Going Up or Going Down?

Volume 5 Letter 11

Elevators are a great modern convenience. Unfortunately they’re costly to install, need a roof top structure to support an engine room (which is non rentable space) and they are energy hogs.

In 1996, Kane, the German lift manufacturer, developed a new elevator lift called the “MonoSpace”1. Kane’s new design placed all the working motors and cables inside the existing elevator shaft. This eliminated the need for a rooftop engine room, reduced installation costs and saved energy. It was brilliant… but it didn’t sell.

Until the MonoSpace, the market was very homogeneous. All the elevator manufactures had roughly the same products and price was the main differentiating factor. However, Kane wanted to sell the MonoSpace at a premium.

Kone did a market assessment and determined three important groups contributed equally to the purchase decision. Contractors were looking to reduce installation costs, architects were concerned with aesthetics and structural integrity and the building owners wanted to reduce energy consumption and maintenance costs.

Great product, thorough market assessment… what happened?

Kone could not get past selling on price. Traditionally seen as a low end player in the German lift market, Kone had a good relationship with building contractors only. They had no relationship with the architects nor with the building owners and yet they were trying to charge a premium price to the contractors. Educating a sales force used to selling on price, as well as missing two of the three segments was a big hurdle.

A recent HBR article2 presented evidence that 37% of strategy failures are not due to a poor strategy but rather due to poor execution! Developing new products and killer strategies is sometimes the easy part of running a business. Executing the strategy may prove to be the tough part. Suddenly, for Kone, selling wasn’t just about relationships with the contractors and shaving the price. Kone needed to ensure their sales force understood and believed in the value of their new MonoSpace elevator. Only when they had a clear understanding of the value could the sales force properly represent the new product to the potential customers. Kone also had to train their sales force on “how to sell” the MonoSpace. The new message was about ease of installation to the contractors, value and energy savings to the building owners, and visual aesthetics to the architects.

Eventually, Kone did get their execution right and the MonoSpace is a market leader today. For Kone developing the MonoSpace was only half the battle. The other half (which is often forgotten) was executing the strategy.

Next time you get on an elevator think…is your strategy execution lifting your company up or taking you down?

1. “Kone Story” as told by Prof Bill Putsis UNC Kenan Flagler Business School
2. “Turning Great Strategy Into Great Performance” HBR July – August 2005 PP 65-72

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