7 Myths of Configurators

I have just published a white paper, "7 Myths of Configurators," that is available at www.valent-group.com/Resources.html . This paper focuses on the misconceptions associated with customer-facing configurators that lead to less-than successful deployments. It also discusses some of the methods to avoid these mistakes.

The 7 Myths are:
1. A Configurator Is a Strategy
2. The Primary Justification of a Configurator is Increased Sales
3. Who the Sales Force Is Doesn't Matter
4. Customers Want to Choose From Every Possible Option the Company Offers
5. Engineering or Configuring - Who Cares?
6. If It's Technically Possible, Build It Into the Configurator
7. A Configurator Is an End-to-End Business System

I invite you to review this paper and offer your comments, criticisms, and own experiences.

Surviving

Much is being and will continue to be written as to how companies should survive the recession. I need to add my own brief comments to this topic.

1. Focus on margins, not market share or gross revenue. Too many companies will take any job no matter the profitability (if any). If you do this, and unless you are sitting on a huge cash reserve, you will end up spending your way out of business just to perform those jobs. A focus on financial health, now more than ever, is critical, and underperforming lines of business are not worth maintaining. Rationalize products and parts and drop what is not worth carrying. What good is market share if the business goes under?
2. Get as close to your customers are possible. This has been trumpeted many times as a response to globalization, but it's just as important in this recession. Analyze the principles of mass customization and see if there are any you can adopt - even if the whole paradigm is not a match for your business.
3. Grasp competitive advantage. The recession will end at some point. Be prepared to leverage every bit of competitive advantage you have now and for the future. Use this time to exploit your value chain (Porter's tool for analysis of competitive advantage) for every bit of competitive advantage you can find. Build a strategic plan (see Align/Excel, www.AlignExcel.com) based on competitive advantage and focus on internal capabilities.

Nudge

I'd like to recommend the book Nudge by Richard H. Thaler and Cass R. Sunstein. The foundation of the book is how and why people make the decisions they do - and why people are rarely the completely "rational" beings that underlie so much economic theory (a very timely topic given the current financial travails).

Besides being a very interesting and engaging read, this book does have a lot of applicability to the challenges of high-variety manufacturing. So much of customer interaction for HVM companies is about managing choices, and Nudge offers an excellent guide to "choice architecture." It underscores the importance of understanding the motivation of your customer. It also provides insight into product management and sales strategies - and why making all options available during the configuration process is not a good idea.

What is your Economic Profile?

There is a very interesting self-test at Learn Your Economic Type on the Information Technology & Innovation Foundation website. ITIF is an economics think tank with a focus on Innovation Economics.

The Economic Profile lets you know whether you are a strong, moderate, or weak adherent of:
Innovation Economics
Supply Side Economics
LIberal Neo-Classical Economics
or
Neo-Keynesian Economics

I think this is a very interesting and informative profile test - especially given the current economic and political climate. I encourage everyone to take the test. It provides excellent insights into one's perspective of business and policy.

By the way, I'm a strong Innovation Economics type.

(BusinessWeek has an excellent article on Innovation Economics: BusinessWeek: Can America Invent Its Way Back? (9/11/2008).

What is High Variety Manufacturing (HVM)

What is High Variety Manufacturing (HVM)? Why is it important to define it? High-variety manufacturing is more than just a description of manufacturing processes; HVM is a business model that offers significant opportunities, but it also presents significant challenges. In order to take advantage of the opportunities and solve the challenges, it is necessary to recognize what HVM is and how it is reflected in your company.

A potentially bewildering range of acronyms and descriptors are variously used to describe marketing and manufacturing models that have a high degree of variability, variation, and variety:

• Mass customization
• BTO, build-to-order
• CTO, configure-to-order
• ETO, engineer-to-order
• ATO, assemble-to-order,
• HMLV, high-mix low-volume,
• Job shop
• Etc.

There is a problem, however, with lack of precision and definition with these terms and a limitation to the extent of a company's value chains that are described by them. I use the term high-variety manufacturing as an umbrella concept to cover all of these marketing and manufacturing models, framed by the critical idea that HVM is a business model that encompasses all of a company's value chains.

HVM is best-defined as a set of characteristics of which a manufacturer may exhibit any one or all.

• The sales process is complex and includes customer-driven design and configuration decisions.
• The products are highly configurable and the number of options and the configuration combinations are such that the demands for specific manufacturing routings, tasks, and materials can not be forecasted. The specific product and its manufacturing demands are not known until the order is received.
• The production value chain includes non-manufacturing activities such as project engineering; unique manufacturing documentation, such as drawings, generation; unique BOM determination; etc.
• The company's "product" is competencies rather than specific products. Examples are job shops and short-run or low-volume suppliers to OEMs.
• The company is a pure custom or project-based manufacturer.

So we return to the question of why it is important to define HVM. One of the most critical keys to success for implementation of any type business and process improvement initiative is alignment. That is, at a strategic and tactic level all business activities, from sales and marketing to product development and management to finance to production, are aligned with the business's objectives (and that those business objectives exist, of course). If, for instance, an initiative such as lean manufacturing does not recognize that project engineering and BOM and manufacturing documentation generation are part of the production value chain in HVM, the degree of success for that initiative is diminished.

Self-knowledge of one's business model and process are necessary to "maximize variety (sales) and minimize variation (production)."

When Manufacturing Errors are not Manufacturing Problems

I had a recent conversation with an Industrial Engineer from a US-based HVAC company. He said that they had just completed an analysis of manufacturing errors. The result: 40% of errors came from design or manufacturing documentation problems. Let me repeat that:

The root cause of 40% of manufacturing errors was design or manufacturing/design documentation.

Many manufacturers are making significant investments in lean, continuous improvement, and quality programs to remain competitive. But what if those investments are returning only a portion of their potential because critical production activities and inputs, such as manufacturing documentation, are ignored? This situation is especially critical in high-variety manufacturing (HVM), such as build-to-order, engineer-to-order, configure-to-order, mass customization, job shop, and HMLV (high-mix low-volume).

I discussed this situation before in my post, Inputs, Process Control and High-Variety Manufacturing, from 3/31/08. This conversation brought it all to mind again, and, in truth, it is a recurring soapbox issue for me.

To maximize investment in lean, continuous improvement, and quality programs, an HVM company must recognize and include its full operations value chain in those efforts.

Business Success, Strategy, Lean, and Zealotry

I attended an interesting presentation last week sponsored by the Minnesota chapter of the Association for Strategic Planning (ASP), www.strategyplus.org. Two Professors of Management from the University of St. Thomas, Dr. Michael A. Sheppeck and Dr. Jack Militello, spoke on the "Mediating Factors in Strategy for Successful Organizations." The professors are doing empirical research on which strategic processes lead to positive financial outcomes.

While their findings are preliminary, they have strong data that show that no one single factor can be claimed as the "secret of success." What the data does appear to show is that a combination of factors, really a mixture of strategy and tactics, is the determinant of financial success. The specific set of mediating factors are correlated to market strategy, workforce competency, organization culture, and HR management practices, with company to company variation.

I think their findings underscore the contention of Phil Rosenzweig in The Halo Effect that:

"What leads to high performance? If we set aside the usual suspects of leadership and culture and focus and so on - which are perhaps better understood as attributions based on performance rather than causes of performance - we're left with two broad categories: strategic choice and execution. The former is inherently risky since it's based on our best guesses about customers, about competitors, and technology, as well as about our internal capabilities. The latter is uncertain because practices that work well in one company may not have the same effect in another. In spite of our desire for simple steps, the reality of management is much more uncertain than we would often like to admit - and much more so than our comforting stories would have us believe." (emphasis added)

So what does that have to do with Lean and zealotry? Anyone who participates in lean discussion forums sees that the level of emotion and certainty about lean does rise to the level of zealotry at times. It clouds that fact that lean, while without a doubt one of the most powerful methodologies a company should use and a powerful cultural construct, is, by itself, not the primary driver for a company's success. Marketing decisions, HR management practices, and the other mediating factors that Professors Sheppeck and Militello are studying, have just as much impact, or more or lack thereof, on a company's financial success.

Zealotry about lean can also cloud one's judgment in terms (1) how lean should be implemented in specific situations, such as high-variety manufacturing, and (2) is lean the answer to the real root causes of a company's lack of financial or competitive success. In either case, it is likely that the reality of the benefits derived from the lean implementation will not be aligned with the expectations - a potentially devastating outcome. I wonder if this misalignment of expectations with reality is one of the reasons that the track record of lean implementation is spotty within American industry.