CTO Blog
I have blogged before about the general trend towards standardisation and globalisation with what, seems to me, to introduce the inevitable question; ‘what about differentiation?’ There are a series of, please forgive the pun, standard answers to this question and at the top of the list seems to be the use of price. To give you your low price means I have to master still further cost efficiency and that means more standardisation and more use of globalisation to find the right cost base, and so on in a never ending spiral.
It’s not an encouraging thought, especially when you realise that the only way you will have made the money to buy from me will be by your own never ending efforts at the same game in your industry sector. In amongst the differentiation possibilities are some factors that were quoted in the first age of the Internet, the one that really didn’t work when some basic business rules were ignored. The one that really interests me is ‘customisation’, the idea that by a fully connected and interoperable business world it would be possible to deliver exactly what was wanted by connecting the consumer directly through the manufacturing or services ecosystem.
In the current age of the Internet; Web Services, SOA and Web 2.0, this is looking like the way things are going in the financial sector, where customisation in Retail Banking services just keeps on getting more and more personalised. What really got me fired up was to really see how well this is working out in the car industry led by the biggest mass producer of all: Toyota.
Three years ago Toyota set up a new division, only serving California, (don’t those guys get everything? From Sunshine to Arnie Schwarzenegger), called Scion, and targeting Generation Y buyers. These are demarcated by Toyota as being born between 1977 and 1994, but I would define them as the generation that grew up with the PC, the cell phone, gaming, and of course the Internet, the generation for whom these technologies are a life skill. The idea of Scion was to test out in the region with the most advanced generation Y group a whole new way of selling cars, and of course being able to build them.
Scion doesn’t make special versions of Toyota cars as would be the normal, or improved way, of handling differentiation and customisation, instead it makes extreme basic versions on the Toyota production line. The change point is in the ecosystem it has created with the vast array of body shops and tuners that exist in California that allows its customers to really create their own customised car. It’s not Toyota that makes the car, they stick to what they do best, volume production, it’s the buyer and the market that creates the car.
It took the first year to catch on but now using three very very ordinary base models Scion is selling 150,000 cars a year, and that’s more than parent Toyota sells in the UK after having to offer a much wider range with the consequential costs and issues. The tag line on all the advertising is ‘unavailable soon’ and the pictures show heavily customised cars that create a ‘wow factor’, but as the advert says, can’t be bought.
When everything is available now, and at lower prices, it takes a real genius to figure out that the differentiation is to make it so it can’t be bought from stock as a standardised model! May be we are closer to differentiation than we realise, and the link is specialisation and ecosystems.
About the author
Capgemini Global Chief Technology Officer, Andy is a member of the Capgemini Group management board and advises on all aspects of technology-driven market changes, together with being a member of the Policy Board for the British Computer Society. Andy is the author of many white papers, and the co-author three books that have charted the current changes in technology and its use by business starting in 2006 with ‘Mashup Corporations’ detailing how enterprises could make use of Web 2.0 to develop new go to market propositions. This was followed in May 2008 by Mesh Collaboration focussing on the impact of Web 2.0 on the enterprise front office and its working techniques, then in 2010 “Enterprise Cloud Computing: A Strategy Guide for Business and Technology leaders” co-authored with well-known academic Peter Fingar and one of the leading authorities on business process, John Pyke. The book describes the wider business implications of Cloud Computing with the promise of on-demand business innovation. It looks at how businesses trade differently on the web using mash-ups but also the challenges in managing more frequent change through social tools, and what happens when cloud comes into play in fully fledged operations. Andy was voted one of the top 25 most influential CTOs in the world in 2009 by InfoWorld and is grateful to readers of Computing Weekly who voted the Capgemini CTOblog the best Blog for Business Managers and CIOs each year for the last three years.
Standards are a necessary base but it is critical to encourage differentiation above the bar establsihed by the standards. Without that innovation is stifled, products become commodities and competition is restricted to issues such as price and availability.
Cars are a good example. Standards of usability enable any (well almost any) user to drive any car, standards of portability enable fuel to be common to many vehicles, standards of interoperability enable components, standards of security, including safety …… yet car manufacturers are able to segment their market as Toyota have done, not only with Scion but also with Lexus and the Toyota brand and differentiate their products to appeal to each of them.
Car manufacturers continually innovate above the level of the standards and over time, some of those innovations become standards themselves. In this way we not only gain through innovation but we also enable the raising of the standards themselves.
So without enabling differentiation above the level of standards, we would have less innovation and consequently be unable to raise the level of standards as rapidly as we do.
Yes – its an interesting thought that standardisation is a form of competitive edge. i.e. lifting the bar for other competitors to have to reach the new standard. Overall its an interesting balance between the use of standardisation as a base on which to build differentiation. – Andy
What an appealing Blog entry this is: wow. This means a new layer between the customer and the brand. Instead of more analysis of what customers want, prune back to more basic models and have an ecosystem of “modders “ that do the finishing touch just the way people want it. This could be dubbed as Tier -1 suppliers. Does one buy their cars from Toyota dealers or are they seen as supplies to the modders like in PC modding? So Toyota makes margins with its lean-and-mean production of cars without making huge costs in customer intimacy and still attracts customers. It doesn’t seem a long term competitive edge, although competitors will hesitate to step into the vanilla car market: making less attractive cars in a fight market created by the master of efficiency.
This reminds me of a Mini I saw in the UK 2 decades ago: it was plastered with pennies and was the ultimate statement of money spent on customization! 1977 till 1994? No kids probably and plenty of time to thinks about how to express themselves through personal lifestyle items. Modding your surfboard, bling bling phone, (s)watch, clothing, bags… yes, even the body is modded in bodyshops called plastic surgery clinics, tatooshops, fitness clubs. These customizations are not the ordinary standardized accessories, but more artistic one-off gloves covering commodity products. I handle all my materialistic choices rather quickly based on product readily available on the market, except my modded house. That is the only customization I can cope with: it lasts long and is used a lot. Its only so location based |-(
just a quick response to say that i have been looking into this whole area very closely with colleagues and the results of some further investigation are in the blog entry ‘awareness as a business trait’
andy