Perspectives: Getting Rid Of Guesswork
For most of the 20th century, businesses relied on a remarkable degree of guesswork about their customers. If you doubt it, consider the prevalence of clearance sales, rebates, discount offers, and factory incentives. These and other low-profit or no-profit strategies are used by companies desperate to unload merchandise they guessed would be popular...and wasn't. But a powerful new system is under way that will transform how goods are built and sold.
MASS CUSTOMIZATION. It's one of those rare innovations with the potential to transform entire industries. If companies can pull it off, this may finally make mass customization a reality. I call these systems choiceboards--the sort of interactive online system popularized by Dell Computer Corp. that allows a customer to design a personal computer. They choose from a menu of attributes, components, prices, and delivery options. Those choices send directions to the supplier's manufacturing system that set in motion the wheels of procurement, assembly, and delivery. The result is a purchasing process that involves fewer price comparisons of commodities and creates more active customers.
Choiceboards are a direct benefit of today's breakneck pace of technological change. Already, a customer can use Dell's online configurator to choose among a variety of options--memory size, hard-drive capacity, modem type, etc.--up to 16 million permutations. Each choice generates exact cost or savings information, and consumers can easily request additional details. Customers are happy: Dell's configurator makes possible a precise fit between their needs and product features, rather than the compromise for which customers have traditionally settled. And Dell is happy because there's no need to clear out a backlog of unsold product. In fact, Dell never has on hand more than six days' worth of inventory--a crucial advantage in a business where the value of products is constantly plummeting because of technological change.
Now choiceboards are springing up everywhere. In personal finance, Charles Schwab Corp.'s Mutual Fund Screener allows customers to design their own investment portfolios, selecting from both Schwab funds and those managed by other financial companies. Mattel Inc.'s My Design Barbie lets fashion-doll fans custom-build a friend for Barbie, choosing hairstyle and color, complexion, and eye color for a doll whose image is displayed on-screen before it is ordered and manufactured.
In computer networking, Cisco Systems Inc.'s Marketplace allows corporate customers to create the precise combination of routers, switches, and hubs based on their needs. And by using Point.com's Service Plan Locator, wireless customers can research and buy wireless phones, service plans, and accessories. Choiceboards are increasingly being adopted by inventory intensive industries such as furniture (Herman Miller) and door manufacturing (Weyerhaeuser). And now major players in the auto industry are also working to develop such systems.
COLLABORATIVE FILTERING. The next step? Look for inroads in fashion, appliances, and home building--Japa-nese prefab home companies use choiceboards. Also, choiceboards will evolve beyond transaction support. Using sophisticated technology such as collaborative filtering, they'll provide on-target recommendations for different products. And later, they may let customers become new-product designers, asking what they want that's not available.
The choiceboard also has the potential to revolutionize the way information and value flow through a business. The traditional business system first spends money to produce products and services it hopes customers will want, then sells (some of) them. By contrast, the choiceboard-equipped business sells first, then produces. Far less information and value are lost.
So why should businesses continue to do a bad job at high cost when a well-crafted online system can let their customers do a perfect job at low cost?
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