MGMT9128 Strategy & Change: Otis in Global Elevator Industry Case

This case study provides an analysis of Otis Elevator, a leading company in the global elevator industry. It examines the external and internal environments, core competencies, and challenges faced by Otis. The analysis incorporates Porter's Five Forces model to assess industry competition and identifies opportunities in developing countries and potential threats from competitors and technological advancements. The report also highlights Otis's internal resources, including its workforce and core competencies like innovation and customer satisfaction. It concludes with recommendations for Otis to focus on IT innovation, adopt efficient pricing strategies, and enhance customer service to maintain its competitive advantage. The case study emphasizes the importance of digital innovation and strategic adaptation in the elevator industry. Desklib offers a platform for students to explore similar case studies and solved assignments.

Running Head: STRATEGY AND CHANGE 1
MGMT9128: Strategy & Change
Term 2, 2018
Assessment 1: Case Study
Otis in the global elevator industry
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STRATEGY AND CHANGE 2
Executive Summary
Otis Elevator is an American company and is a part of its parent company i.e. United
Technologies found in 1853. In the industry, it is one of the pioneer companies working with
innovations, effective strategy.
Otis Elevator is a part of elevator industry which works with two main activities –
manufacturer and sale of elevators and other one is the regular service maintenance. As the
whole elevator industry makes major profit out from the service and maintenance part i.e. 25-35
per cent, Otis is focusing on regular maintenance so as to avoid catastrophic accidents and to get
higher returns with profits.
On the technical aspect, earlier Otis used to rely upon the microprocessor control units,
which require its operations to be, ran manually. However, after the implementation of
OTISLINE, many problems of the company were solved like reliability in the services, enriching
of customer satisfaction and decrease in the customer response time.
In this report, the analysis of the undertaken research leads to the recommendation that
the company should work on IT innovation so as to gain competitive advantage in the market. In
addition, the company can adopt more efficient pricing strategy for increase their profitability.

STRATEGY AND CHANGE 3
Table of Contents
Introduction........................................................................................................................................ 4
External Environment........................................................................................................................ 4
Internal Environment......................................................................................................................... 7
Core competencies vs. Challenges................................................................................................... 7
Conclusion......................................................................................................................................... 8
References........................................................................................................................................ 9

STRATEGY AND CHANGE 4
Introduction
A pioneer in its field, Otis Elevator is one of the largest international leaders in selling the
elevators and related services. It was founded in 1853 i.e. around 165 years ago by Elisha Otis.
Later in 1976, it was acquired by United Technologies and that makes Otis a wholly owned
subsidiary.
As a part of customer service, Otis assists builders in getting the best-suited elevator for
their building and later on, the production and manufacturing of the elevator will be started. The
major activities of the company are divided into primary and secondary where primary activities
include manufacturing of the elevators and the secondary activities include servicing and
maintenance of these elevators which includes a higher profit margin.
The outsourced service of the Otis is in the hand of OTISLINE who help Otis in
achieving its strategic goals effectively and efficiently by helping sales representative in setting
up agreements.
In the elevator industry, Otis had achieved a greater market share with the help of its
technological leadership, continuous researching, reliability and cost-effective manufacturing by
using lean management techniques (Hanson, Hitt, Ireland & Hoskisson, 2013).
As the time goes on, the business focus of the company has been changing. The focus of
manufacturing move to providing total solutions by giving high-class customer service. This can
be also seen by their vision which states that – “They want to become a leader in service
excellence in all companies and not just in elevator companies – worldwide”.
External Environment
The external environment includes various factors which affect the operation and business
decisions in the organization. This includes the industry competition, competitor analysis and
opportunities and threats present in the business environment (Cantwell, Dunning & Lundan).
The present competitors in the industry are Kone, Schindler and ThyssenKrupp. The
competitor analysis of the company is done via Porter's 5 force model which includes –

STRATEGY AND CHANGE 5
 Power of buyers
 Elevator Sales – High, Many builders, contractor, and architecture select
elevator Company for their respective project in many areas. As there are some
other companies are presented in the industry like Kone and Schindler who
also using new innovative things for the development, results in the increasing
power of buyers.
 Elevator Services – Medium, The service contracts are given for a limited
period of time and these contract of services became primarily price based
when the building became older.
 Threats of Substitutes – Low, escalators and stairs are the only significant substitute
of the elevator (Olander & Eves, 2011). Company ignores to add escalator in their
product line may due to any strategic decision making.
 Threat of new entrants –
 Elevator Sales – Low, in the elevator industry, a substantial amount of capital
is needed to enter into the market which can be proved to be as a barrier to
many companies. Will be
 Elevator Service – High, Elevator service sales did not require high capital
investment and unlike elevator sales, the profit margin in this part of the
activity is very high.
 Power of Suppliers -
 Elevator Sales – Medium, as a business firm, the main input materials will be
made of steel and parts related to microprocessors (Miller, Harding and Tufte,
2014). The suppliers will enjoy less freedom of power due to the presence of a
large number of market players in the industries. On the contradictory side,
suppliers enjoy some freedom in microprocessor units. This makes a distinct
advantage.
 Elevator Service – Medium, in elevator service industry, repair mechanics and
serviceman are in the contract with the suppliers. As there are more service
providers in the market, the service mechanics of the company search for the extra
remuneration by appointing their skill in the various works.
 Internal Competition –

STRATEGY AND CHANGE 6
 Elevator Sales – High, There is high competition in the sales industry and
there are also low margins present in the sale of new machines or equipment.
 Elevator Services – High, The industry is highly competitive and many small
services firms are easily accessible while doing competition with each other
(Drake and Lee, 2009).
Therefore, according to the above model, the risks present in the businesses of Otis
can be termed as a medium to high. This shows that company need to think strategically to
become the market leader in the country.
Considering the external environment, there are various opportunities present in the
market. Strong growth in the developing countries like India, China, Brazil and various other
strong Asian countries (Gassmann, Enkel & Chesbrough, 2010). They can also make an
investment in the growth opportunities like stagnation in developed markets etc. The history
of the company also states that they have the presence of various R&D resources through
which the company can do innovation by using new technologies (Barrett, Davidson, Prabhu,
& Vargo, 2015).
After analysing the business environment of Otis critically, it is to be found that Otis
has many opportunities available in the market which can be used by the management in
enhancing the achievement of effective performance. In globalization, there is an elimination
of trade barriers bestrewn different countries. As Otis have a distinct strategy of expansion,
they can easily penetrate other markets due to their investor-friendly policies. In many
developing countries, there is an emerging of new economies and this led to the various works
like construction. Otis can grab this opportunity by venturing into new markets or even in new
product and services. This is highly significant for the company to differentiate itself from
others players in the industry and makes a competitive edge in the market.
As per the threats, many of the competitors like Kone, Shindler and ThusseKrupp are
using similar resource and experiences (Penttinen & Palmer, 2007). The risk here is that they
ma replicate the technology which will not be beneficial for the Otis. One of the biggest
challenges is faced by the company is in the form of recent global depression have also
affected many companies across the sectors. In addition, the emergence of the new
technologies and the substitute product also challenges the Otis in terms of the returns, market
share and profitability.

STRATEGY AND CHANGE 7
Internal Environment
The internal environment is controllable by the business to some extent as the
companies or businesses have direct control over these factors (Kearns, 2007). These internal
factors include resources, core competencies and capabilities, competitive advantage.
In terms of the resources, Otis has around 70,000 working employees worldwide as
per the year 2017. The major core competencies of the company are present in their value
proposition includes responsiveness, customer satisfaction, reduction in cost, teamwork,
innovation and reliability. These core competencies help Otis to make a competitive edge in
the market.
The innovation has established the competitive advantage for the Otis in the elevator
service industry. Moving from mechanical to digital innovation is not easy (Barret, Davidson,
Prabhu & Vargo, 2015). The skyscrapers dream of the company comes true when they
discover an elevator brake. Today, they are having a market share of 10% and takes $10
billion in the revenue. With the time, Otis has made several innovations into its elevators like
led screen in the elevators to guide passenger about everything, manufacturing elevators by
minimization of costs through targeting appropriate suppliers and remote elevator monitoring
by installing sensors in their elevators. Therefore, the competitive advantage of the company
lies in the digital innovation.
Core competencies vs. Challenges
Today Otis is one of the leaders in the industry that is providing personalizing services
solutions with the help of transparent information sharing, real-time and proactive
communication and predictive manufacturing and insights. They are continuously doing
innovation since 1853 in the alignment of advancement in quality in this digital economy.
Their digital tools give real-time insights and integration with their customer response system
which help in predicting the issue in the advance.
Several challenges are present in the elevator industry but by putting the latest
technology and predictive role, the company can enhance its manufacturing part of the
business and along with the service aspects (Valentin & Shan, 2013).

STRATEGY AND CHANGE 8
Recently, at the World elevator expo, Otis presents voice integration capability in their
elevators with the contract with Amazon Alexa and Microsoft Cortana.
Therefore, it can be analysed that their core competencies are lies in the hand of digital
innovation and thus they with this persistent digital innovation, their capability is being
increased in the alignment of their core competencies including quick customer response and
satisfaction (Bawden, 2008).
Conclusion
Otis has the potential to completely overhaul the working in the Elevator industry.
Otis is not providing superior services but also raising their sales through consistent
innovation. The necessary capital investment and the successful implementing the Digital
technology with their manufacturing process and products, Otis can be proved disruptive in
the elevator industry.
The company need to also learn from their previous catastrophic accidents and provide
regular building annual safety check service. The profit margin in the service and
maintenance is high as compared to the manufacturing and production of the elevators and
that why they need to make a competitive strategy to make their business stable. One of the
recommendations can be given to the company is that the company should hire skilled and
trained trusted mechanics assistance to deal with the service aspect. In addition, for expanding
their market on the international scale, they need to collaborate with trusted agents and
distributors.

STRATEGY AND CHANGE 9
References
Barrett, M., Davidson, E., Prabhu, J., & Vargo, S. L. (2015). Service innovation in the digital
age: key contributions and future directions. MIS quarterly, 39(1), 135-154.
Bawden, D. (2008). Origins and concepts of digital literacy. Digital literacies: Concepts,
policies and practices, 30, 17-32.
Cantwell, J., Dunning, J. H., & Lundan, S. M. (2010). An evolutionary approach to
understanding international business activity: The co-evolution of MNEs and the institutional
environment. Journal of International Business Studies, 41(4), 567-586.
Drake, P.R., & Lee, D.M. (2009). Component prioritisation for strategic purchasing and the
case study of a South Korean elevator manufacturer. The International Journal of Advanced
Manufacturing Technology, 43(9-10), 883-895.
Gassmann, O., Enkel, E., & Chesbrough, H. (2010). The future of open innovation. R&d
Management, 40(3), 213-221.
Hanson, D., Hitt, M., Ireland, R. & Hoskisson, R. (2013). Strategic Management:
Competitiveness and Globalisation. Australia: Cengage Learning.
Kearns, G. S. (2007). How the internal environment impacts information systems project
success: An investigation of exploitative and explorative firms. Journal of Computer
Information Systems, 48(1), 63-75.
Miller, J.F., Harding, S.L., & Tufte, G. (2014). Evolution-in-materio: evolving computation in
materials. Evolutionary Intelligence, 7(1), 49-67.
Olander, E.K., & Eves, F.F. (2011). Elevator availability and its impact on stair use in a
workplace. Journal of Environmental Psychology, 31(2), 200-206.
Penttinen, E., & Palmer, J. (2007). Improving firm positioning through enhanced offerings
and buyer–seller relationships. Industrial Marketing Management, 36(5), 552-564.
Valentin, V., & Shane, J. S. (2013). Advantages and challenges of research programs with
extensive industry involvement. Practice Periodical on Structural Design and Construction,
19(1), 63-67.