Is it possible to transform Engineer To Order (ETO) product portfolio into Configure To Order (CTO) product portfolio? Yes, but it demands vision, strategy, knowledge, leadership and management skills from leaders and teams to be achievable.
It takes planting a seed of a better future in order to change the existing culture.
It requires analysis of markets instead of specific customers.
It mandates for facts to build the data, processes, people and tools to support a successful roadmap for exponential growth and customer satisfaction.
In the last 20 years I have seen products come and go through the product management and contract engineering pipeline.
In good fat times product management is trying to control minimum variation in products to be able to support contract engineering to get the products out in time. In good times question of success or failure is a challenge of change control, data flow and logistics.
In bad times product variants are designed almost at any cost just to keep the pipeline not drying out totally.
If both of the economical cyclic phases create major issues in a company’s operations, profitability will vanish into high costs and revenue streams dissolve -customers will find better players in the market.
How to get out of this vicious circle and make both downturn and high season highly cash positive?
I have heard and read that some companies tend to keep ETO as something beneficial for the company. I would like to ask: based on what and compared to what? Some would say that the company is extremely innovative because they are able to customize (=ETO) to meet the exact requirements of the customers.
What is then an innovative customized product?
What benefits does the customization bring in the end for the customer and for the company making these types of solutions?
I shall give a few examples which everyone is familiar with, and you will understand where I am heading.
Does Google boast the number of buttons or create unlimited features for their main consumer product (Google Search)? No, just one variant that fits all and does the magic. The beauty of the solution is hidden from the customer experience within the search engine itself with a massive database infrastructure to support the experience of performance.
Does Apple differentiate itself with high configurability of its hardware products? No, they have just a few versions. The trick is done by a software platform that is basically free, perfect and instant*.
The power of innovation really creates a great advantage when it can be harnessed to things that do not cost a lot for the company or even better if not for customer either, if it can be copied unlimited times and can utilise resources beyond company walls*.
This applies to hardware, software and service products.
*(Ref. Machine, Platform, Crowd by Andrew McAfee and Erik Brynjolfsson). Excellent and inspirational book.
Let’s think what customized product does not bring to a company nor to their customer. Customization does not create volume of replicability. Mastering any science or sport, knowledge whether mental or physical, requires repeat after repeat.
Doing something successfully once is pure luck!
Without volume companies cannot benefit from any economics of scale nor can their customer. One-time designs multiply the challenge to create repetitive manufacturing design, logistical design, installation design, maintenance and service design. Digitalisation and data science perspective uniqueness create nothing but challenges. There will be much more data to manage, but the data does not always have scientifically enough statistical relevance from a prediction point of view, which is again core element for successful predictive (proactive) maintenance, and even less from a spare part management point of view, starting again from supplier logistics to warehousing and so on. So, where is the great benefit of customization in the end?
Customization is beneficial only when it can be done so that it is free, perfect and instant and it is done by a machine and supported by the crowd*.
There are very few virtues for doing customization and even then, it must be done so that it repeats the same formula or algorithm, or uses the same parametric pattern, and is performed by machine (=automation).
Instead of customization, I would argue that most profitable business products and models are created by harmonisation, standardisation and configurable modularisation.
The common theme within these three excellences are ‘making profit maximizing compromises’. These are also crucial parts of successful product portfolio strategy.These excellences require great minds, extraordinary innovations and talent, together with great leadership and management skills. Unfortunately, these are not well enough recognized and appreciated by many leaders and executives.
This is the starting point for a transformation from ETO business into a more profitable CTO business. It is also the only easier path to successful digitalisation and utilising the era of machine learning and artificial intelligence (AI).
The detailed answers to these questions and on how to start the transformational journey from ETO to CTO company are within your reach. The transformation’s starting point, where else would it be if not your products.
Niko Salonen, Senior Advisor, NEXTAGE Advisory Services
NEXTAGE Advisory Services can support and lead your way in this transformation. NEXTAGE Advisory Services will have answers to these questions and can walk with you from ETO to CTO.
