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Otis Elevator (Circa 2004)

 Overview

The largest and most financially successful elevator company in the world must answer the question, How can Otis be different? As Michael Porter explained (in his classic essay, What Is Strategy?) operational effectiveness and mere efficiency are "insufficient" to long term sustainability, and are not substitutes for real strategy. Otis must achieve more than profit, market dominance, reduced cycle times, growth and the use of highly efficient new IT systems.
It must "...establish a difference it can preserve."

The best IT systems in the world won't help the company unless it uses a sustainable strategy with meaningful trade-offs, such as by identifying and explaining why Otis says no to some prospective customers and yes to others.

Analysis

• Porter's Five Forces Framework Applied To Otis:

• Substitutes - None at present. Virtual offices and telepresence down the road.

• Suppliers - Many globally sourced suppliers with no stated dominant supplier. With CLC and SSI structure, company may foster competition between its own factories and 3rd party vendors. This could produce a 'death spiral' if Otis factories are not operating at capacity.

• New Entrants - Only a few global manufacturers with high capital barriers to entry. Many service only companies with significantly fewer barriers to entry.

• Buyers - New sales driven by elevator performance, quality, price and reputation. Service contracts typically awarded to lowest bidder. Primary cause of cancelled contracts was poor service, not product quality.

• Industry Competition - World market is expanding, especially China, lessening competitive rivalry at present.

Improving service quality through better IT is key to sustainable profits in mature markets where service provides 75% of profits. Expanding China market share is key to growing sales.

• Even big gains in operating effectiveness won't translate into strategic sustainability because "...rivals imitate one another's improvements" leading to "mutually destructive...wars of attrition." (Porter). Otis must differentiate from other sales and service companies on the basis of quality and reliability and avoid commodification of its brand.

Recommendations

• Avoid 'death spiral' for existing Otis factories. If Otis factories are at or near 100% capacity the correct question is whether to build another Otis factory or outsource production.

• Otis can be different by using "needs based positioning" (Porter) by offering a unique value mix to the right type of customer at the top-left quadrant of Porter's productivity frontier.

• Key Trade-off # 1 - In service markets Otis must say no to the bottom of the market, which does not align well with the core customer group the company should serve to maintain sustainable advantage.

• Key Trade-off # 2 - In sales markets Otis must say no to mindless growth for its own sake and focus on recruiting profitable customers and bundling sales with long term service contracts.

• Partner with architects, developers and builders to create networks for recruiting new sales and service customers. Pharmaceutical company relationships with doctors is one model to follow.

• Achieve world-wide application of eLogistics system; use as basis for company ERP.

• Use and defend proprietary technology (REM automated elevator monitoring) to raise entrance barriers for small service-only companies: Only Otis licensees to service Otis elevators.

• High-tech automated elevator monitoring fits well into building-monitoring, security and alarm systems which represent nearby untapped markets for Otis. Expansion to these new markets could be accomplished with existing infra-structure to offer comprehensive building management services and add diversity to Otis brand portfolio.

• Manufacturing know-how is still important to achieving future innovations. Otis CLC's were staffed with "...knowledgeable resources from the manufacturing arm."
  

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