European Mana gement Journal Vol. 14 No. 5 pp. 442-450 1996 ~ Pergamon Copyright © I990 Elsevier Science Ltd rinted in Great Britain. All rights reserved S0 2 63 -2 3 73 (9 6) 00 03 7- 0 0263-2373/96 I5.00+ 0.00

From Mass Production to

MassThe Case Customization of the National Indust rial Company of

SURESH KOTHA Assistan t Professor of Business Policy and Operations Mana gem ent Stern School of Business Ne w York University

By means of a detailed study of the National customization, firms can produce enough variety in I n d u s t r ial Bicycle C o m p a n y o f J ap a n (NIBC), products and/or services so that nearly everyone finds Suresh Kotha examines the dynamics of imple- exactly what he or she wants at a reasonable price (Pine, menting mass customization in a firm that pursues 1993). both mass production and mass customization in two different factories. NIBC reaps superior return s According to Kotler (1989) the concept of 'mass market' b y e m p l o y i n g a s y s t e m w h i c h i n c r e a s e s i n t e r a c ti o n is dead and market segmentation has now progressed to b e t w e e n t h e m a s s production and mass custom the era of mass customization. Kotler and others argue f a c tories and encourages k n o w l e d g e c r e at io n . that firms operating in the current com petitive landscape can no longer produce standardized products or services The author then considers the m ost important for homogenou s m arkets and still command superior extern al (indu stry level) and internal (firm level) returns. In this context, mass customization represents conditions w hich are necessary to s u c c e s s fu l l y the 'new frontier' in a world of increasingly saturated p u r s u e m a s s c u s t o m ization, and points ou t t h a t t h e markets and sluggish growth in demand for many interactions and interrelatio n s h i p s b e t w e e n t h e m a r e manufactured products 0Nestbrook and Williamson, i m p o r t a n t to a successful outcom e t o o . C o p y r i g h t © 1993). 996 Elsevier Science Ltd The growing interest in mass customization has led researchers to sug gest that firms that shift from mas s ntroduction production to the emerging paradigm of mass customization will gain a competitive advantage. Mass customization as a viable approach to competitive Emerging literature on the topic suggests that mass strategy is capturing the imagination of both managers production and mass customization are fundamentally and business academics. The term 'mass customization' different and incompatible paradigms. Pine e t a I (1993), has been described as 'a world of paradox with very the key proponents of this view, note that mass practical implications' (Davis, I987). The concept is production and mass customization approaches require based on the notion of 'economies of scope' where different organizational structures, values system s, advances in manufacturing and information technology, learning method s, and ways of relating to custom ers as well as new management methods (e.g. JIT and lean (see also Kotha, 1994). production), enable firms to provide product variety and customization through flexibility and quick respon- Although this emerging literature on the topic is helpful siveness in ma ny industries. Em ploying mass in enumerating differences between mass production and

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electronic circuit boards

FROM MASS PRODUCTION TO MASS CUSTOMIZATION

mass customization, we kn ow little abou t the dynamics to understand the industry conditions that NBIC faced of implementing mass customization in a firm that is during the 1980s and early 1990s. heavily dependent upon mass production. Based on an in-depth study of the National Bicycle Industrial Company (NBIC), I examine the dynamics of imple- Ch an gi n g I n d us try Con d i ti on s men ting mass custom ization in a firm that pursues bo th mass production and mass customization (Kotha and Bicycle producers in Japan can be subdivided into two Fried, 1993). By simultaneously pursuing b oth mass groups: manufacturers and assemblers. As their name production and mass customization, NBIC has denotes, the assemblers purchase all their components develop ed a system that it then exploits to reap from outside parts suppliers and only assemble the in their facilities. In contrast, m anufacturers andsuperior illustrate returns. the Imechanisms discuss NBIC the s firmcom haspetitive institut strateged toy design and manufacture impo rtant structural com pon ents link the two approaches. In doing so, the following that include the bicycle frames and front forks, but bu y question is addressed: What are the important external othe r com pon ents (e.g., pedals, wheels, and tires) from (industry-level) and internal (firm-level) conditions external suppliers. Historically, manufacturers accounted neces sary for successfully pursuing mass customization? for most of the bicycles prod uced in Japan. Starting with the 1980s, bicycle shipments were evenly split between the manu facturers and assemblers. NBIC and its pproach to Com petition Bicycles in Japan are distributed through wholesalers, retailers, supermarkets, and depa rtm ent stores. Th ere NBIC was Japan s secon d largest man ufacturer of were approximately 1,600 wholesalers and about 38,000 bicycles in 1992, with sales of nearly ¥20 billion. The retailers in 1 99 0. W hereas ma ny wh olesalers wer e firm manufactures and markets bicycles under three subsidiaries of leading manufacturers, such as Bridge- differe nt bra nd nam es: , N ational, and Hikari. stone, M iyata, and N BIC, retail outlets, for the mos t part, NBIC targets each brand at a unique market segment, we re small family-ow ned stores. A ppro xim ately 60 per and together these three brands cover a wide spectrum cent of bicycles sold were transferred from wholesalers of bicycles sold by the firm in the Japanese Bicycle Indu stry (JBI).Tw o of these brands, Na tional an d Hikari, to retailers, while the remaining were distributed through supermarkets and department stores located form th e bulk of NBIC s prod uction and sales. The firm s throughout the various islands that constitute Japan. In mo st exp ensive line, Panasonic, acco unted for slightly the past, large com pany-o wned wholesalers dominated less than 20 per cent o f total production in 199 2. The the distribution of bicycles. Recently, sup ermarket chains executives at NBIC recognize that the firm is heavily and household superstores or home centers have dependent upon the mass market for the bulk of its started selling bicycles, thus enabling assemblers to gain revenu es and profits, and that this situation is unlikely to an increasing share of the industry. change dramatically in the near future. Durin g th e late 1980s, the bicycle indus try in Japan was The firm has two factories, one for mass production and maturin g rapidly. De man d was sluggish, and the ave rage the other for mass customization, located adjacent to unit price the customer was willing to pay for a each other . Initially con cep tualiz ed as a pilot plant, the standard bicycle was falling. As the dem and for bicycles mass-custom factory was built in 1987. Here the high- plateaued, there was increasing competition among the end, custom -made Panasonic bicycles are produ ced and manufacturers. To gain market share, manufacturing shipped to dealers for delivery to individual customers. firms such as and NBIC introduced In 1992, NBIC prod uce d 700,000 bicycles, 90 per cent of numerous new models. Although the average prices of which were produced by the mass-production factory and shipp ed to Matsu shita s (NBIC s parent corpo ration) sporting bicycles, the high-end market segment, were increasing, even this segment was not experiencing any sales subsidiaries. In contrast, only about 12,000 of these substantial increase in growth. bicycles were produ ced at the firm s mass-custom factory.

M as s C u s tomi zation at N IC The majority of the firm s 470 w orkers worke d in the mass-production factory. Of these, slightly mo re than 66 It was und er such indus try cond itions that NBIC s per cent are classified as direct or line workers and the Ma nagin g Director, Hata, along w ith the firm s president, rest as indirect workers. O nly a few (about 18 wo rkers in decided that it was time to rethink NBIC s strateg y. The 1989) of NBIC s best skilled line wo rkers p rodu ce the firm then em barked on the p ath to conceptualize, develop custom-made Panasonic bicycles at the mass-custom and implement an innovative approach to competition. factory. Operating on a single-shift basis throughout the Am ong othe r things, NBIC s managers wanted a system year, these highly skilled workers produce a small that wo uld help the firm increase its m arket share in the fraction of the firm s total bicycle produc tion. high-end market segment (Panasonic bicycles in this case). Mo re importantly, they w anted to devise a system To better appreciate the conditions under which the firm of production and delivery that clearly differentiated developed its approach to customization, it is necessary NBIC s Panasonic brand from competitors products, and

EuropeanManagement JournalVo 4No 5 October 996 44 3

FROM M ASS PRODUCTION TO MASS CUSTOMIZATION

fulfilled the custom ers gro win g need for variety. In other Figure 1 illustrates the process steps involved in words, they wanted to customize bicycles to individual produ cing a custom -Panasonic bicycle at NBIC s mass- cus tom er specifications. 1 custom factory.

The p roject leader, H ata, work ing with a multi-functional team (e.g., product designers, process engineers and o t a n Either/Or Approach prod uction workers), dev ised the firm s approac h to mass customization . Und er his stewardship, the team com- Recognizing that the mass-production and mass-custom pleted the project in a mere four months. The new system factories can serve different segments, NBIC is pursu ing that was devised was named the Panasonic rdering both approaches simultaneously. The firm does not v iew the paradigms of mass customization and mass produc- System (POS) and un veiled to custom ers in Japan. tion as an either/or proposition. The recognition of this Under POS, Japanese consumers were guaranteed that fact is critical for managers interested in mass customiza- custom -mad e Panasonic bicycles will be delivered in tion, because the em ergin g literature has focused mainly two weeks. Moreover, the cu stom-mad e Panasonic on highlighting the differences between the two bicycles were priced at about 20 to 30 per cent higher approaches, thereby suggesting that they are (depen ding on the particular mo del and features selected) incompatible. than comparable Panasonic bicycles produc ed in the mass-production factory. In an effort to pursue both approaches, NBIC s m anagers have intentionally created two separate manufacturing The introduction of custom-made bicycles caught facilities. The mass-production factory caters to a large NBIC s major competitors, Bridgestone and M iyata, by market segment and is organized along traditional lines surprise. In response, these manufacturers scrambled to of effcie ncy. Here, the emphasis in manu facturing is develop and implement their versions of mass- driven b y efficiency considerations such as achieving customization. Within a year, these two firms offered economies of scale through long production runs. their versions of a mass-customized bicycle, only to find Bicycles are produced to inventory based on pre- that their ent ry into this seg me nt was not as effective as determined forecasts. This factory is indirectly linked to

NBIC s. forthe final popular cust omers: bicycle inform modelsation and on colors cu stom orer patternspreferences is gathered at various retail outlets and fed back via sales and m arketing to manufacturing. In other words, NB IC is P u r s u i n g o t h M a s s Production a n d pursuing a low-cost strategy using its different product Mass Customization lines at the mass-production factory.

A careful stud y of N BIC s approac h to mass The mass-custom factory, in contrast, attempts to target customization illustrates many of its distinctive aspects. a smaller segment of the market via a differentiation

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F i g u r e 1 P a n a s o n i c O r d e r i n g S y s t e m at Mass-custom Facto r y NBIC

44 4 European Management JournalVo 4 No 5 October 1996

FROM MASS PRODUCTION TO MASS CUSTOMIZATION

ii il iii iiiiili,,, ~ ~ ~ ~?i~ ~ ~ii??~ ~i~i~ ~ ~ ~i~i~iiii ~ ~ ~

Designs ...... Design and Process Transfer of ideas from custom 7 EngineeringGroup a c t o rbased y on emerging ~ trends) Custom Factoryworke used for training iji ..... Indirect iink to customers i I .. .. . : Mas s P roduction Mas s C u s t o m Factory Factory- (Hikari, National& The PO S System 7 Z A I u ° r s I I D e p t . I I Panasonicbtands) P .. . nic~randonly

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F i g u r e 2 T h e I n t e raction Betwe en Mass customization and M a s s produ©tion Systems at NBIC

strategy. In this approach , the fac tory is d i r e t l y linked to pursuing both mass-production and mass-customization custom ers via retail outlets. For examp le, und er the POS, strategies simultaneously is prese nted in Figure 2. Figure it is the mass-custom factory that assumes responsibility 2 also delineates the different organizational mechanism s for comm unicating with customers. A customer s instituted to link the two different production facilities. selection of options, colors, patterns and models is By linking the two factories, N BIC s man agers h ave directly received by the factory. The firm estimates that created a dynamic system for knowledge creation as a customer can choose from about 8 million possible discussed below. variations, based on m ode l types, color, flame size, and other features, when ordering a custom-m ade bicycle. In this factory, the production process begins after the A System for Knowledge creation arrival of the custom er s ord er and specifications. O nce the individualized bicycle order is produced, the bicycle No t unlike other Japanese w orkers, NBIC s factory is shipped the same day. employees belong to the co mp any union and actively participate in quality circle program s. They m eet once a Not only is NBIC pursuing both approaches m on th to discuss quality and safety issues. Additionally, simultaneously, the Panasonic product line includes both the workers are periodically tested and ranked based on mass-produced and mass-customized bicycles. At first their skills by the senior managem ent. The h ighest glance, such duplication seems unwarranted and ranked workers are provided with the opportunity to wasteful. However, given that one of the objectives work at the mass-custom factory where the wages are for introducing the POS was to increase their market higher. Since the process emp loyed in the production o f share of the high -end p rodu ct line (Panasonic bicycles), it custom-made bicycles requires a blend of human skills appears that NBIC s m anage rs have implicitly reco gnize d and com puter-integ rated manufacturing, a higher skill that the benefits of attempting mass customization base is necessary to function in the mass-cu stom factory. transcends that market segment. In order to benefit the Therefore, NBIC s m anagers hav e established a system firm as a whole, they have instituted a centralized where top-rated workers are rotated between the two structure that enhances the sharing of information factories. between the facilities and across market segments. More importantly, to prom ote information exchange NBIC s This process of rotating workers appears insightful wh en senior managers have instituted several simple we consider Nonaka s (1991) argumen ts that creating mechanisms that increase the interaction between the new knowledge in a firm involves more than mass-production and mass-custom factories. mechan ically processing objective information. He argues that it requires the tapping of tacit knowledge Much of the discussion regarding the dynamics of and often highly subjective insights, intuitions, and

European Management Jou rnal Vo 4 No 5 October 996 44 5

FROM M ASS PRODUCTION TO MASS CUSTOMIZATION

ideals of employees. Many of the process-related skills directly from consumers in the custom segment, product required in complex manufacturing situations fit designers identify certain customer trends, such as Non aka s definition of tacit, rather than explicit, popular color combination and patterns, and unique knowledge. However, in order for the firm as a whole custom ized-fea tures that are likely to appeal to to create new knowledge, its individual workers tacit customers of the broader mass-production segment of knowledge must be tapped and made explicit, z Thus, as the industry. In the mass-custom factory, it is the Nonaka (1991: 99) puts it: customer who, by choosing from thousands o f potential combinations, becom es directly involved in the ne w Indeed, because tacit know ledge includes me ntal m odels and produ ct dev elopm ent process. In this sense, the co n s u m er b eliefs in additio n to kn o w - h o w , m o vin g fr o m ta cit to exp licit becomes the prosumer, because he or she initiates the

wish reallya t it ias aprocess n d w h aoft articulating it o u g h t to bone e. Ws h vision e n employees of the w orld invent - processam ong pre-manuof designfactured and production alternatives rather (Womack, than choosi 1993).ng n ew knowledge, they are also reinventin g th em s elves , th e co m p a n y, a nd even the world ... [ T h u s ] a rticu la tio n Arm ed w ith direct customer feedback regarding choices (converting tacit knowledge into explicit knowledge) a n d from amo ng the num erous alternatives, the produ ct internalization (using that explicit know ledge to extend one s designers, in conjunction with the process engineering ow n tacit kn ow ledge base) are the critical steps in this spiral of group, create new product designs for the mass- kn o w led g e. production factory. Based on the forecasts provided by the marketing department, the m ass production factory It is apparent that managers at NBIC recognize this then manufactures the new design and introduces the insight when they institute policies that require mass- produ ct ah ead o f NBIC s leading rivals. Thus, the mass- custom factory workers to train mass production custom factory acts as a conduit for new product ideas, workers. as the customer chooses from the numerous combinations offered. The rotation of workers between factories also has the effect of further broadening the k nowledg e and skill base This gathering and exploitation of information from a of already skilled workers. This constant rotation, in segm ent of innovative users helps the firm to conjunction with a centralized group of product de- dynamically manage the proliferation of ne w product signers and process engineers, enables the firm to designs. By continually analyzing marketing inform ation develop new manufacturing capabilities in both and by rotating v ery highly skilled workers between the advanced custom-made bicycles (based on unique two produ ction facilities, the firm continually updates its customer requirements) and mass-produced bicycles competencies and the organizational routines that it (see Figure 2). For example, NBIC was the first bicycle employs. man ufacturer in Japan to intro duce robo ts for painting in mass p roduction. With minor modifications, such robots The lessons and the m anufacturing skills the firm were then ad opted in the m ass-custom factory. Since the acquires in the custom -factory are readily transferable requirements of the mass-custom factory are driven by to the m ass production factory. Conseq uently, the mass- individual custom er specifications (based o n b od y production factory has undergone slow, but significant, measurements and preferences), each bicycle flame and changes. For example, lot sizes employed in mass fork ma nufactu red has to b e check ed to insure that it production have steadily decreased from 50, a few years corr esp ond s to the cus tom er s original specifications. ago to a mere 20 units in 1993. The firm s eng inee rs an d skilled line w orkers, in conjunction with managers from NBIC s parent corporation, have devised a 3-dimensional automatic Perform ance Implications meas uring machine to a utom ate this verification task and reduce the time involv ed in com pleting this process. This NBIC s custom ized bicycles man ufactured und er the machine is no w em ployed for quality control inspections POS system only accounted for two per cent of total in the mass-production factory. Furthermore, much of production. Prior to POS, NBIC s m arket share was the software required to operate the advanced languishing behind its two major competitors in the information and compu ter-aided manufacturing systems high-end segment, but within a few years of introducing used in the mass-custom factory was developed in- POS, the firm s total high-en d (Panasonic) m arket share house. increased dramatically. For the first time in its history, NBIC became the industry s second largest manufacturer of high-end bicycles. Furthermore, the contribution of Exploiting the Information Differences the high-end Panasonic brand has m ore than d oubled to etween Segments 27 per cent of total revenues (Kotha and Fried, 1993). Despite repeated attempts by competitors to offer By creating an organizational structure that enhan ces the custom ized bicycles, the Panasonic nam e is increasingly interaction between the product and process engineers, view ed as the only truly mass customized bicycle in the firm also exploits the inform ation differences that Japan. According to industry experts, the firm is arise from co mp eting in different segm ents of the bicycle currently viewed as the leader and innovator in the industry. For example, using the information gathered industry. The halo effect , resulting mo stly from the

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FROM M ASS PRODUCTION TO MASS CUSTOMIZATION

successful implementation of POS, enables the firm to the importance of having reliable suppliers close by, in charge a slightly higher price for its mass produced order to avoid the co st of carrying large inventories and Panasonic line. increase the speed required to meet custom orders (The Economist, 1995).

N e c e s s a r y o n d i t i o n s f o r S u c c e s s The indu stry needs to be characterized by increased product proliferation and new product introductions Having discussed the dynamics of pursuing mass- In the late 1980s, demand for bicycles in the JBI had production and mass-customization approaches at NBIC, plateaued and prices were falling. Manufacturers in the I now address the question posed earlier: What are the JBI found that there were continually introducing new important external (industry-level) and internal (firm-level) models in an effort to maintain market-share. For conditions ne ces sar y for successfully pursuing mass example, NBIC offered ove r 250 different mo dels during customization? 1987, and within each model type, customers had a choice of color and o ther options. NBIC s man agem ent changed about 80 per cent of models yearly. Similarly, External onditions the indu stry leader, Bridgestone, offered over 3 00 models during the same period. Thus, just prior to the Success is more likely if there is no well entrenched competitor introduction of POS, NBIC and others in the industry already pursuing mass customization wer e faced w ith increased product proliferation. Earlier I m entio ned that N BIC s leading com petitors, Bridgestone and Miyata, introduced mass-customized Pursuing the concept of mass customization ma y require the bicycles in respon se to NBIC s POS. Unlike NBIC , development of an inter-connected information netwo rk w ith a Japanese bicycle customers neve r really considered either select group of trained retailers of these two firms to be a true leader in this mass- Given that custom-m ade pro- custom segment. As Yamazaki, a ducts are manufactured to senior manager at Bridgestone, A m ~ ss~ c ~ st o m i z~ t i o n specifications of a unique cus- puts it (Kotha and Fried, 1993): tomer, errors in processing the st:r~:~hGy . . . ~nvol~ es order and in manufacturing the Since NBIC was the first firm to developi~.~ ~~ sy st em theft product can be ex tremely costly introduce this id ea , they have because such a product is established a strong image in the rew ~:~ d s ~ t t e ~ t i o , t o d e h ~ ft s unlikely to be sold. More customer s mind. W hen you a~~d st~e.~ses ~he im po rt ~ nc e importantly, mistakes and errors mention customization, the co n- can undermine the customers ~ f sumer only thinks of Panasonic. confidence in the concept of Also , Na tional s parent co mpan y, mass customization. A mass- Ma tsushita, is fam ous for its marketing savvy , and it is customization strategy, therefore, involves developing difficult for us to match them. a system that rewards attention to details and stresses the imp ortan ce of zero mistakes in all activities o f the It appe ars that the re can be significant first m ov er value -creatio n process. Hence , retailers re spon sible for adva ntage s in pursuing mass-custom ization. Being a first collecting customers information need to be prop erly mover in implementing mass customization can be educated and trained in processing customer orders. important, because the market for customized products can experience less than expected growth, as occurred in In the case o f NBIC , only a few select retailers offer the case of the JBI. custom -mad e Panasonic bicycles. Alth oug h this nu mb er has gradu ally increased since the introdu ction of POS in Access to a supplier network in close proxim ity is vital for 1987, such a gradual increase has enabled the mass- Success custom factory to adapt, incrementally, to gro win g NB IC, located in Osaka, is closely linked with its com plexity resulting from the increased influx of custom suppliers, no ne o f whom are more than 40 m inutes away orders. Also, from a marketing perspective, permitting (Westbrook and W illiamson, 1993). The frequent and only a select group of retailers to offer customization reliable delivery of bicycle components from suppliers creates the notion of exclusivity. It is unlikely that all of enables NBIC to build truly custo m bicycles witho ut NBIC s Panasonic retailers will be perm itted to offer carrying excessive inventories. As the firm s managing custom -mad e Panasonic bicycles. director, Hata, puts it, The re is little nee d for us to hold large inventories of finished frames and other parts To create an information network by which Panasonic unlike others [competitors] outside the Kansai region . POS retailers can comm unicate with the m ass-custom Unlike NBIC, Bridgestone and Miyata have simply factory, NBIC managers depend upon simple increased their inventories of frame types and model technologies such as facsimile machines. The sizes to accom mod ate customization demands by their emp loym ent of relatively inexpensive and well diffused customers. This approach has added to their overall facsimile technologies suggests that, in pursuing mass costs. Recently, firms such as Compaq, who offer customization, a firm does not necessarily have to rely customized PCs in the United States, have recognized on advanced comm unication and network technologies.

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FROM M ASS PRODUCTION TO MASS CUSTOMIZATION

Internal onditions com plexity involve d in pursing multiple an d som etimes conflicting objectiv es (Skin ner, 197 4). The refore, firms The strategy of mass-customization requires long-term contemplating pursuing both mass production and m ass investments in advanced-manufacturing technologies and customization may consider adopting a focused factory hum an resource development approach at the plant level. The NBIC example makes clear the importance of advanced m anufacturing technologies for the pursuit of Instituting m echanisms to foster interactions am ong the mass custom ization. The recen t attemp ts by Levi Strauss focused plants m ay be necessary for new know ledge creation Com pany to offer 'custom fit' blue jeans for wom en in and fo r attaining flexibility the United States was mad e possible due to a com puter Earlier I discussed how NBIC's establishment of inform ation netw ork syste m (Rifkin, 1994). Also, Pine et al. (1993), in their discussions of Bally Engineered betworganizationaleen the fac mechanismstories. NB IC's has manag fostereders hav interactionse implicitly Structures Inc., a m ass cus tomizer for refrigeration recognized that the benefits of pursuing mass- products, points out that a sophisticated information- customization transcends the small segment for management system called a 'computer-driven intel- customized bicycles in the JBI. The mechan isms such ligence network' was at the heart of this firm's approach as worker rotation, the sharing of process ideas through to mass customization. such rotations, and the centralization of engineering personnel can be em ployed by other firms interested in However, NBIC's managers clearly recognize that the concept. human resource development is also critical. At NBIC it is humans, in conjunction with ad vanced techno logy, The centralization of the design and process en gineering who create the new knowledge required for refining function enhances NBIC's ability to capture novel- existing skills and dev elop ing m anufacturing capabilities product ideas from the innovative-lead users in the essential for the pursuit of their approach to custom segment and then exploit them in the mass- customization. It is another example of how Japanese produ ction arena. Doing so enables the firm to introduce firms levera ge the ma nufactu ring capabilities that result new products rapidly and avoid the mindless product from a blending of advanced computer-based proliferation characteristic of many Japanese firms (Stalk technologies and human expertise. The firm recognizes and W ebber, 1993). This practice also helps ove rcom e that information technology and computer-integrated the disadvantages associated with worker skill manufacturing are necessary, but not sufficient, for limitations and promotes the diffusion of the best achieving the flexibility and responsiveness critical to practices among the factories. Rotating workers also mass customization (Garud and Kotha, 1994). results in the establishment of a 'system' that enables the conversion of tacit knowledge to explicit knowledge. Access to substantial in-house engineering expertise and Taken tog ether, such mechanism s enable a firm to create manufacturing capabilities is necessary for successfully new kno wled ge and attain g reater strategic flexibility. implementing the concept Much of the process technology and computerized M as s custom ization requires a culture that focuses on inform ation sy stem s (e .g., nume rical control machines, knowledge creation and the development of manufacturing robotics, interfacto ry local area networks ) installed by capabilities NBIC's mass-custom factory were an outgrowth of in- The effective use of mass custom ization hinges o n house engineering and manufacturing expertise promoting an attitude that is conducive to continuous accumulated over many years. Such competence is impro vem ent, organizational and individual learning, the impo rtant because, althoug h mass customization has deve lopm ent of new capabilities, and the diffusion of the obvious market appeal, it can easily become a best practices among a firm's plants. NBIC's case vividly manufacturing and logistics nightmare without a high illustrates the need to focus on all of these elements degree of manufacturing competence (Westbrook and simultaneously. M ore ov er, it clearly fits Florida and Williamson, 19 93) . Therefo re, it appears that firms Kenn ey's (1990 ) observa tion that, perhaps, the ke y contemplating this approach to competitive strategy element of the Japanese industrial system lies in its will be forced to rely heavily on in-house expertise in ability to directly harness the wo rkers' know ledge at the order to implement their versions of mass customization. point of production. Therefore, the promise of mass customization through advanced technology is not the Each plan t s m anu factu ring tasks and com petitive priorities lights-out factory, but a tool or an approach that more need to be matched to its product~market environment effectiv ely taps all the dive rse capabilities of emp loy ees In an effort to pursue both approaches, NBIC m anagers to serve custom ers (Pine et al., 1993). have intentionally created two separate manufacturing facilities. This separation of the two factories is akin to The strategy requires a savv y marketing group that can excite what Skinner (1974) has termed as 'factory focus'. customers about individualized product offerings Acc ordin g to Skinner, no single factory can do all things According to the general manager of sales at NBIC, (e.g., quality, cost, flexibility, a nd d elivery ) equ ally well custo mer service, 'appropriate' pricing, and extensiv e and hence, factories that are more focused outperform com mun ication with th e custom er are all integral parts of those that attem pt to fulfil a diverse range of NBIC's approach to mass customization. As he put it, competitive priorities. This is because of the inherent 'We could have m ade the [delivery] time shorter, but w e

4 4 8 European ManagementJournalVo 4No 5 Octo ber 996

FROM MASS PRODUCTION TO MASS CUSTOMIZATION

wanted people to feel excited about waiting for T a b l e 1 E x t e r n a l a n d In t e r n a l Conditions Necessary something special. for Success

External Conditions Additionally, to create customer excitement, the S u c c e s s i s m o r e l i k e ly if marketing group at NBIC has implemented some • t h e r e is n o well entrenched com petitor already creative solutions. For example, shortly after the factory pursuing mass c u s t o m i z a t i o n r e c e ive s t he c us t om e r s o rder, a personalized com put e r - • t h e f i r m h a s a c c e s s t o a s u p p l i e r n e t w o r k i n c l o s e generated drawing of the bicycle is mailed to the p r o x i m i t y customer with a note thanking him or her for choosi ng • t h e i n d u s t r y is characterized by increased product t he POS. Thi s i s followed by a second personal note, proliferation a n d n e w p roduct introductio n s three m on ths later, inquiring ab out the cu stome r s • t h e f i r m d e v e l o p s a n i n t e r c o n n e c t e d information satisfaction with his or her bicycle. Finally, a bicycle- network with a selected group o f trained retailers bi r t hda y c a r d is s e nt c om m e m orating the fir s t anniversary of the bicycle. Internal Conditions S u c c e s s i s m o r e likely when a fi r m Table I summarizes the external and internal conditions • h a s m a d e l o n g t e r m investment in advanced m a n u that are necessary for the successful pursuit of mass f a c t u r i n g technologies and information technologies customization. Although each of the conditions a n d human resource development discussed is necessary individually, it is the interactions • has access to s u b s tantial in h o u s e engineering and interrelationships among them that may enable a expertise and manufacturing capabilities firm to successfully adapt the concept. 3 • focuses its manufacturing tasks and competitive priorities at each plant to its produc t / m a r k e t environment • i n s t i tu t e s organizationa l m e c h a n i s m s t h a t f o s t e r o n c l u s i o n interactions among focused p l a n t s • c r e a t e s a c u l t u r e t h a t e m p h a s i z e s k n o w l e d g e c r e a t i o n In highlighting NBI C s uni que a ppr oa c h t o m a s s a n d t h e d e v e l o p m e n t o f m a n u facturing capabilities customization, this paper provides a useful framewor k • h a s a savvy marketing g r o u p t h a t c a n e x c i t e c u s t o m e r s f or a m a s s - pr odu ction firm contemplating e ntry into the about individualized product o f f e r i n g s era of mass customization. It illustrates the dynamics of pursuing both mass-production and mass-customization approaches simultaneously and highlights many weeks. He w ondered if it w ere p ossible for NB 1C to industry - and firm-level cond itions that are neces sary produce bicycles in this way, According to som e senior for successfully exploiting mass customization. In executives, many of the firm s managers had do ubts about the feasibility of such an approach. How ever, despite their t oda y s c o m pe t i t i ve landscape, the issue is not w he t he r skepticism, they were w illing to try and see if this project the mass market is dead, but finding unique wa ys of might w ork (K otha and F ried, 1993). fulfilling chan ging custo me r demands. In that sense, the 2. Explicit or cod ified know ledge refers to kn owledge that e m e r g i ng c on cept of mass customization is an important may be transmitted in formal, systematic language . In option, among many, available to a firm seeking a contrast, tacit know ledge has a personal qua lity, which competitive advantage. makes it hard to form alize and comm unicate because it is deeply roo ted in action, comm itment, and involvem ent in a specific context (Nonaka, I991 ). Although there are many strategic advantages in pursuing cknowledgement mass customization (and mass production simultaneously), there are co sts associated with pursu ing mass I thank M r. Hitori Hata, M anag ing Director of the National customization. When the difficulty of quantifying a priori Bicycle Industrial Company for providing me with access the b enefits associated with intangible benefits (e.g. worker t o i m por t a nt information a bout t he f ir m s m a s s motivation, new know ledge creation) and tangible benefits production and mass customization strategies. I also (e.g. reputation, strategic flexibility, etc.) are recognized, a comparison of potential costs and benefits suggests that the thank Andrew Fried of Andersen Consulting T o k y o benefits outweigh the co sts (see Kotha, 1995 for a detailed Office, for his participation and assistance in researching discussion of cos ts and ben efits). this topic in Japan. I have also benefited greatly from discussions with students at both the Stem School of References Business a nd t he International Un iversity of Japan. Last, but not least, I thank Gabrielle Gerhard, Arun Davis, S. (1987). Future Perfect. Reading Ma: Addison Wesley. Kumaraswamy, and Anil Nair for their thoughtful EconomisL The (1995). The O uting of Outsourcing. Novemb er 25, pp. 57-58. comments on an earlier version of the paper. Florida, R. and Kenney, M. (1990). Break Throug h Illusion. Ne w York: B asic Books. Garud, R. and Ko tha, S. (1994). Us ing the Brain as a Metaphor to N o t e s Model Flexible Productive Units. Academy of Management Review 19, 4, pp. 671-698. 1. The original idea for customizing bicycles originated when Kotha, S. (1994).A Boo k Review o f M ass Customization: The New the firm s president visited a fam ous department store in Frontier in Business Comp etition by B. J. Pine II, Academy of Osaka. The president noticed that women could custom- Management Review 19, 3, 1994. orde r dresses which were then delivered by the store in two Kotha, S. (I99 5). M as s Customization: Imp lemen ting the

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Emerging Paradigm for Competitive Advantage. Strategic Ma nagem ent .Journal 16, pp. 21-42. SURESH KOTHA Kotha, S. and Fried, A. (I993). Na tional Bicycle Industrial Comp any: Leonard R. Stern School Implementing a Strategy of M ass Customization. N e w Y o r k of Business Ne w York University/International University of Japan Case Series. University 40 W est 4th Kotler, P. (1989). From Mass Marketing to Mass Customization. Street Room 7-10 N ew Planning Review 17, pp. 10-13. Nonaka, I. (1991). The Knowledge Creating Company. Harvard York Ne w York State Business Review 69, 6, pp. 96--104. 10012-II26 USA. Pine II, B.J. (199 3). Ma ss Custom ization: The N ew Frontier in Business Competition Boston: Harvard Business School Press. Suresh Kotha is an Pine II, B.J., Victor, B., and Boyn ton, A .C. (1993). Makin g M ass Assistan t Professor of Customization Work. Har vard BusinessReview 71, pp. 108- 119. Business P olicy and Rifkin, G. (1994). D igital Blu e Jeans Pou r Data a nd Legs into Operations Management Customized Fit. The New York Times November 8, p.1, at the Stern School of Business N ew Yo rk column 6, section A. University. He has also taught at the International Skinner, W. (1974). The Focused Factory. Harva rd Business Review University of Japan Graduate School of May-June, pp. 113-121. Stalk, Jr. G. and W ebber, A.M . (1993). Japan s Dark Side of Time. M ana gem ent. His teaching and research interests are Harva rd Business Review 71, pp. 93-102. in the areas of business strategy m anufa cturing Westbrook R. and Williamson, P. (1993). Mass Customization: strategy and U S~Japan comparative practices. Dr. Japan s N ew Frontier. European M anage men t Journal 11, I, Kotha serves on the editorial board of the A c a d e m y pp. 38-45. W omack , J.P. (1993). A Bo ok Review of Mass Customization. o f M a n a g e m e n t J o u rn a l and the S t r a t e g i c Sloan Man agement Review 34, pp. 121-122. Management Journal and is an Associate Editor of the J o u rn a l o f Operations M a n a g e m e n t . He is currently conducting a study w ith colleagues fro m m an y different universities that focuses on determining the environment and strategic correlates of performance in the Japanese automobile steel and machine tool industries.

4 50 European Manage ment JournalVo 4 No 5 October 1996