Free Otis Elevator Company Essay Sample
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Elevators and is among the world's largest means of public transportation. They daily move hundreds of millions of people around the world. For many people they cause reactions resembling the fear of flying experienced in airplanes, i.e., claustrophobia and a feeling of not being in control. The first concern in elevator maintenance is to make absolutely certain that the equipment is safe to travel. This is highlightened by the fact that in most countries around the world, it is a legal requirement that an authorized maintenance contractor must properly maintain all the elevators in use. In Hong Kong the regulations also stipulate how often the elevator must be attended to and what kind of safety checks have to be performed (Fombrun, Tichy, and Devanna, 1984). The global trends of deregulation have recently affected the legislation in many countries, and it is becoming more and more the responsibility of the elevator owner and the maintenance contractor to choose when and how the equipment is maintained. Serious elevator accidents are extremely rare - elevators are obviously by far the safest means of that kind of public transportation. This means that for the ordinary owner and user, safety is no longer the primary concern. The basic customer requirements are that the equipment is reliable, clean and does not make suspicious noises. If a malfunction occurs, the response of the maintenance contractor must be smooth and polite. Elevators today are quite reliable.
For more than 50 years, Otis Elevator and KONE Elevator Companies have had one objective: to 'fulfil dreams trough the experience of Elevators.' Therefore the paper analyzes the Strength, Weaknesses, Opportunities and Threats and Changes toward Effective Performances for Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd.
Depending on the type, make, usage and level of preventive maintenance, a malfunction occurs, on average, between 0.5 and 10 times per year. The cost of elevator maintenance is somewhere between 0.4-1.5% of the total property maintenance costs. So even significant savings in elevator maintenance can only have a marginal impact on total property management costs. The entry threshold to elevator maintenance is quite low (Lawler, 1971). In most countries in the world, an elevator field technician with over five years experience can pass the tests and get a license. Globally, the competitive situation is quite similarly polarized: corporate with higher overheads, the potential to offer better services and higher prices against the small local operators with almost zero overheads, low prices and a capability for only limited services. KONE Elevator Ltd was founded in 1910, and the first elevator was delivered eighty years later. The primary strategic objective, since the late 1960s, has been the creation of a multi-national elevator and escalator company via the acquisition of national elevator companies in various parts of Honk Kong. KONE is now the third largest elevator manufacturer in the world, behind the global competitors OTIS elevator company (Legge, 1995). OTIS Elevator Company, a wholly owned subsidiary of the United Technologies Corporation, is the world's largest manufacturer and servicer of elevators, escalators, moving walkways, and shuttle systems. These products are quite profitable in China, which happens to be the world's largest elevator market. The OTIS Elevator has captured a notable 25 percent of this market and expects its growth to continue. In 1996 revenues were over $ 5.56 billion. Its operating profits reached over $ 5.11 million. In 1982 OTIS was granted approval by the Chinese government to begin operations in China. By 1984 Otis established its first manufacturing joint venture there: China Tianjin OTIS Elevator Company, Ltd.
The venture not only manufactures a full range of products, but also uses its extensive distribution network to install and service these products throughout the country. OTIS's second joint venture in China, Hong Kong Otis Elevator Company, Ltd was formed in 1992. Hong Kong Otis Elevator Company, Ltd, a partnership between Otis, and Beijing Equipment Installation Engineering Company, installs, services, and modernizes elevators and escalators in the Hong Kong area (Miles, and Snow, 1978). On the other hand, the KONE Company employs around 23,000 people worldwide; less than one in 10 is Finnish. KONE growth has been aggressive and somewhat a typical compared to other major Finnish international companies. KONE's road from small domestic operator to major international player has been based on building market share by acquisition, and maintaining it through technology leadership (Sparrow, and Cooper, 2003). Twice during this period the company absorbed non profitable elevator operations larger than itself and turned them into profitable subsidiaries.
One important success component in Otis Elevator Company Limited and KONE Elevator Ltd internationalization has been a proper business planning and control process. Among the first post-acquisition activities was the integration of the new entity into this management process (Torrington, and Chapman, 1979). The business planning, budgeting and control process was developed in almost their present forms, at Otis and KONE Corporation in the mid-1960s before the process of internationalization.
The two companies have their sources of revenue. For example, the KONE Elevator Ltd Company in Hong Kong is seen to have diverse market revenues than the Otis Elevator Ltd Company. The KONE Elevator Ltd has also revenues from the foreign markets and an example is the English market as well as the French language market. For the case of the English market, the company has revenue of 40% while at the French market, it has revenue of 55%. The other group's then have a percentage of 6% of the total revenue which the company gets (Torrington, Hall, and Taylor, 2002). So, you will find that due to the high contribution of the company in both the domestic market as well as the international markets in selling of its services and products, you will comprehend that the company has been in a position to grow hence leading to the growth of the economy.
You also find that the KONE Elevator Ltd mostly target the US market and since this is one of the most developed country, it generates elevated revenues which help in further financing of the company. The elevators can be seen as the most primary business activities in the Hong Kong. It is with this particular business activity which has made this company to try and generate a revenue share of 39% and 40% correspondingly (Tyson, 1995). So the Hong Kong Elevator companies' have been more advanced than the other world's companies and this is out of research which has been done hence leading to the growth of revenues by the company.
The company is also venturing in to new markets which is seen as another key strategy which the KONE Elevator Ltd in Hong Kong has adopted hence making it completely different from the Otis Elevator Ltd Company. So with this scenario, most of the company's revenue mostly comes from the production of their services which they sale at the market both locally as well as internationally. In Hong Kong, you will find that there are a number of Elevator Companies hence providing a stiff competition to Elevator Companies unlike in U.S. Out of research which was done on the Elevator Companies in Hong Kong, it was found that there are 254 Elevator Companies all of which can be divided in to two distinct groups. There are 239 Elevator Companies in Hong Kong who are under the China financial control and most of these companies are said to be the small size Elevator Companies hence they recorded an annual sale of $500,000 and this was through the sale of new records in the China market. These are the China companies which are said to be under the government financial control. At the same time, there are 15 Elevator Companies still in Hong Kong who are under the foreign control who include the major multinational companies hence these foreign companies have a hundred times higher the sales hence giving a stiff competition to the China controlled companies where the Elevator is one of the companies in this case. These foreign companies have a total sales of $50 million hence can be seen as occupying the largest domestic market of the Hong Kong. So the foreign controlled companies in Hong Kong then have given a stiff competition to the Elevator companies in Hong Kong and hence this can be seen as one of the most challenges to the companies.
SWOT Analysis for Otis Elevator and KONE Elevator Companies
To achieve their Effective Performances, Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd must evaluate their strengths, weaknesses, opportunities and threats. A SWOT analysis describes the audit and evaluation of the companys' internal and external environment to aid in Effective Performances. As such, the SWOT analysis helps in understanding the companys' position and future opportunities and challenges. More importantly, the SWOT analysis helps in achievement of desired goals and objectives. In this regard, a SWOT analysis helps in matching the elevators resources and capabilities to the competitive environment. The SWOT analysis has also helped the two companies in making of the various decisions in the market. It helps in making decisions as far as the market strengths can be concerned.
Strengths refer to Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd resources and capabilities that enable the companies to develop competitive advantage and implement their strategic management plan. Analysts agree that the Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd have a strong brand name and strong brand name recognition. This has enabled the companies to build a positive image through public trust and confidence. It is imperative that through the strong brand name and positive image, the Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd have been able to attract top skills and talents as well as attracting investors in its products. In addition, the number of clients has increased manifolds due to increased confidence. Another factor that presents a huge strength for Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd is the establishment of strategic partnerships and acquisitions. The companies have used these partnerships to create operational efficiencies with particular regard to cost management and outsourcing. In addition, due to the companies' strong organizational culture and structure, the companies have been able to drive growth and achievement of effective performances. More importantly, Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd have corporate ethics and decision making processes augmenting their products and positive public image. The strengths in this case as well may include things like proper management of the company products and services which might lead to more profits. This can be highly evident in financial management. The two companies have put in place a well strategy whereby most of the companies finances are well recorded hence meaning that the companies resources are well managed hence leading to more profits. The marketing strategies are also good as well as the marketing teams of the two companies. The marketing strategies in this case include market research whereby they do market research to ensure that they have been in a position to allocate the correct market for them to invest their products.
Weaknesses refer to internal challenges and difficulties that the Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd must address to enhance their competitive advantage. One of the greatest weaknesses facing the Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd is a weak financial base occasioned by the 2008/2009 global economic depression. During this period, the companies experienced financial challenges forcing the China government to intervene to prevent eventual collapse. The rapid change and increased cost of technology especially their information and communication technologies is one of the weaknesses that the company needs to address urgently to enhance decision making and remain competitive in the future. It has also emerged that Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd experience high employee turnover rates in the last one decade. The implications of a high turn over rate include high cost of training and recruitment as well as loss of skills to competing players within the industry. Weaknesses on the other hand may also include things like the poor management as well as inefficient labor which might affect the performance of the company. So, this analysis will be applied in order to make sure that the companies have assessed these challenges and try to solve them as soon as possible.
Opportunity describes factors that create room for profitability and growth. In a critical external environment analysis, it is evidently clear that Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd have numerous opportunities which the management can tap to enhance achievement of effective performances. The general trend of globalization is one factor that has led to liberalization of economies and elimination of trade barriers. With a strategy of expanding their services and cover more foreign markets, it is imperative that Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd will find it easier to penetrate some markets due to investor- friendly policies. It is also notable that the emergence of new economies with huge average income populations will drive growth in some sectors like construction. For the opportunities, this can be seen in venturing in to new markets or even venturing on new products and services. This will be very much important since the companies will have differentiated itself from the rest of the companies hence leading to increased returns.
Threats describe changes in the external business environment that provide challenges for the companies. The recent economic depression is one of the global challenges that have impacted on the companies necessitating government bail out and avoiding total collapse. On the other hand, competitive analysis of Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd reveals that the entry of new players in the industry poses a huge threat to the companies' market share and dominance. The companies face great competitive challenges especially in some markets where community elevators institutions have dominated for decades. With advancement in technology and introduction computerized elevators, Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd faces an enormous challenge. There is general consensus among analysts that elevators' companies face numerous competitive challenges with the emergence new technologies and substitute products and services. For the threats, these are the external factors which might affect the growth of the company. An example of these threats may be things like risks and uncertainties hence the need to try and manage these risks.
Changes Recommended for Otis Elevator Company
Otis Elevator Company plans to reach 17% earnings per share growth over each of the next 3 years. It plans to produce Elevators but also to continue with 'general merchandise' and financial services in order to sell solutions that address all customer needs. To achieve this goal, Otis Elevator Company relies on two business strategy options, the one of related products for existing market which is about adding features or refinements, expanding product line, new generation products and new products. And the strategy of existing products into related market which consists on targeting new customer segments, and expanding geographically. Otis Elevator Company also plans to follow a generic strategy of differentiation based on its brand name, product quality, service levels, and distribution channel. Finally, the position whished by Otis Elevator Company for its future is to remain the 'seller of experience' competing against the other 'sellers of Elevators'
With all these elements in mind, there is no denying that Otis Elevator Company has to work on its strategy if it wants to remain competitive and even sustainable. The first issue to consider is the differentiation strategy of Otis Elevator Company. The risk here rests in the increasing threat of imitation in the Elevator industry. It may be difficult in the coming years to maintain the degree of differentiation, and then emerges the following question: until when customers will be disposed to pay premium price for that product? Otis Elevator Company should try to increase even more the image of quality and tradition of its products that would enable the company to remain different compared to mass competitors.
Changes Recommended for KONE Elevator Company
Concerning the globalisation matter, we know that KONE Elevator still does export. One good option for the firm would be to export more widely in order to test the European market and see if it should go further. This allows a tight product control from home market and a low need of coordination between the two continents, without too many risks. One advanced option would be to build another plant in Europe in order to reduce the costs of transport. Asia would be cheaper but the quality would suffer it, and the reputation of the firm to. Nevertheless, the direction of KONE Elevator has to keep in mind that the main market of the firm would remain America, which is the cradle of its brand image.
As we saw during the analysis, KONE Elevator is well lacked behind with a technology that doesn't enable the company to create value and to achieve competitive superiority. Moreover, KONE Elevator can not afford to develop internally the technology that might lead to competitive advantage in the future. Here the option is to outsource: this way, the firm can catch up and concentrate on others areas in which it can create value. Another solution to fulfil its capabilities gap in term of innovation and elevator would be the diversification. Why not to extend its diversification to a business that enables the company to share the cost of elevator in technology particularly. The backward vertical integration would be a good way to improve capability transfer and to benefit from the supplier's network and expertise. Like this, KONE Elevator would benefit a size advantage and that could facilitate the investments in elevator.
With the advent of the Internet in all the areas of the world, KONE Elevator is loosing an important part of its capabilities to create a strong link with its customers. There is a necessity for the company to develop value adding knowledge process to compensate for the value and margin that the Internet strips from physical process.
The challenge to Otis Elevator Company Limited and KONE Elevator Ltd in their globalization strategy for elevator maintenance twofold: 1) how to incorporate into the service offered, more customer-perceived real added value features and 2) how to improve field work efficiency to improve fieldwork efficiency to reduce service costs. An interesting addition to this challenge was the final global emergence of real facility management operators, who begin to change the way in which value added is understood in the property management industry. The Otis Elevator Company Limited and KONE Elevator Ltd response to the first challenge was to launch and enforce a business policy for maintenance service provision: Otis Elevator Company Limited and KONE Elevator Ltd offers to their customers' elevator usability (e.g.,99.5% of the time), not a predefined amount of visits to the elevator. This is complemented by guaranteed response times in case of malfunction, preferred service slots, access to Otis Elevator Company (H.K.) Limited and KONE Elevator Ltd eOptimumTm web service and other additional features incorporated in advanced Otis Elevator Company Limited and KONE Elevator Ltd partnership programs aimed for modern facilities managers. For the second challenge, fieldwork efficiency, Otis Elevator Company (H.K.) Limited and KONE Elevator (H.K.) Ltd have several lines of development going on. Ultimately the goal is the remote monitoring and adjustment of the elevators without the need of physical visit to the equipment. So it's through the use of the SWOT analysis when the two companies can effectively try to assess the performance of the company and also try to control some of the challenges which might affect the growth of the companies.
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