“You can have any color as long as it is black.” Henry Ford’s immortal words in the early 1900s suggested that standardization was a significant strategy that eventually paved the way for mass production and our industrial age. Indeed, standardization became a preferred approach to achieve economies of scale and low costs for mass-market penetration.
Over the years, however, enhancements in production and information technology allowed firms to relax the constraints of standardization and embrace customization without necessarily sacrificing production efficiencies or low cost. Today, the 2016 Ford Focus offers 10 exterior color choices that customers can pick from its web pages before the car is manufactured for them. If one also considers the numerous other components that could be varied in a car, a customer could potentially pick from thousands of pre-determined options that Ford can then customize, yet manufacture and deliver in mass volumes and efficient scale.
With the advent of digitization and the App economy, the frontiers of customization are expanding further. Through Ford’s connected car platform, Sync, customers can further customize their cars by adding a variety of applications such as Pandora and Spotify for streaming music, Cityseeker for dining venues, Goallifescores for sports, and Audioteka for streaming audio books. There are an estimated 18 million developers creating such apps that can work on Sync and other platforms. Unlike earlier customizations, these new choices are not necessarily hardwired into the car. Ford’s customers can add to or change the configurations of these digital customization choices after the car is delivered to them in ways that Ford may not even be able to anticipate.
With the help of third-party developers and complementors, the locus of customization is shifting from the producer to the customer. While Industrial Age customization did enhance options for different customer preferences, those options were hardwired into a firm’s supply chain in ways that preserved efficient scale. Customers could choose, but only from those options that a firm had already programmed to deliver through established and internally controlled supply chains. Digital Age customization allows for customers to exercise and consume options outside the boundaries of a firm’s traditional supply chain.
To leverage such strategic opportunities, firms need to recognize a new concept: demand-side interdependencies. Demand-side interdependencies arise after the consumer procures the product.