A Case Study Analysis as Presented to:

Ari Bousbib
President of OTIS Elevator Company

Prepared & Presented By:

Frank Bakker
SCH-MGMT 689: Organizational Planning & Strategy
University of Massachusetts Amherst
Isenberg School of Business
Introduction

Mr. Bousbib, Otis is currently the largest manufacturer, installer, and servicer of

elevators, escalators, and moving walkways in the world. The company’s successful

history, entrepreneurial mindset and strong process focus puts Otis ahead of the

curve. However, it is also evident that some of these key differentiating factors are not

sustainable as staying ahead of the competition gets harder by the day as the

operational excellence methods are imitated by our competitors and next to this new

demand is stabilizing in developed countries.

Mr Bousbib for this it is critical that our recommendations are followed up to ensure

that the issues and threads are tackled so that Otis continues to be the market leader.

Summary of issues and threats

We analyzed the elevator hardware and service industry using Porter’s Five Forces

model (Appendix A) and we reviewed your recent interview with the Harvard Business

School, based on these we determined the following issues and threats.

New entrants and strong competition in services in the mature markets

Services account for about 75% of the revenues and profits in the more mature

markets. The cost of services is at this moment the selection criteria for the building

owners or property manager and we see thousands of elevator service companies,

servicing our elevators. The current trend is leading to lower margins and a lower

market share.
 Strong competition from other high quality multinational companies using

the same operational excellence toolbox

Otis has been very much focused on operational effectiveness and this was necessary

to achieve superior profitability. This however is not sufficient, as staying ahead of the

competition gets harder every day. The most obvious reason for this is the rapid

diffusion of best practices.

Recommendations

Service strategy

Otis needs to protect and stabilize the margin erosion in the service part of the

business. A new strategy will tackle this topic. Items to be included in the new service

strategy are: long term contracts, implement IT systems which can only be serviced by

Otis, make IT systems more intelligent so that potential failure is detected earlier and

prevented, and upgrade existing systems with new technology.

Innovation strategy

Otis should continue with the operational/service excellence strategy, however this is

not sustainable. An innovation strategy needs to be developed and implemented so

that Otis takes a strategic position which is different than our competitors. A core

element to be included in the strategy is sustainability. A competitive strategy is about

being different!
 Appendix A: Porter’s five forces model of the elevator industry

Buyers have a rather large pool of
competitors to choose from and coupled
with low costs of switching, there is a real
threat.
The threat of new entrants for supplying
new products is limited as entry barriers are
high, for services this is not the case more
and more small companiers are offering
services.

The materials needed There are no substitute

are readily available products available (only
from a wide pool of stairs).
suppliers and switching
does not incur high
costs.
Hardware: several high quality
multinational competitors are present
and the cost for switching are limited
and products become more and more
standardized.

Services: the norm is to cut prices to

gain businesses, this is a high
competitive threat and many
(thousands) service companies are
present. Services accounts for 75%
of the revenues and profits in the
more mature markets!