IT MANAGEMENT: THE CASE OF OTIS ELEVATOR

Ron Cenfetelli

BAIT 511 | 2017

OTISLINEA Case within a Case

• The OTISLINE Telephone & Maintenance Support System– an early 1980’s initiative to leverage IT for

business value: improved customer service– An interesting precursor to Otis’ continued

strategic use of IT some twenty years later.

Branch/Field Offices (where service calls are received)

District Offices

Zone Directors

Regional Offices

North American HQ (COO)

Otis Maintenance Organizational Chart – before OTISLINE

•Regional offices are geographically dispersed throughout North America.•Zone directors have three to five district managers reporting to them.•District managers have two to six branch/field offices reporting to them

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OTISLINE Discussion

The Magic Team Sorter

The Really Big Question(s) for Otis

• Premise: Otis has a competitive advantage over its rivals– Otis has TWICE the profit margin of its rivals; – Otis is in 10 of the 20 tallest buildings in the world

• Premise: A source of that competitive advantage for Otis is its use of IT

• Why is IT a source of competitive adv. for Otis?• How does Otis leverage IT for competitive adv.?• Why can’t Otis’ rivals just imitate Otis by

making/buying the same/similar IT?

Let’s Meet Otis CEO Mr. Ari Bousbib

Mr. Bousbib’s Key Points

• Business Strategy first, before IT strategy– 1) The Otis business strategy:

• Not really a manufacturing firm, but instead a SERVICE organization benchmarked against leading service companies outside of their industry (e.g. Southwest Airlines)

– Bousbib: “Today we are no longer making things, we are moving things”

– Old saying: Sell the hole, not the drill• Process focused – Quality ⇑, Cycle Time ⇓• Entrepreneurial mindset

“We’re so good that we no longer benchmark ourselves against our industry competitors, we look at totally different industries.”

Once Again, Mr. Bousbib

Mr. Bousbib’s Key Points• Business Strategy first, before IT strategy

– 2) Bousbib left no (business) stone unturned. • Engineering and new product development

– SIMBA: standardized components and modules to reduce complexity

• Supply Chain– ACE: Manufacture in lowest cost, highest quality facilities

» Or don’t manufacture at all!• Sales and Field Ops

– Sales & Install Process (SIP): Best practices identified» “Old School” thinking as a Manufacturer: reduce WIP

and other factory inventory to minimum (“$150 million at factories”)

» Instead, now thinking like a Service firm (reducing the $2.5 billion at the job sites)

Mr. Bousbib’s Key Points

• Business Strategy first, before IT strategy– 3) Only after the business criteria were

established and processes developed did IT ever come into the picture

• Process improvements first, – “If you automate a mess, you get an automated mess”

• IT provided monitoring and reporting thus greatly enhancing visibility of business results and also improving quality

– “What gets measured, gets managed”

“If you automate a mess, you get an automated mess”

• Healthcare Example: “If you have a chaotic system and add technology, you get a chaotic system with technology,” says Peteris Zilgalvis, a health official at the European Commission– http://econ.st/10U8Ns2

Strategic IT: eLogistics• IT as a facilitator of re-engineered processes• The eLogistics team reported directly to Bousbib and

other senior managers• Again, Bousbib looked for process improvements 1st,

– IT was then used to institutionalize these processes

• Example: The SIP initiative identified the importance of having sales proposals approved by both sales supervisors as well as field installation supervisors

– eLogistics then forced these approvals before a proposal could be released

Otis Order Generation & Fulfillment (Prior to SIP and eLogistics)

Sales Mfg Field InstallEngineering Billing

Order Several months later…

Are these people in Sales crazy?

dOrreCustomerArchitect David Fisher’s Dynamic Towerproposed for Dubai

Otis Order Generation & Fulfillment (Using IT: eLogistics)

Sales Mfg Field installEngineering Billing

eLogistics provides…•Clear visibility of all parts of

the process for all parties•Real-time information•Clear communication•Approval of Field Installation

for an order before it’s closed

Customer?

eLogistics was about EAI• EAI – Enterprise Application Integration

– Getting all of your disparate systems, databases, etc. “talking” to one another

– A continual challenge for many businesses• Why aren’t systems designed to be integrated in the first

place?– Systems are continually being built for specific

purposes– Only afterwards do stakeholders realize the value in

cross communication between those systems• A key benefit of eLogistics was in providing EAI

– Otis’ DiFrancesco (eLogistics Leader): “the eLogistics program is the means for connecting sales, factory, and field operations…” p. 8 of Otis case

http://www.paw-systems.com/bpm_en.htm

• The communication and visibility of being able to view sales and factory data meant that the Field Installers could “pull” components rather than be “pushed” by the factory schedule– Bottom line: Extracting idle cash for better uses

• Otis had $2.5B sitting idle in the field before eLogistics• eLogistics extracted almost all of that idle cash

• Otis did EAI very well but achieving EAI for most firms is very, very difficult….

eLogistics was about EAIhttp://www.paw-systems.com/bpm_en.htm

Dude, Where’s My Data?

Courtesy of Cutter Consortium (http://www.cutter.com) -Professor Gabriele Piccoli, The Business Value of Customer Data: Prioritizing Decisions, Cutter Benchmark Review

From a recent IMBA IT Story…

• “The launch of [Human Resource] system could help to build standard global human resource management processes in a consolidated platform with an integrated technology. As a result, all the regions could communicate on the same page with the same language.”

Mr. Bousbib on the Unanticipated Benefits of IT (eLogistics)

Mr. Bousbib on the Unanticipated Benefits of IT (eLogistics)

• “Unanticipated Benefits” of IT (eLogistics)– Dramatically reduced cycle times (perhaps this was anticipated)

– Enhanced customer service• Customers could revise/upgrade orders while in process• Customers have their own SCM needs!

– eLogistics assured that products were delivered right on time

– 16% increase in sales simply from making proposals easier and faster for the salesforce to produce

• Unanticipated benefits demonstrates the interaction between IT and Organizations…

The Interaction between IT and Organizations

• “Adaptive Structuration Theory”*– The interplay between technology,

people, processes and organization structure

– Mix people (etc.) with IT and you get more than the sum of the parts

• unanticipated consequences!– But don’t fall for the fallacy

of Technological Determinism• Likewise, IT is not a “magic bullet” that

automatically fixes organizational issues…

People

Structure

Technology

Processes

Tech affects People People affect Tech

The organization structure affects people (of course) and also how tech is used

*Gerardine DeSanctis & Scott Poole (1994) Capturing the complexity in advanced technology use: Adaptive structuration theory.Organization Science, 5(2), 121-147

Technology is not Deterministic

• IT is no “Magic Bullet”*

– Using IT for organizational transformation requires daily, even minute interactions between actors in the organization and the technology they are appropriating (see prior Adaptive Structuration Theory).

– As a result, organizational factors such as resistance to change, politics, etc. are encountered, work practices are modified, and organizational structures are altered.

– Bottom Line: IT alone won’t transform the organization, managershave to LEAD the transformation

• Don’t be fooled by “Technological Determinism”!• Avoiding Technology Determinism was one of the

primary reasons Otis was able to gain competitive advantage through the use of IT

*The Magic Bullet Theory in IT-Enabled Transformation: M. Lynne Markus and Robert I. Benjamin, Sloan Management Review

http://nyti.ms/2dYaGwa

“Wenger’s assertion several years ago that Messi was a ‘PlayStation footballer’ was meant more as an explanation than an insult: Messi does things that seem to belong on a pixelated screen because that is, in part, how he has learned to see the game. Just like Iwobi, his conception of what is possible and what is not was forged by fantasy.”

Making “IT” happen: The 4 Challenges

Making “IT” happen: The 4 Challenges• Challenge 1 – Culture

– As we’ve discussed at the very start of the course, ITM is primarily an organizational challenge

– Bousbib noted having to deal with differing cultures and resistance to change

• Challenge 2 – Technology still matters, of course– Otis is a far flung, global enterprise and their systems

must be scalable and robust– Legacy systems continue to be a challenge

• Too expensive to throw away, but such systems can interfere with deploying newer technologies for process improvement

Making “IT” happen: The 4 Challenges• Challenge 3 – deployment

– Global firms such as Otis have thousands of facilities, employees, cultures and languages

• It is difficult to install a “one size fits all” IT application• A topic for our discussion about Cloud Computing

• Challenge 4 – IT does indeed institutionalizeprocesses– But the downside is this can also homogenize

processes at the expense of being able to deal with unique local needs (e.g. customer expectations in China vs. France or other types of process exceptions)

Some final comments from Mr. Bousbib

• Another interplay between org and tech– eLogistics (an IT initiative) served as a

basis for integrating the organizational“stovepipes” of sales, finance, marketing, etc. getting them to work together (e.g. new product development)

People

Structure

Technology

Processes

Tech affects People People affect Tech

The organization structure affects people (of course) and also how tech is used

IT and Business Transformation*• When IT substitutes for human effort, it

automates a task or process.• When IT augments human effort, it informates

a task or process.• When IT restructures, it transforms a set of

tasks or processes.– To Improve:

• Financial performance• Customer relationships• Employee satisfaction

– Easier job, more flexible, more info• Organizational adaptiveness

– Capacity to learn & adapt– Knowledge management *Zuboff 1985

OtisLine

eLogistics – initially

eLogistics –unanticipated benefitsand further deployment

Returning to Our Three Big Questions for Otis

• Why is IT a source of competitive advantage for Otis?

• How does Otis leverage IT for competitive advantage?

• Why can’t Otis’ rivals just imitate Otis by making/buying the same/similar IT?

The Really Big Question(s) for Otis

• Premise: Otis has a competitive advantage over its rivals– Otis has TWICE the profit margin of its rivals; – Otis is in 10 of the 20 tallest buildings in the world

• Premise: A source of that competitive advantage for Otis is its use of IT

• Why is IT a source of competitive adv. for Otis?• How does Otis leverage IT for competitive adv.?• Why can’t Otis’ rivals just imitate Otis by

making/buying the same/similar IT?

• Why is IT a source of competitive advantage for Otis?– IT is not treated as a standalone entity. It is

considered as an enabler of good business processes.

– Otis has a clearly articulated business strategy*. Otis develops and uses IT with that business strategy in mind.

*Move things, don’t make things

• How does Otis leverage IT for competitive advantage?– They understood, mapped, and then

improved their business processes FIRST• Through initiatives such as ACE and SIP

– Only THEN did they implement IT• They didn’t “automate a mess”

• Why can’t Otis’ rivals just imitate Otis by making/buying the same/similar IT?– Rivals likely don’t have the same service-oriented

business strategy (they think like manufacturers)– Rivals may not have the same level of senior

management support as provided by Ari Bousbib• Bousbib knew that IT had to be led and championed; that

processes needed to be changed; that results needed to be measured

– Rivals may not avoid “tech determinism” and the thinking that IT is a “magic bullet”

• Just building/buying the same system without all of the above will produce very different (likely worse) effects

Otis: Overall Summary• Business strategy should lead IT strategy

– Business Strategy: Meeting customer goals, not “making elevators”

• The fallacy of technological determinism: IT alone is not enough for business transformation– Senior management must lead change, business change– IT can help institutionalize that change – Offline process improvements are absolutely necessary

before automating those processes. Don’t automate a mess!

Otis: Overall Summary (con’t)• Interplay and interaction between Organization & IT

– Ex: Flatter organizations, reduced cycle times

• Otis is a “best case” example of using IT for business advantage and transformation, something most companies are still struggling to do.

Tejender Singh (MBA 2012)Summer Internship Report

• Processes before technology…– “I broke the list of issues that I compiled from all my meetings

with business stakeholders into strategy, process, technological and data issues. Surprisingly there were more process issues than there were technology issues even though my discussions with stakeholders were just focused on the IT use and the issues thereof.”

– “I realized how important it is to map the business processes, make them more efficient, and remove all process bottlenecks and hurdles before putting in an IT solution.”

The Magic Team Sorter