One way for a firm to differentiate itself from rivals is, of course, to tailor or customize its product to the needs of individual customers. This is a different paradigm than offering “one size fits all”.
The “one size fits all” finds its classic expression in mass production. Mass producers have an “assembly line” mentality and are concerned with efficient production where costs can be driven as low as possible. On the other hand, product customizers necessarily incur higher costs to tailor their offering, but these higher costs can be offset by extracting a price premium for the customization.
Tailoring and customizing products requires a different mindset than mass production. For one thing, processes must be stable but also dynamic and flexible, bringing together the needed technologies and skills to produce the tailoring required by the customer. To achieve this, customizers should think in terms of a network for their organizational design. A network allows information and material flows to travel down different paths, depending upon the customization being performed, and permits an organization to bring various resources and technologies together in a dynamic way, rather than being constrained by “functional silos”.
Product or service customization is an important element of differentiation – some would say, the key element. To achieve customization without incurring high costs due to mismatch or conformity errors requires giving much thought to organization and process design.