Otis elevator case study pdf

Otisline Case Study
How important is OTISLINE to the North American operation?
What elements of Otis Elevator’s value chain have been affected by the company’s use of information technology to date (Hint - specifically analyze the primary and secondary value chain of the company)?
What adjustments in the organization were made to accommodate OTISLINE (Hint - this is more than just the IT budget - think about the organization overall)?
What advice would you give Otis management concerning future direction at the time that the case concluded?
What one concept from the lecture or the book did you find applicable to this case?

Harvard Business School 9-186-304 Rev. July 15, 1990

Research Assistant Donna Stoddard prepared this case under the supervision on Professor Warren McFarlan as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The names of Otis Elevator employess have been disguised.

Copyright © 1986 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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OTISLINE (A)

When elevators are running really well, people do not notice them. . . . Our objective is to go unnoticed.

Bob Smith Executive Vice President Chief Operating Officer Otis Elevator

In late November 1985, John Miller, director of information systems for Otis Elevator North American Operations, contemplated the future of OTISLINE,* a computer application developed to improve Otis Elevator's responsiveness to its service customers. The nationwide implementation of OTISLINE was under way, and the company was considering several other applications that could use the system's infrastructure.

Company Overview

Otis Elevator, a subsidiary of United Technologies Corporation, was the world leader in elevator sales and service (i.e., maintenance). Its 1984 revenue of $2 billion represented 13% of United Technologies' total revenue.1 Otis Elevator was organized into four geographic divisions: North American Operations, Latin American Operations, Pacific Area Operations, and European Transcontinental Operations.

Otis Elevator, named for the company's founder, Elisha Graves Otis, described its business as the design, manufacture, installation, and service of elevators and related products, including escalators and moving sidewalks. By the end of the nineteenth century, Otis's name was known worldwide and had become synonymous with one of the most useful and dramatic inventions of the

* “OtisLine” is a registered servicemark of Otis Elevator Company. 1 1984 Annual Report, United Technologies Corporation.

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century, the passenger elevator.2 Exhibit 1, an excerpt from the company history, Going Up, describes the events leading up to the installation of the first passenger elevator.

The Otis name connoted technological leadership, reliability, and quality. Since Otis Elevator was perceived to be the best, customers were willing to pay a premium for its products. The company marketed three elevator lines: Otis Hydraulics for low-rise buildings (up to 6 stories), Otis Geared for mid-rise buildings (up to 24 stories), and Otis Gearless for high-rise buildings. Otis had been most successful in selling elevators for projects that were large, that required customized elevators (atrium elevators, for example), or that required state-of-the-art elevator technology. Otis Elevator's large, highly regarded service organization often led customers to prefer an Otis elevator over another manufacturer's product.

In the late 1970s, microprocessor technology transformed the design of elevators, replacing the outdated mechanical elevator control systems. Otis Elevator's Elevonic 401, with three microcomputer-based control units, was one of the most advanced elevator systems at this time.3

Exhibit 2 gives a description of the Elevonic 401. Microcomputer technology enabled Otis Elevator North American Operations (NAO) to increase its market share significantly between 1980 and 1984. Management believed that microcomputer technology would also help shape the future of the service business.

Elevator Industry Overview

By 1985, new equipment sales and service of elevators in North America represented approximately $1 billion and $2 billion markets, respectively. The industry was very competitive, with Otis, Westinghouse, Dover, Montgomery, Schindler, U.S. Elevator, and Fujitec the major manufacturers. Otis, however, was the leader in both sales and service. Because elevator sales were directly correlated to the building cycle, they were cyclical, but the elevator service market was very stable. Elevator manufacturers often accepted a low margin on the sale of an elevator in order to obtain the service contract since service accounted for a significantly higher portion of profits.

The service market attracted many participants because of its steady demand and high profitability. Consequently, thousands of elevator service companies existed, including both elevator manufacturers and many small companies devoted exclusively to elevator service. These companies could service elevators from almost any manufacturer since all elevators made prior to the introduction of microprocessor-based elevator control systems used similar electromechanical technology.

For a small building project, the elevator manufacturer was selected by the contractor, architect, or building owner. Larger projects often involved all three parties in the decision-making process. They selected a manufacturer on the basis of ability to satisfy the elevator performance specifications and architectural requirements, price, and reputation.

An elevator service company was selected on the basis of responsiveness, quality, and price. An elevator manufacturer was typically awarded 60% to 80% of the service contracts for its newly installed elevators. As a building aged and competition for tenants increased, the cost of service often became the major consideration, and the lowest bidder received the service contract. Since servicing elevators with microprocessor-based control systems often required the use of proprietary maintenance devices, the manufacturer was more likely to keep these service contracts. Many

2 Jean Gavois, Going Up (Hartford, Conn.: 1983), p. 74. 3 Elevonic is a registered trademark of Otis Elevator.

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elevator manufacturers offered discounts for long-term service contracts in an effort to attract and maintain service customers.

North American Operations Overview

North American Operations, with 8,000 employees at the end of 1985, was the second-largest division of Otis Elevator. The scope of its business necessitated a large, geographically dispersed field organization. Exhibit 3 shows the NAO organization chart.

Branch offices and smaller field offices reported to district offices, which bore profit and loss responsibility. (Hereafter, district, branch, and smaller field offices will be referred to as “field” offices.) Field offices handled both sales and service and ranged in size from one or two people in outlying areas to as many as 100 people in large metropolitan areas. NAO's customer base was equally diverse; Otis installed elevators in buildings ranging from 2 stories to the 110-story World Trade Center in New York City.

NAO Information Services

NAO installed its first computer, an IBM 1401, in 1965 to automate maintenance billing. From 1965 until 1978, the computer was used for production control and accounting. From 1978 to 1981, on- line capabilities expanded its uses to include data entry and inquiry for inventory control and accounting.

In 1981, Otis implemented a companywide cost-reduction drive to improve NAO's profitability. Bob Smith, then president of NAO, asked John Miller to suspend all efforts in new systems development until a clear course of applications could be charted. Smith was concerned that the company was spending its applications development resources to automate old manual procedures rather than to establish new, helpful systems. Sixty percent of the programmers were laid off, no hardware upgrades were allowed, and no new applications were implemented. The work load was cut back as much as possible since the system in place (an IBM 370/158) was often running at 100%.

The year 1982 was one of transition for NAO's information services area. With the cost- reduction program completed, management began to assess the ability of information services to improve the quality of its maintenance service.

In late 1981, NAO had begun to investigate the feasibility of using information technology to establish a centralized customer service department (on either a regional or a divisionwide basis) to accept customer requests for elevator maintenance during nonworking hours, that is, non-prime-time callbacks. (A callback is a customer request for elevator maintenance.) Otis and other elevator service companies were then using commercial answering services for non-prime-time callbacks. Otis supplied the answering service with a duty roster from which it selected a service mechanic to dispatch to the customer. In small cities, the same answering service was commonly used by several elevator service companies. During prime time (regular working hours), the customer called the local NAO field office, where an Otis employee accepted the call and dispatched the appropriate service mechanic.

Customers assess the quality of an elevator company's service offerings mainly by its responsiveness to callbacks. The callback response time is the time it takes a service mechanic to arrive on site after the customer reaches Otis Elevator (or its answering service). Although Otis received assurances from the local answering services that it would be promptly notified of a

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customer callback, the quality of the answering services varied greatly. In a videotape that described the need for the centralized customer service department, Bob Smith stated, “A commercial answering service does not have the same interest that we have to get service to the customer as fast as possible.”

By August 1982, a centralized customer service system had been successfully piloted in a major eastern market, and Otis management decided to create a North American customer service center to dispatch service mechanics, in response to callbacks, 24 hours a day. A project team composed of individuals from many functional areas, including information services, was selected to implement this concept, which was called OTISLINE.

An IBM 3083 was installed in early 1983 to replace the IBM 370/158, and by 1985 extensive peripheral equipment, including state-of-the-art direct access storage devices, tape drives, and telecommunications equipment, had been installed. These additional resources were acquired to support the OTISLINE customer service center. The 1985 NAO information services budget was more than twice as large as the 1982 budget.

Most of the 2,300 service mechanics employed by NAO in 1985 had assigned routes and were responsible both for callbacks and for preventive maintenance for specific elevator customers. NAO calculated that reducing callbacks for each installed elevator by one a year would save Otis $5 million annually. Out-of-service elevators not only irritated customers and handicapped their businesses but also affected their opinion of the quality of an Otis elevator.

OTISLINE Overview

Brad Robertson, director of service operations, was the leader of the OTISLINE development team and was responsible for the implementation and management of the OTISLINE customer service center. During the development of OTISLINE, Robertson reported to the vice president of finance; after an August 1985 reorganization, he reported to the vice president of marketing.

In describing OTISLINE, Robertson stated:

OTISLINE improved the visibility of our service business and helps management and local office personnel to provide quality service to our customers more effectively. Our responsiveness to customer callback requests has been greatly enhanced. OTISLINE's reporting functions provided district, regional, and NAO headquarters management with a significant amount of information on the quality of service rendered to our customers. Prior to OTISLINE, management became aware of many service problems only if there was a customer complaint. OTISLINE has allowed us to produce “excess” callback reports for various levels of management. For example, elevators receiving three or more callbacks in a month are reported to the district manager; those receiving eight or more in 90 days are reported to the regional vice president. Critical situations are reported to the president.

The excess callback reports highlight problem installations and have enhanced our ability to quickly diagnose problems that may be due to a specific component malfunction. With this information, local office management (or engineering management if the problem is with a component malfunction) can focus resources on key problem areas.

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The success of OTISLINE is attributable to the top management support of the project, which fostered cooperation among functional areas and provided the resources and motivation required to “make it happen.”

OTISLINE not only improved the quality of NAO's customer service; it also changed the way NAO does business. The OTISLINE system affected almost all of NAO's business functions, including information services, customer service, service mechanic dispatching and control, and service marketing and engineering. In addition, its infrastructure has been used to support applications that enhance the productivity of elevator sales representatives and service mechanics. In the future, OTISLINE may interface directly with installed elevators by means of remote diagnostic technology.

Following is a description of OTISLINE's impact on specific business activities.

Information Services

The OTISLINE application is a part of NAO's Service Management System (SMS), an integrated data base management system (Exhibit 4). Prior to OTISLINE, the SMS data base contained the customer master file (customer name, building location, contract information) and other information that was used to monitor and control the service business, such as route information and service price estimating data. With OTISLINE, the SMS was expanded to include all maintenance activity for elevators under a service contract. Some applications, such as service price estimating, were improved, and new applications such as billing will be added. The SMS data base is accessed and updated by an OTISLINE dispatcher through a display attached to the IBM 3083 host computer. Designed in the late 1970s, the SMS data base significantly shortened the time required to develop OTISLINE. According to Tim Clark, manager of systems development, the development of the OTISLINE application would have taken four to five years if the SMS data base had not already been in place.

The OTISLINE application was designed to enable the OTISLINE dispatcher to respond to a customer in less than a second by giving the dispatcher a local display and by engineering short data base paths to the necessary information. Subsecond response time was an important design element because experience had shown that when more than 2% of transactions had longer than a five-second response time, the time taken to handle customer service requests was unacceptable.

Because of the strategic nature of the OTISLINE application, a large portion of the information services budget was earmarked for its support. The data center operations budget was also increased significantly to support OTISLINE's stringent response-time and performance requirements. New methodologies of systems development are being introduced as a direct result of OTISLINE. By the end of 1985, 37 local terminals had been installed at the OTISLINE Service Center; future plans called for the installation of 150 personal computers in the field offices with OTISLINE inquiry capability.

Customer Service

The OTISLINE Service Center was staffed by highly skilled dispatchers. About half of them had college degrees, and many spoke two languages. New hires received from four to six weeks of in- house training, covering

• The OTISLINE software (the dispatching system)

• The IBM display

• Operation of the phone system

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• Appropriate telephone salutations and courtesies

• Listening and customer satisfaction skills

• Overview of Otis Elevator organization structure

• Elevator terminology and possible system problems

The objective of the training was to ensure the dispatcher's ability to handle customer calls in an efficient and effective manner. The company held periodic seminars to update the dispatchers on system changes, to review sample dialogues for situations that were likely to be encountered (for example, an irritated customer or a trapped-in-an-elevator scenario), and to discuss the criteria used to assess dispatcher performance.

OTISLINE dispatchers were trained to be courteous, sensitive, and efficient and to speak clearly. They were taught to update the data base with information obtained during a call, thus allowing quicker identification of both the building and the elevator during subsequent calls from the same customer. Periodically, a supervisor or manager listened in as a dispatcher handled a call and then completed a dispatcher evaluation form and reviewed it with the dispatcher.

Customers accessed OTISLINE by calling a toll-free number connecting them to the North American customer service center. Incoming calls were distributed either to the next available dispatcher or to a specific dispatcher (calls from a French-speaking province in Canada, for example, would be routed to a French-speaking dispatcher). Calls coming in on designated lines were moved automatically to the head of the queue.

The telephone system produced a variety of statistics. Reports showed the amount of time each dispatcher was available to accept calls during the shift, thus enabling Otis to measure dispatcher performance against department standards and averages. The system also produced statistics on how long customers had to wait for an available dispatcher. This information helped management determine when to employ additional staff in order to maintain a high level of responsiveness.

The OTISLINE application display screens were designed to lead the dispatcher and the customer quickly through a series of questions to identify the building and elevator needing service. When a customer call was received, the OTISLINE dispatcher filled in the display screen shown in Exhibit 5. OTISLINE could recognize a building and elevator in four different ways: (1) the building identification number; (2) the telephone number; (3) the building name, city, and state; or (4) the building address, city, and state. A “no hit” situation was encountered if the building and elevator needing service could not be identified using one of these criteria. The dispatcher then was expected to assure the customer that a service mechanic would be dispatched, end the call, and use alternate procedures to find the information on the building and elevator. If a “hit,” or identification, was made, the dispatcher verified the building address and elevator identification number, ended the call, and logged the service request. Another dispatcher then paged the appropriate mechanic.

The OTISLINE Service Center was organized to promote dispatcher efficiency. During a shift, each dispatcher was usually assigned one function: to accept calls, to page service mechanics, or to handle new equipment sales (described later). Thus one callback request often involved four OTISLINE dispatchers: one to log the service request, one to page the service mechanic, one to receive the call from the service mechanic, and one to log the situation resolution data from the service mechanic's “closing” call.

By the end of 1985, 11 of the 47 NAO districts were using OTISLINE for 24-hour dispatch of service mechanics. The service center received 4,300 calls on an average weekday. However, the

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center would be expected to handle 10,000 incoming calls per day as soon as the system was implemented for all of the districts. Customer calls accounted for one-third of the total calls, 75% of which were service requests. The majority of the calls were from service mechanics who had been paged or had just closed a callback.

Dispatching and Control of Service Mechanics

Prior to OTISLINE, each field office handled the dispatching of service mechanics during normal working hours and used answering services after hours and on weekends and holidays. Service mechanics were required to complete a written report for each callback. These reports provided the data for a callback and repair history log that the field office's service desk representative maintained. This log was used by the local office to support daily operations and by the engineering department to flag problems and establish preventive maintenance procedures. Since these logs were maintained manually, the preparation of summary reports was very time consuming. Thus callback data were reported to district, region, or NAO headquarters only upon request.

With OTISLINE, instead of filing a written report for each callback, the service mechanics called OTISLINE, described the situation when they arrived at the building, and reported the steps taken to repair the elevator. The service mechanics carried a pocket notebook in which they recorded information on each service call. The notebook also listed the questions they would need to answer for the OTISLINE dispatcher when completing the callback report.

One measure of performance in field offices was the number of callbacks received. Prior to OTISLINE, the accuracy and consistency of callback reports varied from office to office. Identifying chronically malfunctioning components and other recurring problems was difficult because detailed information was not yet stored in a central data base.

With OTISLINE, the quality and timeliness of information available to district, region, and NAO management increased significantly. All customers (including large installations with on-site service mechanics) now called OTISLINE to request service. The OTISLINE dispatcher then paged the service mechanic to request service on a particular elevator. All data about service calls were stored in a central computer (see Exhibit 6), so the local offices no longer needed to keep manual elevator maintenance history logs.

Initially, some field office managers were skeptical of the OTISLINE concept. They felt that the system would decrease their control over the dispatching of service mechanics for callbacks and that therefore they would not know the location of their service mechanics throughout the day. OTISLINE is being improved to address these concerns. Personal computers with OTISLINE inquiry capability will be installed in field offices to enable local management to track callback activity in their territories.

Bob Smith noted that although centralizing service mechanic dispatching seemed contrary to NAO's decentralized organization, the quality and reliability of Otis products provided Otis's edge over its competitors. With OTISLINE, service and engineering managers had the information they needed to continue to boost the quality and reliability of Otis products.

Marketing—New Equipment Sales

The company also used OTISLINE to support elevator sales. New equipment sales representatives could access the New Equipment Sales (NES) application by calling OTISLINE. NES was an integrated data base management system designed to automate the production of status reports on elevator sales prospects. It had three primary components: negotiation, estimation, and disposition.

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Negotiation allowed the new equipment sales representatives to organize data about new equipment projects and to communicate the status of those projects to the appropriate managers.

Estimation provided cost estimates and configurations for certain new products that could be used by the new equipment sales representative and local office to determine the elevator sales price.

Disposition provided the mechanism to record the outcome of a negotiation as a customer decision to purchase an elevator from Otis, as a competitive loss, or as an abandoned effort.

NES made data about competitive losses and performance of new equipment sales representatives easily accessible to management. In the future, when a negotiation becomes a sale, the NES information will be used to establish a record in SMS.

Marketing—Service

A brochure published in 1984 to describe OTISLINE to the NAO service mechanics listed six components of Otis Elevator's philosophy of service: responsiveness, reliability, innovation, communication, teamwork, and customer satisfaction. OTISLINE addressed all of these elements.

Responsiveness. OTISLINE dramatically improved NAO's responsiveness to customer maintenance requests. The system kept track of the status of the response to customers' calls. If the service mechanic assigned to a route was unable to take a call, either an alternate service mechanic or the service supervisor was paged. Response time was especially critical for certain customers such as hospitals and buildings with only one elevator. Backed by OTISLINE, the company began to offer a guaranteed response time to these customers. The system also produced reports of response-time statistics that could be reviewed with customers.

Reliability. OTISLINE dispatchers updated the SMS to maintain data on actions that had been necessary to repair out-of-service elevators. This data could be used by management to allocate resources to locations with recurring problems and by engineering to spot trends that indicated elevator design problems.

Innovation. As the leader in the industry, Otis was expected to deliver more than its competitors. NAO was the first to offer a professionally staffed customer service center.

Communication. OTISLINE improved communication between Otis customers and the service and sales departments. It also provided a more effective way for service and sales departments to submit reports to management.

Teamwork. The OTISLINE dispatcher was one of many members of the team concerned with providing a high level of service to Otis customers.

Customer Satisfaction. Customer satisfaction, as measured by a reduction in both the volume of complaints and service calls, improved as a result of the implementation of OTISLINE.

The United Technologies 1985 Annual Report noted that Otis strengthened its number one share of the service market in North America. OTISLINE contributed to NAO's ability to improve service quality and to compete successfully with lower-priced independent service companies.

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Future Applications

Bob Smith felt sure that information technology could be used in many ways to further enhance Otis Elevator's marketing of service.

Remote Elevator Monitoring (REM). Otis Elevator had been testing REM, an application by which a microprocessor-based elevator could monitor its control system and log performance statistics directly onto a distant computer. In the pilot installations, elevators communicated problems to a personal computer at NAO headquarters. The personal computer then analyzed the problems and produced trouble reports used to dispatch service mechanics before the elevator went out of service.

Further development of REM would enable an elevator to communicate with a central computer that would determine the cause of the problems, transmit a message to the OTISLINE system, and dispatch a service mechanic.

The great advantage of REM is its ability to identify problems before an elevator is out of service. The service mechanics could adjust running elevators to keep them operating at maximum performance levels, and NAO could handle specific problems before customers were even aware of them.

In-Car Phones. The most sensitive kind of callback occurred when passengers were trapped in an elevator. Many Otis elevators were equipped with a telephone with which the passenger could automatically reach the OTISLINE dispatcher to notify the service department of the situation. The OTISLINE phone system recognized calls coming in on these lines and moved such calls to the head of the queue. The OTISLINE dispatcher was then alerted via a message on the telephone display or an audible beep that an emergency call had been received. The dispatcher could then work with the passenger to identify the location of the elevator and dispatch a service mechanic immediately.

Replacement of Service Mechanic Pagers with Hand-Held Terminals. Field service mechanics were contacted using pagers. Eventually these pagers could be replaced with hand-held terminals through which the OTISLINE dispatcher could send a message directly to the service mechanic, thus eliminating the need for service mechanics to call in for messages. The service mechanic could also use the hand-held terminal to complete callback reports and to order parts for out-of-service elevators.

New Equipment Ordering. NES could be expanded to include files for new equipment orders. When the new equipment sales representative called in to report that a project had resulted in a sale, he or she could also place the order for the elevator. This information could be transmitted directly to the plant, thereby shortening the lead time for manufacturing the elevator. Moreover, by reducing the amount of time taken to notify the plant of an order, NES could improve management of the plant's raw material inventory.

Contract Management. After Otis made a sale, its ability to monitor and abide by the customer's installation schedule was extremely important. Slippages in the installation schedule could be caused by building contractor delays, by technical problems encountered by the Otis superintendent at the construction site, or by elevator manufacturing delays. Both Otis and building management had to be aware of these problems. A personal computer could be installed at the construction site so the construction superintendent could document slippages in the schedule. This information could be communicated to the factory and to others involved in the installation and could be used to keep both Otis management and the building owner aware of the reasons for changes in the installation schedule.

Telemarketing of Service. The SMS data base contains information on all installed Otis elevators in North America. The OTISLINE facility could be used to contact those customers whose service

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contract was not with Otis. The OTISLINE dispatcher could find out when the current elevator maintenance contracts would expire and could produce a prospect list to be distributed monthly to the service sales representatives.

In a 1985 NAO management newsletter, Bob Smith stated:

The real significance of OTISLINE is its ability to collapse both distance and time, resulting in faster responses to customer problems, better maintenance procedures, and, ultimately more reliable elevators. . . . This can translate into real competitive advantage. We're confident that it will, and we are investing accordingly.

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Exhibit 1 The First Elevators

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Exhibit 2 Description of Elevonic 401

The advent of microprocessor technology has enabled Otis to reassign elevator control strategies from hardware to microcomputer software. Elevonic 401 control hardware is an integrated network of three microcomputer-based control units; a

(in the machine room) to make dispatching decisions and call assignments; a

(one per car in the machine room) to govern the operation and motion of the car; and a

(mounted behind the car operating panel) to interface with control hardware on the car, communicate cab data (e.g. passenger load, car calls) with the car controller, and control car-operating panel speech synthesis, visual display functions and coded secure entry. Transducers, the sensors of the system, together with the car controller, form the closed loop structure that provides feedback that enables corrections to be made within milliseconds.

The group and car controllers employ the latest microprocessor technology. They differ in the number of cards in their card files and in the resident software. Although control hardware is standard for all Otis high-rise duties, and designed to suit practically all building specifications, custom software is added to personalize the controllers for each building's specific requirements. The cab controller serves as a bi-directional information link between the cab mounted devices (car call buttons, load weighing

Group Controller

Car Controller

Cab Controller

SYSTEM HARDWARE

transducers, speech synthesizer, secure entry modules) and the car controller. Multiplexing (transmitting hundreds of signals back and forth over a single pair of wires) between controllers significantly reduces the number of wires required for communication between controllers and peripheral devices. For example, while previous systems required an average of three traveling cables, the new Elevonic 401 system utilizes just one. System hardware determines the quantity and quality of input received by the control system permitting control decisions and corrective actions to be made and implemented within milliseconds. Digital measurement yields such benefits as the precise control knowledge of car velocity, acceleration and position. Transducer feedback, obtained as digital numbers, is compared by the controller with the prescribed specifications. The difference, or error, is driven toward zero to enforce the specified flight pattern programmed in the computer. The hardware components of the new Elevonic 401 system permit placing total operating authority under software control. Minimum physical or mechanical adjustments are required to maintain control. Changes in strategy and performance requirements are implemented in the software. The result is more precise, more efficient control, with the capacity to control a greater number of functions with much greater flexibility – making instantaneous decisions based on real time conditions.