to its Customer

Procter&Gamble recently got much publicity about its open innovation strategy. Now also Kraft Foods, a competitor in some markets, announced its new source of inspiration for new ideas: its customers, as the Wall Street Journal reports today.

Kraft is the largest food company in the US. Like many large packed goods retailers, it was pretty much disconnected from its individual customers for a long time (although the company did a number of pilots in mass customization, namely custom Kraft Lunchables, lunch boxes for kids). But for innovation, the old thinking ruled: We know what customers want.

Of course, like all other consumer goods companies, Kraft has an open line to its customers, toll free numbers where customers can call with questions, complains – or ideas for new products or improvements. In the past, however, nothing happened with this input. The WSJ quotes Mary Kay Haben, Senior Vice President for Open Innovation (sic!) at the company, "we would have said, `Thank you, but we're not accepting ideas.' "

This has changed now with the launch of a new consumer web site where everyone can submit ideas for new products, processes, advertising or whatever. Kraft in the moment is in the desperate move to re-invent itself. While the company owns some of the best known brands, including Oreo cookies, Philadelphia Cheese, Milka chocolate, and Jell-o, it has struggled in the last years to generate the profits it used to have in the past.

And like many companies, after a first stage of heavy cost cutting, Kraft is now focusing on innovation. And realizes that it will miss too many opportunities by just relying on its internal resources. So it is turning outwards, starting first to engage professional solution providers from its periphery. The first effort to open its innovation process was designed to swap ideas with outside partners, even competitors, to improve products, packaging and business systems. Open Innovation, in this understanding, has wide parameters and includes licensing deals and new technology. For example, Kraft today is one of the clients of Innocentive, a company that helps solution seekers to broadcast problems to its network of 90,000 solvers around the world (see here or here for a report on Innocentive).

As Promo Magazine reports, this kind of cooperation is nothing new per-se for Kraft. In marketing, partnering with other brands to establish new product categories has been established since a long time (for example, Kraft has a license from Starbucks for its coffee products, and, well, one of Taco Bells for Mexican Food). But the open innovation strategy should bring this to a new level.

"We rely on our own R&D folks for their ideas, but also are looking outside our own walls, like Procter & Gamble does. Kraft New Product Development will continue to focus on organic growth and product extensions, while Open Innovation will primarily focus externally.", the magazine quotes a company spokesman.

The latest step in open innovation of Kraft is opening its company walls to its largest resource base: its customers and users of its products. A new (still pretty basic) web site facilitates the submission of ideas. There is also a nice phone number (credits to Kraft to get this vanity number): 1-800-OPN IDEA.

Their web site (http://www.kraftfoods.com/innovatewithkraft) is an example for a simple toolkit for customer idea competitions, a method for new product development that I have described with my co-author Dominik Walcher in a recent paper (published, by the way, in a great special issue of R&D Management, an academic journal, on open innovation; you find a pre-version of our paper also on userinnovation.mit.edu).

But before you can submit your idea, you have to accept a long list of rules. Quite annoying, as also the folks at Kraft have realized:

"At Kraft, our Innovations Team welcomes new ideas, and sincerely hopes that you choose to share your ideas with us. That said, we want to make sure you fully understand Kraft’s process and rules about receiving such ideas. While we understand that these rules might appear strict, they are necessary to protect both you and Kraft. Therefore, we ask you to carefully review all the information provided below and only send us your idea if you are comfortable with our rules."

(Note: If you take open innovation seriously at your company, engage a professional agency for the copy texts, as you do it with all your advertising materials).

And what are they looking for?

"Kraft is accepting ideas under this policy for new products, packaging, and business / processes / systems only. We are most interested in ideas that are more that a concept, in particular new products & packages that are ready to be brought to market (or can be brought to market quickly)."

An existing patent of the information provider is a plus in this regard. When the idea is protected — or protectible — by a patent or copyright, they may negotiate with the provider appropriate license rights. If Kraft is interested in an idea that it is not protected (or protectible) by a patent or copyright, but new to Kraft, the company may grant a nominal award. But: "In no case will that nominal award exceed $5000."

So you better speak to your patent lawyer before contacting Kraft! And in case you are reading this posting and want to submit your bright idea (I am just dreaming of Instant Sushi), you better are a resident of the United States: Even if Kraft opens its innovation process, its openness end at the borders of the US. Only US residents can submit ideas.

But what can we expect. While the web site may look simple and the rules restrictive, this is the very first attempt of a company, that was internally focused for its entire existence, to open its boundaries for input from its periphery. It took Kraft many decades to get its internal innovation management organized and optimized. It will also take them a wile to experiment and learn by trial-and-error to create a proper infrastructure and organizational framework for open innovation with their customers and users. But it is great that they have started.

I have to be stupid ... I just PAID to be part of Kettle Chips market research (updated - including a chart what user innovation is not)

I just did it. I just paid 16.90 USD to help a commercial food company with their market research. Instead of receiving free samples, I paid for five new potential flavors of Kettle Chips, the flagship product of Salem, OR, based Kettle Foods Inc. I am also committed to provide my free feedback and input to the company.

After reading about Kettle Foods' initiative [http://straightupflavor.com] on the consumer empowerment blog, I had to give it a try:

"Online Polling as a way of deciding on which new product variant to launch is not new, but Kettle Chips are at it again, and with a twist – the program funds itself. Their People’s Choice initiative involves inviting consumers to pay to order samples of a limited run (read exclusive) of potential new line extensions (new flavors) – and then vote on their favorite, which will then get commercialized! Self funding NPD - now that’s smart!"

This is really about utilizing the consumers' demand to raise their voice and become active. This is somehow a light version of Threadless' business model (see previous postings).

Update: I promised to keep you posted when the sample package arrives. I got it already last week, here it my report:

Well, you don't really suffer too much as a contributing customer for Kettle. What you get are five really big packages of chips. So it seems to be more a way to sell variety with some market testing included... There is plenty of information on the five flavors, 6 voting cards with a very simple scale, and a small pledge to go to their web site and report your favorite variety. I just learned that in regard to chips, I prefer to stay with the good old plain ones.

PS: For all academic readers interested in definitions: This case is a good example to explain what is open/user innovation and what not: Kettle's sample event is NOT open innovation or user innovation -- but good old market research in a new way. Eric von Hippel (MIT) recently put it into this nice chart: User innovators (lead users) develop a product by their own for their own use -- as they have a need not fulfilled sufficiently by the existing manufacturers. Manufacturers may discover this prototype and decide to transfer it into their domain. They may also invest in methods like innovation toolkits to foster user innovation. But the source of the innovation is the user.

Manufacturer innovation, on the other hand, is based on the perception of a manufacturer of what customers may want, in-house development, and market testing to find out if the stuff the engineers developed is really what users wanted. User Innovators focus on needs not perceived by the major market (lead users are trendsetters ahead of the crowd), while manufacturing innovation tend to focus on the major target market.

So, even if Kettle has an innovative way to conduct its market research and integrates users deeper into the process (by letting them pay and thus, perhaps, increasing their commitment to rate the chips better), this process stays within the traditional manufacturing-active paradigm.

Re-Post: Change management for mass customization (from the MC Newsletter 1/2005)

Re-Post: I have republished these articles to make them better accessible for search on the blog. This article has been published first in the Newsletter No. 1/2005.

Have you ever wondered why so many mass customization projects fail? One cause beyond the typical reasons discussed (like incomprehensive IT systems, lack of branding, wrong scope of variety, etc.) may be the strong demand for internal change management -- an issue not discussed in the mass customization literature before. However, in the meetings of an industry board of mass customization experts, hosted monthly by our research group at TUM Business School, change management for mass customization was mentioned as a predominant need and major factor of success.

Why change management? Mass customization empowers customers to become co-creators and design their own, individual products or services. Empowered customers, however, have to meet motivated and competent employees. The company's employees have to understand mass customization and their roles in this co-creation process. Managing mass customization thus includes to manage the internal change in an existing organization that is moving from a closed production system towards a system of mass customization. Shifting the locus of value creation towards customers requires no less than a radical change in the management mind-set.

Mass customization demands that customers are regarded not as "enemies" or disruptive factors of steady business processes. As a basic condition to enable mass customization, firms have to cope on the level of the normative management with the challenge to change old, often negative perceptions of the customers in an organization appropriately. The basic idea of mass customization has to be implemented deeply into the cultural mindset of the organization.

Consider the example of Levi Strauss' final failure to implement mass customization (see http://www.mass-customization.de/news/news04_01.htm#levi). The main reason why this venture failed was, in my opinion, Levi's lack of change in management thinking. MC was seen as a marketing gimmick and nice PR-tool, but without seeing the needs and possibilities of dealing with single customer orders.

Like all humans, business managers and their employees at Levi and other companies moving from mass production to mass customization are socialized into a dominant logic, shaped by the attitudes, behaviors, and assumptions that they learn in their business environments (Prahalad and Ramaswamy describe this good in their book "The future of competition: co-creating unique value with customers", Boston, MA: Harvard Business School Press 2004).

What are the areas where change management initiatives inside the manufacturer's organization have to take place to foster mass customization and other strategies of customer integration like open innovation?

Members of the manufacturer organization have to be motivated to acquire feedback from the customers that can be used in the production process, and transfer this information to the right internal organizational units. Here, often training sessions and workshops building "mass customization mentality" have to be undertaken with the firms' employees. This process has to be accompanied by implementing corresponding information systems like toolkits.

Change management has to support the assimilation and transformation capabilities of a firm. Assimilation describes a firm's routines and processes allowing the firm to process, analyze, interpret and understand information from external sources, in our case demand information from an individual customer. Transformation is the capability to design and re-design the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge. The objective is to prevent a new "not-invented-here" syndrome. The firm has to be able to assimilate and transform the customer input in form of need and / or solution information for the mass customization process efficiently and effectively.

Exploitation capability is based on the routines that allow firms to refine, extend, and leverage existing competencies or to create new ones by incorporating acquired and transformed knowledge into its operations. This is the largest and most thorough task. In many firms, mass customization initiatives are tried as a pilot initiative, but not implemented as part of the organizational routines of the production process. Here, change management has to increase heavily the exploitation capability of a firm that wants to benefit from open innovation over a longer period of time.

Firms may, however, get support in the change management process form the customers themselves. Customers are becoming change agents for the company. The motivation of employees to be customer orientated is not only influenced by employee training and internal motivation, but also by the interaction and social exchange with the customers. Employees are controlling their behavior by the perceived feedback and discernments of the customers as much as by the perceived discernments of their hierarchical leaders. Customers are becoming "organizational consultants", as Schneider and Bowen, two service management researchers have written in 1995.

However, in most cases it is not sufficient to believe that customers will do the co-change job alone. Internal change management for mass customization demands that the firm's (top) management actively installs programs to comply the organization's norms and routines with open innovation. The most generic starting point is this regard is to adjust the firm's cultural guidelines. Today, most firms have written cultural guideline, which are taught to all members of the organization. Within these guide lines, often regularly a code of conduct in regard to the firm's stake holders is included, mentioning also the customer. On this level, open innovation and the role of customers as a value co-creator have to be deeply integrated and communicated. But just writing about the need for open innovation is not enough.

Companies have to develop change management programs addressing this need. Do you have own experiences or ideas in this regard? Write me -- I am very interested in your insights!

Re-Post: Analysis: Why Levi Strauss finally closed it's "Original Spin" MC operations (from MC News 1/2004)

Re-Post: I have republished these articles to make them better accessible for search on the blog. This article has been published first in the Newsletter No. 1/2004.

The last mass customization year (2003) ended with an announcement that I already have predicted for much longer: Levi Strauss closed its Original Spin program. Original Spin was emerging in 1997 from the "Personal Pair", the first mass customization program of Levi Strauss originating in 1994. But why did Levi closed its MC operations, being in the field for such a long time, earning quite a high reputation, and being quoted in numerous studies as the textbook example of MC (to say it correctly: on the company's web site, it just says that the MC program is being refurnished and just stopped for a while; however, my feeling is that this break is for rather long).

I just can speculate what were the reasons behind the present stop of the program (a Levi representative was not available for comment for this newsletter). In my presentation on the "myths of mass customization" (see also the related case study in Piller/Stotko 2003) I name the following reasons: One major factor has nothing to do with mass customization in particular but the bad business situation of Levi Strauss in general. If the premier business struggles, companies are going back to their core and this is mass (variant) production in the case of Levi Strauss. Also, due to cost cutting efforts, the last US factory was finally closed, and this was exactly the plant that was producing the customized jeans.

From a mass customization perspective, the Original Spin was over all the years, in my opinion, just a marketing and PR gimmick. As such, it worked very well, generating literally 100s of media reports. However, no concept can sustain just as a gimmick.

But the major reason why the project never took off is from my perspective that it never was a real business model. In an earlier newsletter (www.mass-customization.de/ news/news03_02.htm#editorial) I commented on the three generations of mass customization. Levi Strauss always stayed on the first level. The concept was only based on the availability of flexible manufacturing technology. Levi managed neither to turn the customized product into a customized relationship with its customers (during all its existence, re-orders were never easily possible, and as an active customer myself I never got any request for feedback by the company) nor to use the knowledge from the individual orders for customer knowledge management.

Also, the purchasing experience was in most of the stores rather not a special experience and did not address the high emotional content and complexity (from a customer's eye) of the customized garments. During all the years and my visits at Levi Strauss I never got the feeling that they wanted to make it real and big at any time. However, I strongly wish that Levi will have the courage to re-introduce a new generation of mass customization in the near future. Because one thing was always very obvious: consumers loved Original Spin -- most comments the company got were very positive or even enthusiastic.

Reflect.com closed for business: Learning from a major mass customization experiment

We regret to inform you that Reflect will close for business on June 13, 2005. As a subsidiary of Proctor & Gamble (P&G), the Company has decided it is not currently in its long term strategic goals to continue the Reflect business and brand. We want to thank you for your amazing support and patronage over the years, and for helping us make the concept of custom beauty a reality!

With these words one of the most promising ventures in the mass customization world announced that it will close its doors. The experiment in selling customized cosmetics online started in September 1999, and I used it many times as a premier example of a large company investing in and potentially profiting from mass customization. So this announcement was a real surprise for me in the first moment.

After a second thought, however, closing Reflect in its recent form may come not as such a surprise. In an interview with the Cincinnati Enquire, P&G Spokeswoman Cheryl Hudgins said P&G has learned from Reflect and would apply some of the same techniques to its beauty-care brands (like Cover Girl, Olay, or Pantene). "What happened was, we learned what we needed to learn," Hudgins said.

Reflect's presence online and in the retail world has provided P&G with valuable information and insight on custom beauty. One example of this, now available at retailers in the US, is Cover Girl's Custom Compacts, a simple customization solution of cosmetics. And indeed, it may make a lot of sense for P&G to operate Reflect not as a stand-alone-customization business any longer, but to connect this strategy with its established product lines.

Connecting mass customization and mass production is a very important step for success (This is, by the way, also the theme of this year’s MCPC 2005 conference). To connect customization with an established brand name – and not with a new brand in a brand-driven industry like cosmetics – will help to build trust of customers to purchase customized products, still a new experience for most consumers. Also, knowledge gained from interacting with the customers of the custom goods can be transferred more easily to the standard assortment if the customization takes place in the same organizational unit and builds on the same product architectures.

In addition, building the distribution network and interaction system for customization may be much easier if existing points of sales can be used. To find the right point of customer interaction was one of the largest struggles for Reflect. The company experimented with many different web site layouts, but also with various own store formats. It realized that for a product like cosmetics a pure online version was not enough. Here, an existing retail network may provide a huge advantage.

Concluding, I am curious to see how P&G will utilize its experiences with Reflect.com to include customization in its established core businesses. Nevertheless, for the Reflect.com team, the corporate decision to close their business unit was tough. Ginger Kent, who was CEO of Reflect.com from December 1999 until May 2002, said the Cincinnati Enquire, she was disappointed by the Reflect’s demise. For her, it was more than an experiment. "In 1999 when I joined it, it was definitely a business proposition for the company," Kent said. "It was very much forward thinking. Maybe it was too far ahead of its time, who knows?"