The Otis Elevator Story

After producing eight reports on the cost and timing of asset renewal for the Parliament, I joined SACON, the South Australian Department of Construction, formerly known as the ‘Public Buildings Department’.  This title accurately reflected its role, but it wanted to focus more on the ‘exciting’ work of construction and less on maintenance. For two years, while the Eastern States became increasingly interested in Asset Management and invited me to speak to them dozens of times, SACON Directors continued to resist it, believing it conflicted with their desire to be more construction-oriented.

However, the department was now facing difficulties securing construction work, and my own director reluctantly came to believe that a capability in Asset Management might enhance the department’s alarmingly low reputation.  He asked me to prepare a paper for him to present at a weekend director’s retreat, with the aim of getting all the directors on board. 

I tried a ‘low-key’ approach.  I did not put my name on the paper, nor did I mention the words ‘Asset Management’ at any stage.  Instead, I told the story of Otis Elevators and spoke about the value of information to SACON. On the Monday after the retreat, my director was pleased to announce success. 

This is an excerpt from that paper, the full text of which is only three pages and can be found here

"The Otis Elevator Case"

Otis Elevators built and serviced elevators. Its large-volume business had been built on the premise of shaving the once-off construction costs and recouping them through ongoing, lucrative service contracts. But now Otis had a problem. Its initial captive service market and its profit were in danger of disappearing.

Its very wide geographic distribution, combined with a non-uniform standard of service, had encouraged the development of smaller, localised service firms, many of them staffed by ex Otis employees. These were in a position to provide quicker and cheaper service. So how did Otis react?

Otis attacked on two fronts: first, it improved its service by enhancing the training provided to its service staff, whilst at the same time staffing its telephone line centres with highly trained operators to record details of the problems found and answer questions accurately.

Then, using the information obtained,  Otis designed and installed diagnostic equipment in all its lifts, which fed information directly back into the centralised record system. When combined with maintenance and system records, this enabled Otis to predict future problems and carry out corrective services in advance while addressing routine maintenance.

In other words, it turned the extensive geographical distribution, which had driven the growth of small competitors, into an information asset, because it meant that Otis had more information on how its elevators performed across a wider range of climatic and operating conditions than any competitor could.

Critically, Otis had realised its customers did not want elevator outages fixed cheaply; they wanted these outages not to occur in the first place! Switching from thinking about what they did (maintenance) to what their customers wanted (trouble-free operation) was the key to Otis’ revival.

Otis also realised that information linked to operational activities is a source of value that consumers are prepared to pay for.  It turned a liability - its wide geographic dispersion - into an opportunity for improvement.

And Otis regained its competitive edge. A story with a happy ending.  How can we use such a story?

A word about the context. By this time, I had spent two years with SACON. I had won over many of the more curious of the staff and I had tried to entice the Directors to consider Asset Management by writing relatively detailed ‘executive summaries’ whenever I was invited by public works, public accounts committees, agencies and audit and treasuries in other states, the idea being to let them know how Asset Management was being received by others. By the time they went to their retreat, they had seen many of these. I don’t know how much they read, but at least they probably realised that others were taking it seriously.

Next:  Relating the Otis Story to SACON, Using the Otis Elevator Story.