Value creation through mass customization : an empirical analysis of the requisite strategic capabilities

Abstract

Despite widespread agreement that it represents a viable business strategy, many companies have soured on their attempts to implement profitable mass customization. Understanding what constitutes a mass customization strategy and effectively putting it into practice are two different issues. Achieving mass customization takes more than just “fine tuning” a company’s operations and supply chains; it involves developing multidimensional strategic capabilities in an evolutionary process. If adequately developed, these capabilities can be powerful sources of economic rents and sustainable competitive advantage. However, academic research provides managers with little guidance on which strategic capabilities firms need to realize mass customization and how these capabilities might be developed in practice. Many works still rely on case descriptions and concept development; few of the field’s propositions have been empirically tested. This thesis thus aims to operationalize an existing strategic capabilities framework for empirical research and derive sources of competitive advantage associated with these capabilities. The research is part of “The Customization 500,” a global benchmarking study of more than 500 online providers of mass customized goods initiated by the MIT Smart Customization Group, the Technology and Innovation Management Group of RWTH Aachen University, and the University of Applied Sciences in Salzburg. To test the propositions developed in this thesis, we draw on a sub-sample of 115 mass customization firms. Analyzing the data, we can supplement the state of the literature on mass customization with a number of theoretical, methodological, and managerial contributions. In terms of theory, this thesis synthesizes the capability-based view and the economic theory of complementarities to examine how multiple core elements of a mass customization strategy enhance company performance, either independently or collectively. We find that the three strategic capabilities for mass customization do not improve corporate performance on their own. However, by modeling their complementarity using a second-order construct, we discover super-additive synergies arising from the simultaneous implementation of the strategic capabilities. Thus, the results confirm that competitive advantage cannot be explained by a single strategic resource or capability; it is based on a successful integration of various different organizational elements. Methodologically, this thesis makes two important contributions. First, it develops a set of valid and reliable instruments to measure the three sub-dimensions of mass customization capability, namely solution space development, robust process design, and choice navigation. Second, this thesis returns to the intellectual foundations of mass customization by enforcing strict criteria in terms of the selection of respondents. This allows us to investigate synergies arising from the complementarity of the three strategic capabilities in a relevant sample of pure-play mass customizers. From a managerial perspective, to attain strategic differentiation and competitive advantage, firms pursuing mass customization as their core business must have all three capabilities in place due to the complementarity of their effects on company performance. The empirical results also provide valuable information for firms as to which specific activities are effective for implementing these capabilities in practice. Furthermore, concrete recommendations are derived for financial investors regarding how to assess the competitiveness and sustainability of mass customization business models. In summary, this thesis makes an attempt to advance the research on mass customization capabilities from anecdotal and case study evidence to a relatively large-sample study. Furthermore, the results add to the body of accumulated work on the importance of complementarities and internal fit.

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