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THE POST :
Case 8 in the textbook, “UltraRope: Crafting a Go-To Market Strategy…” describes the history and
competitive strategy of Kone, a Finnish elevator company.
1. Which of the generic strategies described in your book best describe the strategy of Kone? Justify
your reasoning.
2. How will UltraRope contribute to Kone’s competitive advantage? How can the company capitalize
off this development?
3. Which competitor, or competitors, will be most impacted with the introduction of UltraRope?
Explain your reasoning.
Start your original post with either the number 1, 2, or 3 and a 3-10 word description of your thinking,
which correspond to a question from those above. Please, just focus on one question in your original
thread. The syllabus provides further details on what is expected in discussions, and the grading criteria.
Initial post is due Tuesday noon central time, and if you miss this deadline, please just skip the discussion
board this week. Discussion closes at noon on Friday.
THREE REPLIES :::
REPLY ONE : Blake Eyer
UltraRope will greatly increase Kone’s competitive advantage compared to the other companies in the
elevator industry. Something they are able to do now is to provide proactive maintenance services to
customers, and if needed, they have a highly developed emergency services division that can help in
times of need. This is something they excel greatly in compared to other companies and increases their
competitive advantage. One big thing people are starting to spend a lot more time looking at is a
company’s sustainability, with UltraRope, the elevators are becoming more and more efficient, which is
important as elevators themselves can draw a lot of electricity, so the more efficient the elevator, the
lower the monthly costs, and the happier the customer is. We have seen how successful carbon fiber can
be in other industries like the automotive and aviation industries, so finding ways of transferring it to the
elevator industry can revolutionize the safety and efficiency of the elevators. The case study stated that
buildings account for roughly two-thirds of electricity consumption, so the lower we can keep it, the more
sustainable the product, the less electricity we use, and the more likely the customer is to pick your
product, ultimately increasing competitive advantage.
REPLY TWO : Reed Erickson
Kone’s Competitive advantage will be extremly strong with the contribution of Ultra Rope. The main parts
that will contribute to the company doing better include the bulk of the rope, the saftey, and how it is
made. Starting with the bulk of the rope, it weighs around 10-20 percent of similar ropes that have the
same strength. This not othly helps with cutting bulk down but it also means that the other mechanisms
that are used can also be cut down which leads to less space needed for the ropes themselves. along
with the rope itself, the saftey of the systems and how it is easy to check in on and get it repared (with
Kone is known for and already has an advantage in) also leads to it being a better alternative for
evevators. It has been said to be a technological breakthrough. It is made from carbon fiber which slowly
is being more ecorperated into society throguh multyple means, and this leads it to be stronger without all
the bulk of other options. With the contribution of Ultra Rope this company can use their competitive
advantage in safty and maitnance and use Ultra Ropes more robust smaller ropes to really stay ahead in
the market. Along with this really promoting how this can be a more resorcefull alternative as it requires
less material, which in the long run can cut down on waist. With this contribution of Ultra Ropes to Kone
the competitice advantages will soon follow as it is clear to see this is the safer and smarter option for
those in the market to buy the ropes.
REPLY THREE : Kabiru
First and foremost, I found Case 8 by Lindberg-Repo et al. (2016) most interesting as it
covers many strategic concepts and ideas described in our required texts for the MGMT
475 Strategic Management course. Then, referring to page 115 of the textbook, Kone
implemented Porter’s generic strategies to achieve competitive advantage and become
one of the global leaders in the elevator and escalator industry. As the name implies,
these generic strategies used by Kone are based on Porter’s seminal work.
Generic strategies are mutually exclusive strategies a firm implements to position itself
to achieve a sustainable competitive advantage within an industry (Hitt et al., 2020).
While Porter’s generic strategies are composed of three dimensions, namely cost
leadership, differentiation, and focus (Hitt et al., 2020), the best strategy adopted by
Kone which help the company as one of the global leaders in the elevator and escalator
industry is the cost leadership strategy.
According to Porter (1980), cost leadership is “a lower-cost competitive strategy that
aims at the broad mass market and requires “aggressive construction of efficient-scale
facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead
control, avoidance of marginal customer accounts, and cost minimization in areas like
R&D, service, sales force, advertising, and so on” (p.35).
The main objective of implementing this strategy by Kone is to maintain a leadership
position in the market through effective value chain management. In addition, this
strategy allows Kone to expand its market share, targeting the middle class, which in
most countries constitutes the largest segment of the consumer market. Middle-class
consumers tend to place a high value on the price factor, and cost management is the
best strategy to meet the needs of this consumer segment. Furthermore, Kone focuses
on the convenience and accessibility of its products worldwide, resulting in high brand
recognition, high sales growth, and a strong foundation for competitive advantage.
In addition to lowering prices by lowering manufacturing costs and maximizing supply
chain efficiencies, Kone frequently offers discounts and coupons to meet sales targets
and combat competitive pressures from its closest competitors. These promotion and
discount campaigns are expected to increase brand awareness and stimulate
consumption.
Book Title: eTextbook: Strategic Management: Competitiveness
Case 8. UltraRope: Crafting a Go-to-market Strategy for Kone’s Innovative ‘UltraRope’ Hoisting Cable
Case 8.
UltraRope: Crafting a Go-to-market Strategy
for Kone’s Innovative ‘UltraRope’ Hoisting
Cable
Case Introduction
Introduction
Developing new and useful elevator concepts for our customers is a significant task here.
We aim to keep our elevators one step above the competition, all year.
— Petteri Valjus, Senior Expert, Hoisting Mechanics, Technology, Kone, Finland
“The best products don’t always win,” said Petteri Valjus—a senior technology expert at Kone
Corporation, one of the global leaders in the elevator and escalator industry. “It takes more than
that, and that’s why the UltraRope is a winner.” Valjus was musing over a few go-to-market
strategies with his colleague, Raimo Pelto-Huikko, at the company headquarters in Espoo, Finland,
and although it was a cold dark day in December 2014, the mood inside was optimistic.
The UltraRope was a technological breakthrough announced by Kone in June 2013. It was a new
hoisting cable made of carbon fibre that doubled elevator travel distances to heights of more than a
kilometre and weighed 90% less than conventional steel ropes. “It also has an exceptionally long
lifespan, twice that of steel rope,” said Pelto-Huikko, Kone’s design specialist and UltraRope patent
holder with the honorific nickname, Mr. Carbon Fibre.
With a small budget, Pelto-Huikko initiated the research phase in 2004. The project gained speed,
and by 2006 Valjus was brought on for his expertise in hoisting mechanics. In 2010 the UltraRope
prototype began rigorous testing at Kone’s Tytyri facility in Finland, the world’s deepest elevator
testing site, descending 300 metres underground, where it underwent a punishing stress regiment.
Shortly after the UltraRope launch, Kone won the elevator contract for the kilometre-high Kingdom
Tower in Jeddah, Saudi Arabia, expected to be completed by 2018.
Valjus and Pelto-Huikko saw extraordinary potential for the premium priced UltraRope. The global
elevator equipment market was anticipated to grow 6% annually through 2017.* Most of this
growth was concentrated in Asia Pacific. Demand from China, which accounted for half of sales
generated, was decreasing. Any slack could potentially be offset by strong growth projected in
high-income areas of Brazil, India and the Middle East. There were even opportunities in the more
mature markets of North America, Europe and Japan.
Installation was just one aspect of equipment demand. Modernisation of older elevator systems
was another major driver, and elevator servicing, such as inspection, maintenance, upkeep and
part replacement was yet another dimension. Kone operated along all points of the lifecycle.
By October 2014, Kone had completed its first UltraRope contract where it upgraded the Kone
elevator systems at the iconic Marina Bay Sands in Singapore. But high profile contracts like those
in Saudi Arabia and Singapore were only a first step; Valjus and Pelto-Huikko had grander
aspirations. What would it take for Kone to succeed in driving UltraRope adoption and drive greater
market penetration of Kone products and services worldwide?
Book Title: eTextbook: Strategic Management: Competitiveness
The Elevator Industry
The Elevator Industry
Vertical transportation, as it is known in the industry, was delineated along three axes: installation,
maintenance and modernisation. In the 1960s, US firms dominated the global elevator industry, but
by the 1990s the sector took on greater multinational characteristics. The industry was dominated
by four firms that controlled 65% of the global elevator and escalator market: Otis, part of
America’s United Technologies (often considered a pioneer in the industry), Kone of Finland;
ThyssenKrupp of Germany and Schindler of Switzerland.* These brands were closely followed by
their Japanese counterparts Fujitec Elevator Company, Mitsubishi Elevator Company, Toshiba,
Hitachi, and Hyundai of Korea for the remaining market.
Otis was the largest of these companies, but had lost market share between 2010 and 2013. Its
decline was mostly due to being underpriced by competitors with cheaper manufacturing costs,
and by small local maintenance companies with closer proximity to clients offering cheaper rates.
Not wanting to compete on cost, Otis decided to start focusing more on high-end premium products
and services, with special emphasis given to maintenance response times. In this regard, some
companies were actively exploring sensor technologies along with the ‘Internet of Things’ to bring
maintenance into the 21st century.
i
This case was written by Professor Kirsti Lindberg-Repo, Dr Saumya Sindhwani and Christopher
Dula at the Singapore Management University. The case was prepared solely to provide material
for class discussion. The authors do not intend to illustrate either effective or ineffective handling of
a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.© 2017, Hochschule für Technik und Wirtschaft HTW Chur,
Switzerland.
Copyright © 2016, Singapore Management University
Book Title: eTextbook: Strategic Management: Competitiveness
The Elevator Industry
Installation
Installation
Most elevators systems on the market consisted of pre-engineered elevators. Such systems had a
standardised layout and were designed to use mass produced stock components and fit within
standard shaft dimensions of most buildings. Pre-engineered elevator systems were quicker and
easier to install than custom-made systems. Economies of scale in production meant that cost
savings could be passed on to customers, with maintenance costs being cheaper due to the
standardisation of the product.
Custom-designed elevators were considerably more expensive and were developed for buildings
with special needs, such as hospitals, industrial complexes and ultra-high-rise buildings. However,
all building projects were unique—and each building had to be evaluated on an individual basis to
determine what kind of elevator system was most suitable for that building’s needs.
Large elevator manufacturers and third party experts consulted building owners and developers on
identifying what systems were most suitable. Factors like tenant profiles, height, local regulations
and building code all came under consideration. For example, a single tenant office building would
have very different needs compared to a mixed-use residential and commercial building. Elevator
speed, maintenance elevators, express elevators, sky lobbies, relay logic controllers, comfort and
safety features were just a few options that had to be decided on. Valjus said,
“
The equipment used matters a lot. Rope weight, for instance, makes up 65% to 70% of
an elevator’s moving mass. The payload is less than 10%. ”
Book Title: eTextbook: Strategic Management: Competitiveness
The Elevator Industry
Maintenance
Maintenance
The industry experienced high margins and the vast majority of these margins came from
maintenance services. After all, people detested getting stuck in lifts, and so customers would pay
US$2,000 to US$5,000 a year to keep each machine running smoothly.* These margins were
between 25% and 35%, compared with 10% for new equipment.*
Revenue from maintenance was far more stable than that from installations. For example, in 2013,
11 million machines were in operation globally, and many needed little more than a cursory check
every few months.* This provided an easy yet lucrative market for maintenance services.
Installations, however, were more subject to the whim of macroeconomic fluctuations. In fact, Kone
and its peers made more than half their profits from services that were often secured by
maintenance contracts at the time of installation. This created high barriers to entry as a newcomer
would need to establish a strong network of technicians prior to commencing operations. However,
price competition on the part of incumbents was negligible.
Thousands of small independent companies made up a substantial segment of the industry,
involved in maintenance services. Maintenance service companies were often founded by former
employees of the leading elevator manufacturing companies who were attracted by the stable
demand and high profitability of maintenance contracts. However, the industry was experiencing
greater consolidation as larger manufacturing companies like Kone bought out more and more of
the smaller maintenance companies throughout the 2000s. Newer sophisticated elevator control
systems also relied on proprietary maintenance devices. By 2010, 60% to 80% of contracts for
newly installed elevators were awarded to large manufacturing companies.
Maintenance contracts were highly variable, ranging anywhere from full service maintenance,
monitoring and upkeep, to individual parts servicing, to just periodic inspection and lubrication.
Strict safety regulation and insurance policies required building owners to have some kind of
maintenance contract and/or regime in place. Moreover, building owners were ultimately held
responsible for user safety; liability was not typically transferred by maintenance contracts. For this
reason, it was important that building owners and developers carefully evaluate manufacturing and
maintenance companies as reputation was important.
Book Title: eTextbook: Strategic Management: Competitiveness
The Elevator Industry
Modernisation
Modernisation
Most buildings had a usable lifespan of at least 60 years. Elevator systems could easily last
upwards of 30 years, even 50 years, if properly maintained. Yet most systems were upgraded
every 10-15 years. Upgrades could be relatively simple, such as changing the interior look of the
elevator cab and replacing aging parts, to something more drastic, like replacing the entire system.
A complete modernisation overhaul was more labour intensive than an installation for a new
building. Kone’s biggest contract to date was the Washington D.C. metro modernisation project.
There were several reasons for modernising. One was the changing environmental regulations
around the world, which called for greater energy efficiency and created demand for more efficient
elevator drive systems. Also, improvements in technology, such as better automation, could lower
maintenance costs and optimise elevator dispatch. For example, as buildings aged, servicing costs
became more important in terms of a building’s operational expenses. Additionally, renovation work
and changing tenant profiles could place different kinds of demands on a building’s vertical
transportation. The elevator experience was considered to be one of the biggest determinants of
tenant satisfaction; and even something as simple as remodelling the [elevator] cab interior could
go a long way towards changing perceptions and improving a building’s reputation.
Book Title: eTextbook: Strategic Management: Competitiveness
Case 8. UltraRope: Crafting a Go-to-market Strategy for Kone’s Innovative ‘UltraRope’ Hoisting Cable
Trends
Trends
An estimated 70 million people in the world—more than twice the entire population of Australia—
moved into cities every year.* This, among other factors, caused global demand for new elevators
to increase exponentially, from 300,000 units a decade ago to nearly 700,000 in 2013. China,
where two thirds of new elevator units were installed, accounted for much of this rise.*
Kone was cautious about the company’s position in China. Schindler, for example, was relocating
manufacturing capabilities to China and hiring locals for top management, which would help save
on costs and improve business relationships. It was also bringing new factories on line in India.
After China, Schindler planned to target Mongolia, Kazakhstan, the Baltic states bordering Russia
and Africa. The company was hoping that within the next few years, it would overtake Kone as the
second largest elevator equipment company in the world.
The key megatrends impacting the growth of the elevator industry included:
Urbanisation, which was the single most important megatrend impacting the global elevator
and escalator industry, and was expected to drive demand for years to come. The
concentration of people in urban areas increased the importance of having smooth and
efficient means of moving people from one place to another, or at least up and down.
An aging population that created major changes in the global demographic structure. The
growing number of elderly individuals had increased the importance of accessibility in
buildings and urban infrastructure.
Safety was an important concern worldwide, and national and international safety codes and
standards played a key role in determining upgrades and modernisation of elevators and
escalators.
The environment was also a major concern, especially since buildings accounted for
approximately 32 per cent of total final energy consumption in 2013.* Elevators and
escalators could account for 2-10 percent of the energy consumption of an individual building.
Book Title: eTextbook: Strategic Management: Competitiveness
Kone
Kone
Kone Corporation was a global provider of elevator and escalator equipment as well as a provider
of maintenance and modernisation solutions. Headquartered in Espoo, Finland, the company
employed over 47,000 people with operations in the Americas, Europe, the Middle East and Africa
(EMEA) and Asia Pacific as of 2014 (refer to Exhibit 1 for Kone’s Life Cycle Services).
Exhibit 1.
Life Cycle Services
KONE supports its customers every step of the way, for the lifespan of their building: from
planning and design through installation and maintenance to modernization
Expert design and planning services: KONE supports customers throughout the
planning phase to ensure the proposed People Flow® solutions deliver maximum
benefit.
Efficient and safe installation services: KONE’s proven, cost effective installation
processes follow strict quality and safety guidelines. They are designed to ensure all
equipment meets and even exceeds customer expectations.
Professional maintenance services: KONE offers a wide range of maintenance and
monitoring solutions that maximise safety and reliability while minimising downtime
and costs. These include smart preventive services, expert advice and rapid
response.
Comprehensive modernisation services: KONE’s flexible modernisation offering gives
customers full control over the upgrade of their elevators, escalators, auto walks and
automated building doors. KONE’s modernisation services help customers determine
when and how to upgrade equipment to ensure a lifetime of optimal operation and to
maximize customers’ return on investment.
Source: Kone, reprinted with permission
Founded in 1910 as a small electrical repair shop, the company would eventually boast a long
history of innovation, strategic acquisitions and commercial success (refer to Exhibit 2 for key
milestones).
Exhibit 2.
Kone Milestones
1987:
V3F frequency converter launched, improving energy efficiency of KONE hoisting
machines.
1991:
KONE became the first company to utilise regenerative drives in its elevators.
1993:
The energy-efficient planetary gear for escalators is introduced.
1996:
The first machine-room-less elevator, KONE MonoSpace®, was launched, providing
up to 70% energy savings compared to conventional technology.
2004:
The KONE EcoModâ„¢ solution was launched, enabling modernisation of escalators
without removing the truss, saving construction time and materials.
2005:
KONE MonoSpace was the first elevator to include LED lighting as a standard
feature.
2006:
KONE unveiled the solar-powered elevator concept.
2007:
The KONE Innotrack™ autowalk was launched—the first autowalk to feature an
energy-efficient gearless drive.
2009:
High-performance regenerative drives for the full range of KONE elevators launched.
2009:
New efficient gear outside step band drive launched for KONE escalators and
autowalks.
2009:
KONE MiniSpaceâ„¢ elevator awarded A-class energy certification (VDI standard
4707).
2010:
Kone energy-efficient sliding door solution launched.
2010:
The KONE MonoSpace elevator received an A-class energy certification based on
the VDI guideline in measurements performed by the independent parties.
2011:
KONE’s elevators in five net-zero energy buildings in Europe and in North America
2011:
KONE MonoSpace® 700 and KONE Double Deck received an A-class energy
certification
2012:
KONE launched completely renewed and more energy efficient KONE EcoDisc®
hoisting machine for the KONE elevators.
Source: Kone, Company Website, “About Us”, Key milestones, http://marine.kone.com/about-us/environment/solutions/keymilestones/, accessed April 2015.
In 1918, Kone began manufacturing and installing its own elevators, and in 1957 expanded
internationally into Sweden. For the next forty years the company experienced significant organic
growth through global sales in products and services. From 2000 to 2015, Kone engaged in
aggressive acquisition-based expansion, and by the end of fiscal year 2013, the company had
recorded more than US$1.2 billion in operating profit (refer to Exhibit 3 & 4 for key financial
statements and Kone’s locations).
Exhibit 3.
Consolidated Financial Statements (in USD millions)*
Jan 1-Dec 31,
2013
Jan 1-Dec 31, 2012
Consolidated statement of income
Sales
8,426.44
7,629.32
Operating income
1,158.84
961.93
Income before taxes
1,167.47
977.61
866.76
742.66
31-Dec-13
31-Dec-12
Total non-current assets
2,355.96
2,354.38
Total current assets
4,138.71
3,885.52
Total assets
6,494.67
6,239.91
Total equity
2,096.22
2,228.83
Total current liabilities
3,910.69
3,478.46
Net income
Consolidated statement of financial position
Consolidated statement of cash flows
Cash flow from operations before financing items
and taxes
1,474.50
1,301.54
Cash flow from operating activities
1,242.71
1,145.10
Cash flow from investing activities
−180.98
−267.65
Cash flow after investing activities
1,061.60
877.46
Cash flow from financing activities
−941.51
−859.34
Change in cash and cash equivalents
120.09
120.09
Order received
Jan 1-Dec 31, 2013
2011
5,427
2012
6,680
2013
7,476
Order book
Jan 1-Dec 31, 2013
2011
5,285
2012
6,138
2013
6,791
Sales by business
Jan 1-Dec 31, 2013
New equipment
54%
Modernisation
14%
Maintenance
32%
Sales by area
Jan 1-Dec 31, 2013
Europe, Middle East, and Africa
46%
Americas
16%
Asia-Pacific
38%
Personnel by area
Jan 1-Dec 31, 2013
Europe, Middle East, and Africa
47%
Americas
13%
Asia-Pacific
40%
Source: Kone, 2013 Financial Statements
Exhibit 4.
Kone Locations
Source: Kone, reprinted with permission
The development of Kone’s experience in high-rise buildings began in the mid-1970s when it
bought the European subsidiaries of American Westinghouse, doubling its business volume and
gaining skyscraper expertise, which up to that point it had lacked. Another milestone was Kone’s
acquisition of Australia’s EPL in 1990. This acquisition marked a significant point of learning for
Kone, as it began to understand the elements involved in a comfortable high-rise elevator ride.
In the mid-1990s, Kone made a breakthrough with the introduction of the world’s first elevator that
did not require a machine room, the Kone MonoSpace. These types of innovation did not come
without recognition. In 2012, Kone was included on the Forbes list of the 100 most innovative
companies in the world for the second year running. Kone also received the coveted “World
Architecture News (WAN) Product of the Year Award” in 2012 for the new Kone MonoSpace 500
elevator. WAN, which had an audience of 220,000 architects worldwide, selected the Product of the
Year to celebrate and promote the best in architectural products and materials.
Beyond elevators, the company’s product portfolio included auto-walks, escalators, automatic
doors, real-time monitoring and access control systems, which provided improvements to
maintenance and safety. In addition, Kone also provided its own branded maintenance and service
agreements to residential buildings, office buildings, public transportation and airports, hotels, retail
centres, special buildings and medical facilities. Its customers were primarily builders, building
owners, facility managers and developers.
A substantial number of its products and services were marketed under the ‘Kone’ brand, which
followed the mantra of Dedicated People Flow. Its solutions aimed to provide a smooth flow of
people at locations as diverse as the Marina Bay Sands integrated resorts in Singapore, The Shard
in London, Europe’s tallest building, and the Trump International Hotel and Tower in Chicago. Matti
Alahuhta, CEO and president of the Kone Corporation between 2005 and 2014, added,
“
Our aim is to deliver the people flow experience. Passion for innovation is an integral
part of our culture. ”
Book Title: eTextbook: Strategic Management: Competitiveness
Kone
Market Performance
Market Performance
In the elevator market, customers typically weighed three factors: installation costs, maintenance
costs and return on investment.
Elevator demand was disparate across industry sectors and geography. The trend towards rising
levels of urbanisation and greater population densities were pushing up property values in
emerging markets, which incentivised the development of new residential and commercial highrises. New orders for elevator systems and equipment were highest in Asia Pacific (refer to Exhibit
5 for growth driver and market size).
Exhibit 5.
Elevator Market and Growth Drivers
Source: Evli, “Kone: Machinery/ Finland”, April 27, 2015. Spot Comment.
In a Q42014 Earnings Call, the successor CEO and President of Kone to Alahuhta, Henrik
Ehrnrooth, said,
“
We’re looking at significant growth driven by China, Singapore and Australia. New
equipment makes up 55% of our sales—40% of these sales originate in Asia Pacific, with
about 30% coming from China—this is better than the overall 10% growth rate for
elevator demand in China. To put all this growth in perspective, back in 2005 Asia Pacific
represented just 12% of our new equipment sales. For 2014 we’ll deliver 154,000
elevators worldwide. Last year was 130,000 and the year before was 124,000.* ”
Price competition for new equipment and installation in China was tight, but stable. Within China,
there were significant differences between cities and provinces, with certain cities already
experiencing excess capacity and weak demand as the government implemented more cooling
measures in 2013 to rein in overheating property markets.
In 2014, Kone expected growth to remain stable in Asia Pacific over the next few years, though
new equipment growth rates would start declining as the market matured. India was promising,
though there was significant exchange rate risk and difficulty securing finance. There were strong
developments in parts of the Middle East and Africa that were experiencing a boom in high-rise
construction. However, growth in new equipment sales was declining across Europe, the Americas
and the Middle East. Indeed, skyscraper construction was highly correlated with boom and bust
cycles.
The modernisation and maintenance sectors were performing relatively well in North America
following an ongoing, albeit slow economic recovery from the 2007/08 Financial Crisis. Australia
was the biggest modernisation market in Asia Pacific, and Europe continued to lag but had
considerable potential given the age of its infrastructure and large market size.
Modernisation was a cyclical business and constituted about 13% of Kone’s global sales. Overall,
sales from the company’s modernisation business slightly declined in 2014. Maintenance made up
32% of Kone’s global sales. And even though price competition was intense, margin remained
healthy and growth was stable. For Kone, modernisation and maintenance presented excellent
growth opportunities—having an average of 6% annual sales growth in the past few years leading
up to 2014. Nonetheless, competition was fiercest in these sectors.
Book Title: eTextbook: Strategic Management: Competitiveness
The UltraRope
The UltraRope
Throughout the past century, Kone had made systematic and long-term investments into research
and development capabilities. As Kone strived to perfect customer service, it also explored using
technologies traditionally linked to other industries. Kone tracked customer needs and monitored
market developments and changes in trends while also seeking ways to improve working methods.
Book Title: eTextbook: Strategic Management: Competitiveness
The UltraRope
Nurturing Innovation
Nurturing Innovation
Raimo Pelto-Huikko was the man responsible for making the first prototype of the carbon fibre
rope, having built it with his own hands. Coupled with the knowledge of high rise elevators that
Valjus had brought to the table and his instinctive faith in carbon-fibre, a material he had been
speculating about since the 1980s, Pelto-Huikko had set out to put the new technology into play.
The thought process of Valjus and Pelto-Huikko was characterised by creative freedom. This was
part of Kone’s work culture as the senior management of the firm had often stated, “generally, it all
starts with development.” They nurtured this idea by recognising that one of Kone’s most significant
tasks was to, “develop new and useful elevator concepts for [their] customers”. Kone aimed to
keep their elevators one step above the competition, all year round, and that attitude was apparent
in the amount of leeway they provided to their employees. When company goals were aligned with
the employee’s thought processes and mentality, innovative disruptions seemed to emerge entirely
by themselves.
In 2004, Pelto-Huikko began the research phase. Kone’s leadership allocated a small budget and
the permission to start. This home hobby slowly started gaining momentum and at one point
established great potential, to the point that in 2006, Valjus gathered together the research group
with the objective of taking these innovative ideas forward. The prospect of using carbon fibre had
a lot of potential.
According to Pelto-Huikko, Kone provided support for the idea of investigating carbon-fibre as a
hoisting material from the very beginning,
“
We intended to begin the research phase [in 2004]. Kone’s leadership allocated a small
budget and the permission to start. It all began with small steps forward. ”
In this case, the action of allocating some sort of budget as well as permission to begin research
was the first move in the direction of disruptive innovation. Pelto-Huikko continued by noting that
one question they had was “whether to walk down the path of finding subcontractors or to begin a
cooperative research effort?”
In order to encourage in-house development, Kone’s management formed a group in 2006, with
the objective of creating innovation and progress for the project. This action was seen a necessary
method for the firm’s leadership to further enhance the innovative environment at the company.
Book Title: eTextbook: Strategic Management: Competitiveness
The UltraRope
Carbon Fibre
Carbon Fibre
Carbon fibre was invented in the late 1950s and early 1960s. However, when the Cold War ended,
it was no longer needed for military production and an oversupply led to a fall in prices. This was
when sports companies began using the product to exploit its strength. Carbon fibre was both
stronger and lighter than steel. In particular, the material had great tensile strength, meaning it was
hard to break when being pulled apart. That strength came from the chemical bonds between
carbon atoms, the same sort that gave strength to diamonds. Carbon fibre had already changed
the way the world made cars, rockets and planes. It was even a key aspect of modern prosthetics
and medical technology. Kone’s biggest rival, Otis, had also been looking at carbon fibre for use;
however, the bulk of their research was in the area of strengthening steel cables.
Book Title: eTextbook: Strategic Management: Competitiveness
The UltraRope
Strength Testing
Strength Testing
By mid-2007, the UltraRope was born, after which Kone began putting the rope through rigorous
testing beginning with lab testing conditions, and then, by 2010, full scale testing at Tytyri in 2010.
Tytyri was the world’s highest elevator testing shaft, situated in Lohja, Finland, embedded partly
underground in a limestone mine. The facility was opened in 1998, and for the first time anywhere
in the world, elevators destined for buildings over 200 metres tall could be tested before
installation. Tytyri reached down to 333 metres below ground; the mine provided an ideal testing
environment for high-rise elevators. The conditions at Tytyri were extreme: elevators had to endure
dripping water, near-freezing temperatures and high humidity, meaning they were tested to
withstand just about any condition a building might face. Additionally, various simulations allowed
testing for a range of factors, including how the human body withstood different speeds and
changes in pressure during the ride. As of 2013, the highest comfortable speed for people to travel
in an elevator was ten metres per second. At Tytyri, speeds of up to 17 meters per second could be
tested.*
Physical properties like tensile strength, bending lifetime, material aging, and the effect of extreme
temperature and humidity were just some of the parameters that were measured and tested for
UltraRope. After the rope passed these rigorous tests, the product was considered fit enough for a
commercial launch.
With all the rigorous testing complete, the final UltraRope looked much like a flat piece of black
liquorice. Instead of steel wires, Kone’s hoisting line comprised four fibre tapes sealed in
transparent plastic about three centimetres wide and three millimetres thick. It was more like a belt
than a rope and looked like a school ruler covered with plastic tape. Made of a carbon fibre core
surrounded by a unique high-friction coating, the new rope weighed only about 10-20 percent of a
similar strength conventional steel rope. Put simply, the new technology enabled massive cuts in
the deadweight that moved up and down every time someone hopped into a high-rise elevator.
Less deadweight meant less energy consumption and operating cost. For example at 800 metres,
the moving mass of a steel cable lifts about 108,600 kilograms. At the same height the UltraRope
had a moving mass of 13,900 kilograms. For further comparison, a steel cable lift at 100 metres
had a moving mass of 13,000 kilograms. Such weight reduction provided a 40 percent energy
saving.*
Book Title: eTextbook: Strategic Management: Competitiveness
Case 8. UltraRope: Crafting a Go-to-market Strategy for Kone’s Innovative ‘UltraRope’ Hoisting Cable
Weighing Options
Weighing Options
Having already undergone a number of development steps both in real and simulated conditions,
UltraRope had the potential to be a disruptive product in the elevator industry. Kone attributed the
product to an innovative work culture and long-term investment in research and development. In
this way, Kone believed that instead of incremental innovations in existing hoisting technology, the
company could disrupt existing hoisting technologies and business models.
Towards the end of 2014 the UltraRope was receiving great press; it had just won the Kingdom
Tower contract and had already been installed in Tower 3 of the Marina Bay Sands Hotel, a
prominent feature on Singapore’s skyline. The Economist had even hailed it has a technological
breakthrough, bringing the world closer to realising a science fiction reality. Valjus, however, knew it
would take a lot more than that to leverage the UltraRope as a key market share driver.
He believed that the greatest growth potential lay in modernisation and lucrative maintenance
contracts. And in this respect, he was optimistic about Kone’s Preferred Maintenance Partner
programme, which had begun about a year earlier in 2013 when the company started investing a
lot more into developing their sales setup, competencies and management. But Valjus realised it
would be a slog,
“
In the past few years, Kone has had a slightly negative competition balance—which is
the balance between the numbers of units we win versus the ones we lose to the market.
Thankfully we’re starting to make some gains in terms of maintenance contract
conversions. ”
But loyalty programmes were nothing new to the industry. And the other players, like Otis, also had
excellent services and equipment technologies. Active equipment monitoring to improve
maintenance services, design consulting, and various technologies to improve elevator efficiency
were essentially standard practice. Valjus and Pelto-Huikko believed the UltraRope was key to
setting Kone apart from the competition. However, innovation was just one aspect of success. A
winning go-to-market strategy was another.

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