External Environment
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”.
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 –
- 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–
- 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.
Internal Environment
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.
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.
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).
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.
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.
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