Otis Elevator IT’s two business in one — Sales — Service

Elevator Manufacturing and Sales Highly correlated to the building cycle Only a few competitors A low-margin business Several “buyers” involved in the purchase decision -- for example, the building contractor, architect, and building owner Competition between companies is based on price, reputation, and ability to satisfy elevator performance specifications and architectural requirements High barriers to entry

Elevator Service Low barriers to entry; many elevator service companies were started by prior employees of elevator manufacturers. Fragmented: thousands of elevator service organizations. Stable demand and high profitability. Elevator manufacturers were awarded 60% to 80% of the service contracts for newly-installed elevators.

Cost of service is more important as buildings age and competition for tenants intensifies. Diagnosis of elevators with microprocessor-based control systems often requires proprietary maintenance devices. The manufacturer was more likely to retain the service contract for these elevators.

Company Overview Otis is the industry leader. Otis pursues a differentiation strategy. It specializes in elevators for large, complex buildings and sells quality, service and the ability to customize elevators. Its products sell for a premium price. Otis has a large, highly-regarded service organization. Some Otis elevators have microprocessor-based control systems. These are replacing mechanical elevator control systems, but at a very slow rate. Reliability is more important than cost for Otis Elevator’s target customers.

Sales - Measurement of Success Bids won / lost Market share by region, by product By type of building, type of elevator, etc. Budgeted and actual profitability Comparison of planned and actual installation dates

Service - Measurement of Success Service contracts won / lost Profitability by customer, by office, and by region Response time by office, and by region Callbacks by customer and by office Time to repair elevator Time to repair and quality of repair for each individual mechanic

Service - Impact of OTISLINE (Being Proactive) Microcomputers have been embedded in recent products -- information technology has been used to transform the product. The OTISLINE system makes it possible for Otis to offer performance contracts to its customers. OTISLINE makes it easier for senior management to spot and manage difficult situations, resulting in a higher level of customer satisfaction.

If the information coming from OTISLINE is used appropriately, the system may enable Otis to become more customer-service oriented. OTISLINE significantly transforms information flow within the organization. Otis must market OTISLINE’s capabilities. A competitive advantage that is not properly positioned is not a competitive advantage at all.

Sales - OTISLINE Impact OTISLINE’s ability to enhance the service business can be a useful selling tool for New Equipment Sales (NES) representatives. The New Equipment Sales system uses OTISLINE to shorten the time it takes to record and process a customer order.

Service Delivery Process: Before & After Otisline Before OTISLINE After OTISLINE Customer Answering Service Mechanic Field Office District Zone Region NAO Headquarters Mechanic dispatched and fixes problem Mechanic files report Mechanic paged Problem/complaint reported Routine Reporting OTISLINE Mechanic Customer Mechanic dispatched and fixes problem Mechanic files report Mechanic paged Problem/complaint reported Routine Reporting Source: Stoddard, D. and Applegate, L., Otisline Teachning Note, Harvard Business School Case #

Discussion of Next Steps Finish the NAO roll-out! Clearly, exporting the system is a possibility; the company’s leading division is, after all, European operations. Selling OTISLINE, or perhaps OTISLINE service, to other noncompeting organizations (e.g., appliance and automobile manufacturers) might be an attractive sideline business.

Enhancing OTISLINE is an ongoing but significant responsibility. Competitors will undoubtedly respond with similar systems, probably with some enhancements. Finally, addressing the organizational and human resource issues is critical. The value of OTISLINE to the company is very compelling. Dealing with organization resistance is an important management challenge.