Manufacturing and services – part 4 (what customized really means)

I was recently at a conference where Klaus Hoehn, the VP for Advanced Technology and Engineering for John Deere spoke. He made a very interesting off hand comment. He said that Deere was in the business of providing functionality — and was moving toward providing integrate customer solutions.
His comments recalled to mind a story of innovation in Christensen’s The Innovator’s Dilemma about steam shovels (see summary). One company was in the business of building bigger shovels with greater power. And the best technology was the cable system. Another company, however, developed the new hydraulic system was not as good as the steam cable system — but was very suited to narrow spaces. They got in the business not of providing big powerful shovels but of digging narrow trenches (such as for pipe laying or house foundations). Functionality – not a specific product.
The Deere quote is similar to what we keep hearing from a lot of companies. The mass production model (of more and more of the same) is giving way to the customization model. This is a trend we have been talking about for some time — and that helps define competitiveness in the I-Cubed Economy. But we are just beginning to bring our mindsets around to what it means. Originally, customized manufacturing meant the flexibility to run smaller batches of mass produced goods or to add certain features to a basic product. Hence it was also know as flexible manufacturing.
However, at its heart, customized manufacturing really means providing the customer with a product uniquely suited to their needs. The phrase “just-in-time; just-for-me” has been used to describe this level of customized goods. It is not about the product; it is about the customer.
From that perspective, distinction between manufacturing and services begins to blur. What business am I really in? Is my business making backhoes? Or is my business selling contractors ways to make holes in the ground? With that question comes a change in orientation from making the product better to providing “integrate customer solutions.”
The classic case is Rolls-Royce as noted before. The aviation division of Rolls doesn’t sell jet engines, they sell thrust in the form of hot air out the back of airplanes. The monitoring and servicing of the engines is as important as their manufacturing. And the servicing works because they designed and built the engines in the first place.
By the way, the same shift is happening in “services” — at least in some areas. What does the customer need rather than how to I make my particular service faster, better, cheaper. It is really a shift from efficiency (the focus in the industrial age) to customer-focused innovation. (Note: I have to use that clarification of “customer-focused” since most of our view toward innovation is still on making the product the faster, better, cheaper).
That is not to say that faster, better, cheaper is not a factor. But faster, better, cheaper is not any of those if the product really doesn’t suit my needs. If what I want to do is travel a mile from my house to my office, a bicycle or a bus may be a better solution than a Ferrari.
The switch in focus from the product (good or service) to the customer needs is a move beyond the age of mass production/mass consumption. The switch is well underway in the economy. Businesses, like Deere, understand this.
So, what are the public policies appropriate to this new era?

2 thoughts on “Manufacturing and services – part 4 (what customized really means)”

  1. Finding the new growth model

    Here is an interesting bit from a recent article by James Fallows interviewing Nouriel Roubini – Dr. Doom Has Some Good News: “The question is, can the U.S. grow in a non-bubble way?” He asked the question rhetorically, so I…

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  2. Manufacturing and Services – Part 5

    In an earlier posting, I mentioned how manufacturing companies, such as Deere, more and more see themselves as providing “integrated customer solutions” rather than building products. I recently came across a study by Deloitte on The Service Revolution…

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