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MARKETS OF ONE HIGH MARGIN BUSINESS IN THE COMING ERA OF MASS CUSTOMIZATION

MARKETS OF ONE HIGH MARGIN BUSINESS IN THE COMING ERA OF MASS CUSTOMIZATION. By Edward J. Fern, MS, PMP. Edward J. Fern, MS, PMP.

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MARKETS OF ONE HIGH MARGIN BUSINESS IN THE COMING ERA OF MASS CUSTOMIZATION

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  1. MARKETS OF ONEHIGH MARGIN BUSINESSIN THE COMING ERA OF MASS CUSTOMIZATION By Edward J. Fern, MS, PMP

  2. Edward J. Fern, MS, PMP . . . is president of Time-to-Profit, Inc., a consultancy focused on business process improvement, project management, and product development. His career in Information Technology began in 1973. He has held director level positions with Sprint, Control Data Corporation, TRW, and Infonet Services Corporation. He earned an MS in Technology Management from Pepperdine University in 1992 and his Project Management Professional designation in 1998. He teaches project management and product development at the University of California at Irvine. He serves as Vice President of Professional Development of the Orange County chapter of the Project Management Institute. Ed is the author of Time-to-Profit Project Management: A Primer for Project Managers in Commercial Product Development. His E-mail address is edfern@time-to-profit.com

  3. REVENUE

  4. EARNINGS

  5. AND NOW • Compaq and Hewlett-Packard will merge into a single company that will have revenues 2.5 times that of Dell but earnings only 40% of Dell’s. • Dell’s way of doing business makes the Compaq/HP way obsolete. • Dell will kill Compaq/HP because

  6. Michael Dell is to MASS CUSTOMIZATIONas Henry Ford was toMASS PRODUCTION

  7. JUST RIGHT QUESTIONS • What is the difference between mass production and mass customization? • What must we change to get into the mass customization business? • What new skills must we acquire and/or develop to be successful in mass customization? • How can we get extra funds to grow our mass customization business?

  8. MASS CUSTOMIZATION IS • drawing on a large collection of modules to build unique products and services that exactly match the needs and desires of individual customers who have already ordered what does not yet exist. • accepting payment for finished products and services before paying for the components of which they are made.

  9. MASS PRODUCTION Inventory is free Time is free Either standardization at low cost or flexibility at high cost One size fits all Market share focus Selling goods and services MASS CUSTOMIZATION Inventory is NOT Time is everything Low cost and high flexibility Customers are particular Market fragment and variety focus Selling service and experiences CONTRASTS

  10. Change employee Recruiting Incentives Training Working conditions Change processes Modularization Flexible systems Change relationships Suppliers Customers Change marketing Direct to customer Active listening Change organization Empowerment Integrated teams Change focus Intellectual capital Customer driven WHAT MUST WE CHANGE TO GET INTO THE MASS CUSTOMIZATION BUSINESS?

  11. CHANGE EMPLOYEE RECRUITING, INCENTIVES, TRAINING, and WORKING CONDITIONS • Recruit generalists, not specialists • Make employees owners and reward valuable behavior • Educate employees about the whole business and train them in needed skills • Empower employee teams to make quick decisions

  12. CHANGE PROCESSES • Modularization • Decompose products and services into discreet modules • Invest is standard interfaces between modules • Flexible systems • Employee judgment replaces rigid rules • Employee teams make (and re-make) their own rules

  13. CHANGE RELATIONSHIPS • Suppliers • Replace competition with partnership • Reward loyalty and demand to be rewarded for your loyalty • Customers • Replace selling with serving • Reward loyalty and earn it every day

  14. CHANGE MARKETING • Direct to customer • Bypass distributors and retailers • Build two-way communication with the end-user • Active listening • ASK about your customer’s problems • Listen for signs of SACRIFICE The differences between mass produced products and services and what the customer really wants are the sources of customer sacrifice.

  15. OUT hierarchy functional organization IN Empowerment Integrated teams CHANGE ORGANIZATION

  16. CHANGE FOCUS Intellectual capital Customer driven

  17. WHAT SKILLS MUST WE ACQUIRE AND/OR DEVELOP TO BE SUCCESSFUL IN MASS CUSTOMIZATION? • Service – design linkage • Multiple project management PHASE and GATE

  18. PLEASING IDENTIFY AND SUPPORT CUSTOMER SERVICE REQUIREMENTS OF THE INDIVIDUAL AND DELIGHT YOUR CUSTOMER • Total Cost of Ownership • New Product Ideas • Relationship Marketing

  19. Customers will see that the cost of doing business with you includes more than the money they pay to you. The MD-11 airliner is essentially a DC-10 that uses less fuel and requires only two pilots instead of three. TOTAL COST OF OWNERSHIP

  20. YOUR CUSTOMER SERVICE DEPARTMENT CAN, AND SHOULD BE THE SOURCE OF INFORMATION ABOUT UNMET CUSTOMER REQUIREMENTS. NEW PRODUCT IDEASfromCUSTOMER SACRIFICE

  21. Become involved in the health of your customers’ business. Test and listen. Measure results. Earn trust. RELATIONSHIP MARKETING THEN

  22. DESIGN TO ELIMINATE CUSTOMER SACRIFICE Customer sacrifice is the difference between what is currently available and what the customer really wants. Sacrifices arise because of differences in: • GEOGRAPHY • CULTURE • AFFLUENCE • GENDER • ETHNICITY • EDUCATION • OCCUPATION • HEALTH • STATUS • POLITICS • INTERESTS • RELIGION • LANGUAGE • AGE

  23. THERE ARE A LOT MORE MARGINAL OR POOR PROJECTS THAN GOOD ONES CARRYING MARGINAL AND WEAK PROJECTS HURTS THE FEW GOOD ONES IDENTIFYING THE LOSERS ISN’T EASY IDENTIFYING WINNERS IS EVEN TOUGHER PROJECT SELECTION BENEFIT MEASUREMENT TECHNIQUES BUSINESS STRATEGY PORTFOLIO MAPPING SCORING MODELS CHECKLISTS FINANCIAL OR ECONOMIC MODELS PORTFOLIO METHODS PHASE AND GATEDARWINIAN PRODUCT DEVELOPMENT

  24. SIX KEYS • MAKE TIMELY, FIRM, & CONSISTANT GO/KILL DECISIONS • PRIORITIZE PROJECTS OBJECTIVELY • ESTABLISH VISIBLE DELIVERABLES • COMMIT NECESSARY RESOURCES • MENTOR & ENABLE PROJECT TEAMS • SET HIGH QUALITY AND EXECUTION STANDARDS

  25. PASS CRITERIA PRIORITY KILL TWO STEP DECISION PROCESS GO HOLD

  26. DELIVERABLES  CRITERIA  ACTION • DELIVERABLES DEFINED IN ADVANCE • CRITERIA AND TOLERANCE DEFINED IN ADVANCE • GO/KILL/HOLD/RECYCLE

  27. HOW CAN WE GET EXTRA FUNDS TO GROW OUR MASS CUSTOMIZATION BUSINESS? On average, Dell collects from its customers six business days before it pays its suppliers: $ 31.2 billion / 260 business days per year * 6 business days =$ 720 million When you eliminate supply inventories, work in progress, and finished goods inventories, you can use your suppliers’ capital to grow your business.

  28. PRODUCTION SPEED • Integrate order processing, supply chain management, production control, shipping, and customer billing into a single, seamless process. • Negotiate exclusive, just-in-time contracts with your suppliers. • Build real time communication links with customers and suppliers. • Reduce or eliminate paperwork.

  29. CONCLUSION All of this is difficult so me must end where we began, with a reminder that this great effort is also very necessary.

  30. THANK YOU!

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