A continuum of strategies shows that while some industries favor customization and some foster standardization, others mix
the two in their products, processes, and customer transactions in intriguing ways. The history of U.S. business during the past 100 years has been a story of mass production and mass distribution of standardized goods. Scholars and practitioners who examined the economic landscape have generally been drawn to large corporations that built their fortunes by transforming fragmented and heterogeneous markets into unified industries.[ 1] At the heart of this transformation were strategies based on standardization: standardization of taste that allowed for standardized design, standardization of design that allowed for mechanized mass production, and a resulting standardization of products that allowed for mass distribution. Recently, a growing number of economists and management scholars have declared that this era is over. Numerous books and articles have posited that we are witnessing the dawn of a new age of customization, an age in which new technologies, increased competition, and more assertive customers are leading firms toward customization of their products and services) Not surprisingly, firms that have adopted customization strategies have attracted considerable attention as models of what is expected to become commonplace in the near future. We begin by describing these two logics. We then argue that this conceptual polarization, which took firm root in the theory and practice of management, led management thinkers to ignore strategies that combine these logics. Put simply, this view itself represents an inappropriate standardization of management theory -- or, more exactly, continuation of the standardization mentality that has long pervaded such theory. Since the days of Frederick Taylor, the notion that managers should single-mindedly pursue the "one best way" has led management writers to seize on one solution or another (or, more often, one solution and then another) as the best practice. Indeed, the enthusiasm for customization today was paralleled by an even greater enthusiasm for standardization many years ago. What has been ignored in all this is that customization and standardization do not define alternative models of strategic action but, rather, poles of a continuum of real-world strategies. By promoting customization as the answer to what ails many organizations, we may be replacing one extreme with another. Managers need to locate their strategies along the continuum, and the role of management writers is to provide the conceptual tools to make this easier. It is not an accident of history that customization is now promoted with the same enthusiasm with which standardization was promoted almost a century ago. Today's customization movement is a reaction to significant economic and technological forces, much as the standardization movement was in its time. But these developments must be viewed with a clear perspective. Therefore, we begin by reviewing how the standardization and customization distinction emerged in the first place. Although most readers may be familiar with the reasons that standardization became dominant at the turn of the century, they may not sufficiently appreciate to what extent this was an act of cognition as well as a reflection of economic and technological forces. Product standardization, mass production, and mass distribution were seen as a conceptual whole, a configuration. Industries that were transformed by this process were contrasted with old-fashioned industries that continued to customize their products. As a result, two logics emerged, a logic of aggregation in contrast to a logic of individualization, that were mistakenly treated as conceptually distinct and mutually exclusive. We argue that this conceptual polarization, which took firm root in the theory as well as the practice of management, led management thinkers to ignore strategies that combine these logics. We thus describe a continuum of five strategies, from pure standardization to pure customization, and then apply them to various industries. We then argue that the most striking recent trend has been not toward pure customization, but toward some middle ground that we call customized standardization. The Logic of Aggregation Economic theory takes a bird's-eye view of markets. It strips them of their complexity and variability, aggregating firms and individuals into two groups: buyers and sellers. In contrast, management theory, especially in strategy, starts with the relationships of specific firms to their environments. Sellers are therefore disaggregated. Customers, however, continue to be viewed collectively as a group (or a set of segmented groups) that shares common characteristics. This has led managers and researchers alike to emphasize the advantage of economies of scale in every part of the value chain, from development to production to distribution, which in turn has promoted a focus on industries in which customers' shared characteristics are easily established. Thus, in his 1980 book, Porter draws on 196 industries to illustrate his ideas. By our count, 176 of these have been dominated by the logic of aggregation, while only 20 can be
Some twenty years later. The polarization between aggregation and individualization centered on the role of standardization as a prerequisite for mass production and mass distribution. as we shall argue. The vigor of the standardization movement was so pronounced that two French travelers of the period concluded that the U. To overcome this resistance. perhaps. In 1900. Years ago. Aggregation strategies became the norm against which effective business behavior was judged. companies began to target specific groups of consumers. consumers. and distribution. After a long string of notable successes in such industries as shoes. production. barely a few hundred remained." They contrasted the virtues of aggregation with the vices of individualization. automobiles. government survey. and other products such as metal containers that epitomize standardization. these strategies came to seem both self-evident and compellingly logical. there began a gradual move away from the extreme forms of aggregation. Over time. these maxims were reflected in the resolution of longstanding difficulties in product design. The following maxims capture the basic imperative of the logic of aggregation: ( 1) reduce the impact of customers' variability on internal operations. The upshot of this inclination has been to associate aggregation with the search for efficiency and so to help root the concept at the core of managerial thinking. there were 23. Management thinkers counseled against the proliferation of products. the movement had a momentum of its own. "Over a period of years of experience with builders and architects." a claim they would hardly withdraw today after a visit to McDonald's. from the opposite side. the proponents of the new order launched what came to be called the "standardization movement. Or. as well as homeowners. under the label of "market segmentation. Not surprisingly. the mass production and mass distribution firm was singled out as the most rational approach to gaining competitive advantage.S.
. and the colors of men's hats were reduced from 100 to nine. but two examples may help. for this was not a movement toward serious customization so much as toward the aggregation of the submarket or the market class. one leading manufacturer's output was one customized tub per day! The practical lessons learned during this period were subsequently incorporated into the mind-set of the newly emerging management "profession. it may be difficult to grasp the magnitude and speed of this transformation. Indeed. government to enforce the "simplification" of U.the kind of good intention with which the road to hell or bankruptcy is proverbially paved.S. and fast food. industry. and delivery of the product were standardized as well." In the mid-1950s. we have found that the five-foot tub is on the average an adequate size bathtub for the average size person." In retrospect. the rather more common occurrence of the latter than has generally been thought).S.S. For example. according to a U. After the war. the mass market in many industries had reached such a large scale that segmentation posed few real dangers to efficiency in production if not strictly in distribution. legal sanctions were relaxed. sales. and even managers. before people were standardized into those fivefoot bathtubs. Yet it is often forgotten that all this was accomplished despite considerable initial resistance -. a survey of eighty-four product classes showed a reduction in variety at times amounting to 98 percent of its 1921 level. the experience of these functional areas coalesced into a well-defined set of strategies that promoted the advantages of scale economies while suppressing the pull of market heterogeneity." When the study of business became a scholarly pursuit at the turn of the century. hospital beds that had come in thirty-three different sizes were all standardized to a single size by 1929. The advocates of aggregation argued that the full potential of mass production could be realized only if design. the industries that Porter uses most often to illustrate his framework are in bulk production of goods such as chemicals. the logic remained the same.560 custom shoe-making establishments.considered to have tilted toward that of disaggregation (despite. the number of bed blanket sizes dropped from seventy-eight to twelve. but. retailers. these advocates prevailed on the U. businessman "has standardized the individual in order to be able to standardize manufacture.S. most had been replaced by large. integrated operations producing the now familiar standard-sized shoes. By 1929. and then (3) simplify and streamline interactions with the customer. thereby creating the polarization that has shaped U. in 1916. management thinking ever since. Nevertheless. (2) do so by identifying general product and customer categories." Encouraged by automation in manufacturing as well as the shift from rail to road in transportation and changes in the mass media.from workers. by then. As one manager explained. and even such an influential writer as Lyndall Urwick warned that the temptation to respond to customers' demands could be ruinous: "To allow the individual idiosyncrasies of a wide range of customers to drive administration away from the principles on which it can manufacture most economically is suicidal -. branded goods such as soft drinks. During World War I.
In production. beyond this. there remained areas of economic activity where it failed to take over. Since the cost of customization tends to increase in proportion to the number of product changes. to take a common example. while retaining standardization for the rest. Resistance to aggregation has also been common in transportation. we find a continuum of strategies. the orientation is toward the management of each transaction. there are industries where product. Firms may offer customers special delivery services or individualized financing. is the capital goods sector. The latter reflect an organization's ability to customize partway back in its value chain. forcing Toyota to abandon the effort. More significant. and automotive products. In the manufacturing firm. while the rest of the industry continues to follow an aggregation logic.The Logic of Individualization Although the logic of aggregation became dominant in many industries. The standard telephone service of the past has given way to a varied menu of features from which customers may select their own preferred combination. Between Aggregation and Individualization: A Continuum of Strategies Although pure aggregation and pure individualization are perceived as opposing logics. which at one time boasted that customization meant it could produce "any volume. In industries such as pulp and paper machinery." And since products can be designed for particular customers. Of course. while others favor intermediate positions. Ultra Pac. such as personal tailoring. where products continue to be designed to customer specifications and manufactured in job-shop facilities. Or. In effect. It is developing three-dimensional scanning systems to produce custom-made clothes. anytime. But the best solution is not necessarily a compromise. production. the individual customer can be deeply involved in every aspect of the transaction and expects key product decisions to be negotiated jointly. In some cases. But. Obvious examples are certain traditional crafts. More recently. Its competitors can ship an item within three days as well. Textile/Clothing Technology Corporation. steam turbines. but only if the order conforms to standard designs. flight simulators. of anything for anybody. process. launched an all-out effort to offer buyers individually customized automobiles. products can be "made to order" or "tailor made. fine jewelry making. has launched a more revolutionary initiative. and transaction vary markedly in their degree of customization. can customize 400 to 500 different kinds of packaging and ship them within three days of order. production managers often see aggregation as the best way to increase efficiency. leisure. by the mid-nineties. Toyota seemed well on its way to accomplishing its goals. some of this can go too far. In the mid-eighties. different forms of marketing. Instead. including services. In just the operating processes. and construction. In many other instances. However. there has been a move to greater customization in a wide variety of industries. Nissan. It is perhaps not a coincidence that the term customer looms large in sales managers' vocabularies. as we shall see. The differences in vocabulary reflect clashing viewpoints that remain unresolved even after working compromises have been achieved. fine restaurant cooking. where firms often respond to the needs of individual customers despite the ceaseless drive toward greater economies of scale. this influence has not led to the emergence of two distinct groups of strategies. commercial aircraft. production costs began to soar. In industries where the logic of individualization is pervasive. For example. it makes sense to customize the downstream functions first. some firms tilt one way or the other because of the needs of the customers they choose to serve. and clinical laboratory testing. of course. insurance. perhaps. they may be prepared to assemble on
. while production managers prefer to speak of outputs and schedules. Initially. a company that makes plastic food containers. for example. an industry research group. and grinding prescription eyeglass lenses. the change has been highly visible. research and design can lose much of their isolation from the marketplace. specific companies are pursuing customization. depending on which functions lean to standardization and which to customization. In marketing. and product development dominate. It shapes a figure on a computer using the information on individual measurement and then relays the data to agile manufacturing facilities where the finished product is shipped within days. whereas sales managers often consider individualization as the surest approach to increase sales. firms seek to develop a direct relationship with the individual customer." re-treated from customization when it became clear that buyers did not want eighty-seven different varieties of steering wheels. which had been in the forefront of the manufacturing revolution. The same transformation has taken place in banking. Toyota. Other Japanese automobile companies that followed Toyota's example ran into similar problems. while refusing to allow changes in production. anywhere.
in the delivery schedules of major appliances. with fundamental design. the builder will modify a standard design for particular customer wishes. but not at the customer's request. or even distribution decisions. Thus the products offered are standardized within a narrow range of features. A tailored suit. Each customer thus gets his or her own configuration but constrained by the range of available components. assembly. the variety of automobiles that followed the Model T. mayonnaise. Individualization reaches its logical conclusion when the customer's wishes penetrate deeply into the design process itself. respectively. These two approaches give rise to the continuum of strategies based on standardization and customization that we introduce here. At most. for example. A good deal of traditional business is conducted this way. He or she has no direct influence over design. and distributes it individually to the single customer (as opposed to selling it generically. ketchup. We develop this continuum for a manufacturing firm with four stages in its value chain: design." Basic design is not customized. In other words. Standardization. as do hamburger chains that allow customers to specify their preferences for mustard. Thus value chain customization begins with the downstream activities. and even bumper stickers are examples of segmented standardization. Stepping customization back one notch at a time along this chain gives rise to five different strategies (see Figure 1): • Pure Standardization. which offers almost limitless variety.Here customization works backward to the fabrication stage but not to the design stage. fabrication.for example. Under such a strategy of pure standardization. The company presents a product prototype to a potential buyer and then adapts or tailors it to the individual's wishes or needs." or "configuration. This strategy is based on a "dominant design" targeted to the broadest possible group of buyers. Pure Customization. to the extent to which the firm conceives the product initially with regard to a single customer's needs. and then distributed commonly to all. The assembly is thus customized.demand. and the components are all mass produced for the aggregate market. for example. and then progressively embraces fabrication. while the fabrication is not. Artisans who do this are wall known. Automobile companies that offer the buyer the option of selecting his or her own set of components engage in customized standardization. Firms respond to the needs of different clusters of buyers. constructs and then assembles the product with regard to those needs. where the product is truly made to order. there are no distinctions between different customers. as in "over the counter"). but each cluster remains aggregated. tomatoes. Ford Motor Company's strategy during the era of the Model T was the quintessential example of pure standardization --any color so long as it was black. closest to the marketplace. produced on as large a scale as possible. Thus the traditional men's tailor will show the client standard fabrics and cuts that he can adapt to the client -. according to customers' requests. The entire organization is geared to pushing the product from one stage to the next. begins upstream. This is sometimes constructed around a central standard core. A basic design is modified and multiplied to cover various product dimensions but not at the request of individual buyers. and so on. These refer. or a birthday cake with your name on it are examples of tailored customization. and distribution. the segmented standardization strategy results in hyperfine distribution --as in the market for designer lamps. there may be a somewhat greater tendency to customize the distribution process. Tailored Customization. Individual choice is thus anticipated but not directly catered to. The buyer has to adapt or else switch to another product. a rug woven to order. and may then spread upstream. hence our label of customized standardization. A segmented standardization strategy therefore increases the choices available to customers without increasing their direct influence over design or production decisions. production. wider lapels than normal or adjustments to accommodate an unusual physique. "modularization. Of greater
. for example. such as a hamburger or an automobile body. Customized Standardization. When pushed to the limit. although we might also call this standardized customization. The client will later come back for a fitting and more tailoring. while refusing to modify a product's core design and the standardized fabrication of its parts. products are made to order from standardized components. beginning with design and ending in the marketplace. Segmented Standardization. The proliferation of cereal brands. assembly. a jeweler or a residential architect who designs to customer specifications. in home construction. and distribution. in contrast.
fabrication. Production takes place in highly mechanized. industrial instrumentation. That. Thus
. Here we wish to extend this to products. Thin Industries. assembly. and destroying them for their own competitive advantages. complex.. which make products such as disposable diapers and gasoline. as in the production of supercomputers and steam turbines. The frame may have been too handy. While economists were reifying the categories. book. therefore. all stages -design. therefore. For some purposes at least. perhaps. they can be very large. and to transactions. firms tend to organize their products and distribution on the basis of catalogs -as in the record. including large-scale production machinery. We also want to extend this beyond conventional manufacturing to other kinds of operating processes. the proliferation of designs favors the strategies of segmented standardization. by which buyers come to agreements with sellers. Catalog Industries. and cement). proves true only some of the time -." such as NASA's Apollo project or the Olympic Games.confined to making a selection. for which there is no design. These variations also carry an important message about the very notion of classifying industries. Here it helps to illustrate the various ways in which companies adopt these five strategies in practice (see Table 1). Menu Industries. and. The traditional polarization between buyers and sellers is transformed into a genuine partnership in which both sides are deeply involved in each other's decision making. where customization is pervasive. is the pure customization of major products and services. Accordingly. inflexible facilities. although segmented standardization may become more common as the industry matures. a fully customized process should produce a fully customized product via a fully customized transaction. but often this is standardized mass production. plate glass. combining. however. so that transactions tend to be generic.impact. Pure standardization thus tends to be the most common. Products in these industries are unique and are produced in craft settings. based largely on groupings of products and services around a set of common characteristics (e. largely in the industries popularly cited in the literature. Product strategies. while certainly not unique. If these processes vary along the customization scale from fully standardized mass production to fully customized craft production. or assembly. It may seem evident that wherever a particular process is located on our continuum of standardization and customization. toy. and transactions from being generic to being fully personalized. consistent strategy. classifying industries along the standardization and customization continuum may. Buyers are closely involved in the design of the product and generally expect a high commitment to after-sales service. such as services and mining. although the transaction tends to be generic -. In what we call menu industries. management people.The buyer has a wide array of choices. These groupings were manifest particularly in the Standard Industrial Classification (SIC codes). and much construction work.and. For example. At the opposite extreme are what we can call "thin" industries. and protracted. and government officials a handy frame of reference to collect and organize data. which of course also vary in their degree of customization.are largely customized. indeed. managers were splitting. But there are other important industries that are more varied and more nuanced. apply the logic of aggregation fairly consistently. interestingly enough. and mass advertising is combined with mass distribution to target customers through retail or wholesale organizations. often regarded as commodities. necessitating considerable cooperative buyer and seller efforts. Industries by Customization We have described five strategies of customization and standardization along the operating processes of manufacturing from design to delivery. tend to be segmented standardization. Sometimes the short production runs can render the production process somewhat craftlike in nature. • Mass Industries. however.g. electric lamps.  The products themselves. Mass industries. because it has proved rather static. and distribution -. which produce products such as printed circuit boards and financial services. then so too can products (and services) vary from being commodities to being unique. so too must be the associated products and transactions. fabrication. The logic of aggregation encouraged classifications of industries that were rather stable and standardized. buyers have a menu of choices from which to select features of the final product. and pharmaceuticals industries. Here. In some industries. represent major instances of pure customization. cannot be considered commodities either. So-called "megaprojects. the products are standardized. so they reveal more of the real meaning of customization. be more useful. Transactions are intermittent and highly individualized. which has given economists.
where a relatively standardized core design is adapted to individual customer needs. Powerful customers of various courier businesses. Aggregation and individualization also combine in professional services such as health care and auditing. governed by standard contracts. takes place in dedicated. Individualization is an important factor in tailoring industries. Agent Industries. The transaction is totally impersonal. But this standardized interface produces a rather customized service. no two letters take the same route on the same day (or else they would logically be combined in a single envelope). Sellers personalize transactions to allow for considerable customer input. Transactions involve negotiations and reciprocal relationships between buyers and sellers. the letters are always handled in bulk even though each gets hatched and rebatched individually. and price.a virtual renaissance of customization. 2. tailoring highly developed (meaning standardized) sets of professional skills to specific customers' requirements. the transactions tend to be personalized. because the post office configures standardized processes for each order. and after 1990. technical. Bulk Industries. But. however. Tailoring Industries. or medical interests. mostly about peripheral design changes and perhaps price. tailored customization can also be widespread. for example. can seem like pure standardization. A craft assembly system modifies the standard core design into a dedicated product. yet pure customization in transaction. and after-sale services. (We do not generally bargain over price with our doctors. usually on long-term contracts. and retailing -. from 1981 to 1990. can demand special services in addition to those normally offered. each intervention (such as an appendix operation or a drug prescription for a nervous disorder) is based on a standardized procedure adapted to a particular patient's condition. complex interventions (such as the treatment of a kidney transplant patient with a potential stroke condition) can require such complicated combinations of procedures that they begin to look like pure customization.324. Routing industries. the production function assembles prefabricated components into finished products. which limits the latter's input into the operation's processes. delivery conditions. such as data transmission and delivery services. In health care. although the transaction itself is customized. We call these agent industries because sellers act as agents on behalf of buyers --custodians of their financial. The transaction tends to be rather generic or standardized. Routing Industries. Once the configuration has been decided. Thus. 234 articles. Our own survey indicates that from 1971 to 1980.
.Of course. As its name indicates. relatively inflexible facilities. Yet these professional activities tend to be craftlike in nature. But while the service is customized. Thus. In some routing industries. while the products are commodities and the production facilities are automated and relatively inflexible. if not assembly. the dominant strategy in these industries is tailored customization. take place during periods of technological discontinuity or when sellers deal with exceptionally powerful buyers. Toward the Customization of Perspectives A flood of recent publications attests to the widespread belief that we are in the midst of a fundamental technological change in manufacturing. however. for example. an average of only twenty articles on customization appeared annually.) The seller is ordinarily far more knowledgeable than the buyer. Bulk industries like nonferrous metals and coal produce large volumes of standardized products
that are sold (in bulk) to customers. fabrication. and stipulated by professional or technical codes of conduct. such as residential housing and mainframe computers. such as certain cataract operations. Processes as well as the services themselves are therefore best described as tailored customization. Put differently. communications. Hence the strategies are essentially ones of pure standardization in product and process. by the same token. the process can be described as customized standardization. distribution. They accept their customers' orders in purely generic ways but then route them completely individually.•
customized standardization tends to be the preferred strategy. offer an intriguing mixture of standardization and customization. Shifts toward pure customization can. highly routine interventions. Sellers and buyers negotiate size of order. while transactions in menu industries achieve a degree of customization. delivery conditions. in processes that are fixed and inflexible! Thus a customer of the post office writes an address on a letter and simply drops it in a mailbox. The post office delivers 100 million letters on a particular day that have followed 100 million different routes.
After a century in which management writing has been dominated by the search for the standardized solution. however. driven by the same technologies. but can hardly be described as constituting great freedom.which. to be sure. But that does not justify a shift toward the other extreme. on customized standardization. Over time. The management field is a child of necessity and experience. we lose choice as we all become categories of generic consumers in an assembly operation. must coexist with all kinds of countertrends -. Industries by Customization
Industry Mass Thin Catalog Menu
Process Strategies Standardization Customization (Segmented) Standardization Customized
Product Strategies Standardization Customization Segmented Standardization Customized
Transaction Strategies Standardization Customization Standardization Customization
. often have to ignore the theorists' generalities because their own work brings them into specific contexts that are nuanced and. just as the professor who once used his or her own draft materials or privately reproduced readings may today opt for one of those new reading packages. Experience tested and transformed those concepts into basic assumptions. as consumers. For this reason. the epitome of standardized knowledge. namely toward the strategy of customized standardization. unusual -. therefore. even if the content of the new theory is about customization. isn't it time to customize our concepts too? Table 1. what had been a loosely related network of concepts became a highly institutionalized framework. these new technologies have not had the effects accorded them. Even the college textbook. The shift from pure or segmented standardization to customized standardization has certainly been most obvious. engineering. if there is one dominant trend -. have opened the way to the restoration of individualization in business areas hitherto dominated by the logic of aggregation. Recent developments in technology have certainly brought that framework into question. ironically.while less publicized. And. however. Indeed. can now be customized to suit an individual professor who selects various sources and can sometimes take delivery of the published version within forty-eight hours. and manufacturing technologies that have blurred the traditional barriers between batch and mass production. and have served to uncouple formerly tight relationships between manufacturing and design. ironically. The challenge of understanding the large industrial enterprise gave birth to its key concepts. as at the turn of the century. in the marketplace or the body politic. The effects of computer-aided design and manufacturing have produced striking examples of previously standardized products that can now be customized. we repeat. as we have tried to show in both our continuum of strategies and our discussion of industries. we lose individuality as we settle in the middle. specifically the dramatic shift to customization. one secret of successful management today. The high-rise building that was once uniquely designed may today look like a combination of rather standardized components. In a sense. because. our thinking remains standardized. we lose flexibility in one area while gaining it in another. The right to specify mayonnaise on a hamburger. An important consequence of this trend is that.it is from both ends of our strategy continuum toward the middle.The initial impetus is generally considered to have come from new information. a bigger engine in an automobile. all sorts of situations continue to exist. Rather. The temptation to standardize concepts is ultimately rooted in the wish to simplify the world and make our frameworks as general as possible. is to customize standard concepts to fit specific applications. Yet the shift from the other end of the continuum -. In our opinion. as a number of our examples show. in fact. may in fact be equally noteworthy and. Managers.from pure or tailored customization to that same middle position of customized standardization -.at least compared with standardized theory. or the readings in a course package may give some individuals more choice.
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