Product ; Outsourcing Strategy
The radical approach implied in Napoli’s business plan based on his understanding of the Indian environment primarily hinged on using the Schindler 001 (S001) developed previously for the Swatch project and the use of Schindler 300P (S300P) a more sophisticated model being manufactured in South East Asia. The S001 was to be used for the low rise segment structure and the S300P was to be used to target the mid – rise segment.
The business plan also stressed on the need for minimal / no customization to enable the products to be priced appropriately with a goal to sell 50 units in the first year and winning a 20% share of the target segments in Five years. Napoli’s radical approach came into full view in this aspect that suggested a radical approach to counter India’s high import tariffs and thus forcing elevators to be manufactured locally. The plan rested on the manufacture of S001 that was expected to account for 75% of the sales being outsourced i. e. production of most components for this model will be outsourced to approved local suppliers.
The S300P on the other hand was to be wholly imported from Southeast Asia with only safety related components being imported from the Schindler plants in Europe. The onsite assembly of the drive, controller, car, doors, rails and counter weight were also to be outsourced, however the maintenance contracts resulting from the new sales would stay with Schindler. The plan was partially inspired by Mercedes outsourcing most components of its Indian vehicles and also Napoli’s belief that he could setup a local manufacturing network that could preserve Schindler’s global reputation.
The plan would also allow for Schindler to get into the Indian elevator market quickly and without the need for enormous amounts of capital required to setup a local manufacturing plant. (Fagan, Yoshino et al. 2004) 6. Implications of Product ; Outsourcing Strategy – Action Plan Schindler India as part of the overall Schindler group and is part of a holding structure that is prevalent in a market with regulations. The configuration of Schindler India also suggests that there is a significant Entrepreneurial configuration about it, which again is usually evident in a regulated market.
The Entrepreneurial tinge is evident by Silvio Napoli’s bold and radical approaches that he opined would be best for the Indian market based on his knowledge of the Indian elevator market and without any further advise or consultation with the Management team that he had assembled. (Wit and Meyer 2006) This lack of consultation resulted in his Management team going against his strategy at the very first outset when Silvio Napoli was away in Italy to be with his wife when she gave birth to their third child.
The Strategy as mentioned before was based on concentrating exclusively on the low & mid – rise using the S001 and S300P elevators for the respective segments, however this was kept aside when Schindler India in the absence of Silvio Napoli decided to order an expensive Glass Pod elevator which was totally against his Strategy and as the project was already committed he was unable to stop it. (Fagan, Yoshino et al. 2004) The next major challenge dealt with a substantial price increase at 30% for the basic S001 elevators as Silvio Napoli had been unable to find any suitable local suppliers.
This price increase coupled with a substantial increase of import duty from 22 – 56% essentially devastating his stated goal of selling 50 elevators in the first year and breaking even within four years. This problem was further compounded by the lack of response in the European plants in order to get design details and production specifications in order to setting up alternative local sources. (Fagan, Yoshino et al. 2004) 7. Strategy Paradoxes 7. 1 Logic and Creativity The above problem clearly suggests that a classical situation of a paradox of Logic and Creativity.
Logical thinking is essentially based on managers basing their strategic decisions on their past experience whereas Creativity can be considered the opposite of logical thinking in the fact that it encourages one to think outside the square with little support paid to supporting evidence. Logic however is often used afterwards to justify the creative idea. This is evident in the above scenario with Silvio Napoli’s creative approach that he justified by means of a formal business plan essentially to justify the logical reasoning behind his radical and creative approach.
(Wit and Meyer 2006) Logical thinking and Critical thinking both come with their own sets of pro’s and con’s with logical thinking driven by a formal set of rules and thus it has the tendency to narrow your thought process as everything needs to be derived from a logical process in order to continue further thus enabling a conclusion to be reached if and only if it is reached by a sound succession of arguments. Creative thinking also has its fair share of critics who argue that creative thinking can lead to vague and impractical ideas that may not be suitable.
This may also explain the reasoning behind supporting a creative idea with a logical reasoning so as to justify the creativity. (Wit and Meyer 2006) This thus explains the desire for strategists to have the ability to be fully capable to think in a logical and creative manner. This is best explained in the quote “Information’s pretty thin stuff, unless mixed with experience” that essentially outlined the importance of both these aspects though they are poles apart. (Wit and Meyer 2006).
The above scenario is also ideal for another classical paradox of Deliberateness (deliberate strategy) vs. Emergence (strategy emergence) i. e. quality of acting intentionally that occurs when people think up an action before the action is done vs. “strategy that is emergent – gradually shaped by an iterative process of thinking and doing”. (Wit and Meyer 2006) The current scenario describes clearly of a situation where a deliberate strategy has been implemented. This is evident in the way Silvio Napoli has prepared an extensive business plan that incorporates both the ends and the means of reaching the end (goal).
Silvio Napoli also desires for the plan to be strictly followed with no room for any changes etc. (Wit and Meyer 2006) Deliberate strategy and Strategy emergence both come with their own set of pro’s and con’s. The major disadvantage of Deliberate Strategy revolves around the reasoning that it doesn’t allow for staff to tap into their entrepreneurial / creative spirit as everything is defined and explained and thus staffs are expected to follow the instructions explicitly and usually leads to a lack of learning, as everything is documented.
Strategy emergence preaches for nurturing staff by means of tapping into their entrepreneurial spirit, it also allows for flexibility in a course as one is not locked onto any particular action plan, however the disadvantage with this that this can lead to a vague course of action and can also lead a clash of thinking between management and staff thus could possibly lead to a potential clash of ideas.
(Wit and Meyer 2006) The above describes the opposite nature of both of these strategies thus leaving managers at a serious quandrum concerning the suitability of a particular strategy to their organization with the best possible aim of striking a suitable balance between both these strategies. (Wit and Meyer 2006) 8. Strategy Recommendation
Thus in the current scenario of Schindler’s foray into the Indian elevator, I would recommend that Silvio Napoli follow a more logical step due to the known fact that it is a highly regulated market and thus government plays a key role as can be attributed by the sudden rise in import duties from 22% – 56% thus leading to his expansion plans being put in serious jeopardy. The other recommendation revolves around Silvio Napoli having a more relaxed approach to following his business plan and thus gives his Management team more freedom to delve into their entrepreneurial spirit to determine what is best for the Customer.
I would also recommend that as Silvio Napoli is still very short in experience and he has been thrown into the deep end (Indian Elevator Market) of what is probably the most complex and diverse market without any / much knowledge of the culture / market dynamics, it would be more suitable if he approaches a more relaxed approach towards his management team as they are inclined to more aware of the needs and demands of the Indian Customers.
Thus I would like to conclude by stressing that the Indian elevator market is unlike the more advanced and sophisticated European market as it is still in its infancy and thus it would not be ideal to implement a similar policy of what was done in the European elevator market. I would also like to stress that things do not occur rapidly in India and thus patience plays a key role as is best summed up by Mr.Bonnard advising Silvio Napoli “To survive in India you have to be half monk and half warrior”. (Fagan, Yoshino et al. 2004)
Fagan, P. L. , M. Y. Yoshino, et al. (2004). “Silvio Napoli at Schindler India. ” The Harvard Case Collection: 19. Wit, B. D. and R. Meyer (2006). Strategy Synthesis, Thomson Learning.