What is KONE
KONE is the fourth largest companies in the escalator and elevator industry. KONE is best known as the supplier elevators for Kingdom Tower in Jeddah, Saudi Arabia, which will be the tallest building in the world upon completion in 2018.
KONE is a very successful company as it is highly effective at driving alignment between its operating and business models.
Business model and Operating Model Alignment
KONE creates value by providing customers with escalator and elevator solutions that leverage the latest proprietary KONE technologies and innovative designs. Being at the forefront of escalator and elevator technology has enabled KONE to grow its installed base of escalators and elevators to over 1,000,000 units.
Research & Development – Leader in Technology Innovation
KONE has been able to consistently grow its installed base over the years by leading the technology innovation race through successful investments in research and development. In fact, KONE invested over EUR 100 million in R&D in 2014 and was named the 48th most innovative company in the world according by Forbes in 2015. The focus on the development of new technologies has enabled KONE to continuously introduce products that are more reliable, safer and more energy efficient than its competitors, thereby increasing its competitiveness in the market. For example, the introduction of the KONE UltraRope in 2013 was a major technology innovation in the elevator industry that replaced the existing heavy steel ropes, which is still used by their competitors, with a more durable, reliable, eco-friendly rope technology that significantly decreased energy consumption, reduced downtime and rope stretch. As a result, KONE has been able to exceed customer needs, thereby driving its sales and profitability growth to exceed the market.
Its focus on R&D is also complemented by its manufacturing strategy, which provides KONE with the flexibility to quickly bring the new technologies it has developed to market faster. KONE outsources most of the manufacturing of its component to select suppliers. This not only allows KONE to invest limited capital in manufacturing and assembly operations but also enables KONE is able to quickly shift its manufacturing capacity to new innovative component suppliers that leverage the latest technology.
Proprietary Maintenance and Monitoring Services
KONE makes a slim margin from the sale of its escalators and elevators solutions in order to quickly grow its installed base. KONE’s growing installed base drives its monitoring and maintaining services business. KONE’s services business make up over 50% of sales. KONE is able to capture significant value by charging customers a significant premium for these services as it is the only company that is able to efficiently service its proprietary equipment due to the skills involved in maintenance and repairs and the limited availability of replacement parts.
KONE technicians perform over 10 million visits to service over 1,000,000 units annually. KONE has major comparative advantages in the provision of these services as:
1. Monitoring and maintaining KONE proprietary equipment requires significant training and expertise
Monitoring and maintaining KONE proprietary equipment is very difficult given the complex technologies it utilises. KONE is the only company that can provide expert service technicians skilled at repairing it solutions. KONE’s service technicians are highly skilled due to extensive in-house training and are also supported by a team of in-house KONE engineers in the event that they face a problem they can’t resolve. Keeping this expertise in house enables KONE to capture significant value.
2. KONE technicians can provide faster response time to emergencies and repairs
KONE has a competitive advantage in monitoring and maintenance services for its products as it can provide faster response time to emergencies and repairs.
KONE has much faster response times during emergencies than independent contractors as it is immediately warned as soon as an issue with its products arises via the KONE Remote Monitoring System. The system enables KONE to be made aware of a specific technical problem as soon as it occurs rather than when the customer calls, enabling its service teams faster dispatch response. vs. independent contractors.
KONE is also able to conduct repairs and maintenance services faster than independent contractors as the limited availability of spare parts required for maintenance and repair outside the KONE network service makes it very difficult and timely for independent contractors to purchase the spare parts it needs to complete repairs. In contrast, KONE service technicians are given priority on spare parts, enabling them to repair the equipment much faster, thereby reducing equipment interruption.
As a result of the alignment of its operating and business model, KONE has been able to grow sales by 55% from 2009 to 2014 while also increasing its operating margin from 11.9% of sales in 2009 to 14.1% of sales in 2014.
KONE will keep going up!