Elisha Otis didn’t invent the elevator; he invented the elevator brake in 1852 . This invention, however, was far more important. It transformed skyscrapers from a dream to a practical reality. Otis was at the forefront of mechanical technology in the 19th century, and now it is at the forefront of digital technology.
Research and Development at Otis
Today, Otis rakes in $12 billion in revenue and is the world leader in elevator installation and maintenance with a market share of 10% . In this highly competitive industry, it is important for Otis to have strict controls on its costs. To do so Otis has made several digital innovations to its elevators. “On a year-to-year basis ….the investment in R&D and IT together is 40%-50% more. It is a considerable amount of money that the leadership has dedicated to the transformation and digitalization strategy” says Marcus Galafassi, VP of Information Technology and CIO at Otis . Most of this spend targets the maintenance and servicing sector.
Targeting the Service Component
Otis’ service contracts form a significant part of its profits. An analyst from William, Blair and Company estimates it to be 65% of the profit . These profits take a significant hit when there are unscheduled callbacks. To put it into perspective, Otis has 2 million service contract elevators transporting 2 billion people daily with only 30,000 service technicians worldwide . This amounts to 60 millions hours servicing elevators yearly . The median pay for 2015 was $39 per hour for elevator service technicians. Assuming a conservative $25 for worldwide average pay, leads to a net spend of $1.5 billion . For a company with revenues of $12 billion and operating profits of $2.5 billion this is a significant cost .
Before the IoT Revolution
Service contracts for elevators have shifted from being dominated by the manufacturer, to a marketplace of specialized service companies as well as manufacturers. Generally the contract period is for five years and the contract is tailored to the elevator type, age and pattern of use. Each tailored contract would include regular monthly servicing and a few hours of free unscheduled calls. Contracts are structured based on performance and hence the costs of unscheduled calls are borne by the service company . Any unscheduled call would completely disrupt the scheduling of technicians, not only adding man-hours but also increasing variability and consequently a low labor utilization.
Otis Remote Elevator Monitoring
Otis, in tying up with Microsoft and AT&T, has installed Remote Elevator Monitoring (REM) in 300,000 of its 2 million elevators . It has installed several sensors on these elevators, which collect hundreds of various data points. For example some of these data points are “how far has the elevator travelled over its lifetime” or “what is its braking deceleration” .
In case the server (located in the building itself) detects a breakdown, an automated response is sent to Otis’ 24-hour communications center and a service technician is dispatched . Within the operating model, this removes the time lag from the cumbersome process of the building manager recognizing the problem, diagnosing it and contacting an Otis call center.
REM is even more powerful in its ability to aggregate and analyze data from thousands of elevators and then predict failures . The numerous sensors installed in each of Otis’s elevators will send data to a centralized Otis server. The server uses historical data points that preceded the breakdown of elevator parts, to predict when future breakdowns will occur. The key here is that Otis is able to use data from all its REM elevators across the world. In this manner a technician can be dispatched even before failure, in a departure from Otis’ prior operating model. The benefits are twofold. Firstly there is no downtime of the elevator. Secondly Otis is better able to plan the schedule of its technicians thus increasing labor utilization and reducing labor costs.
Otis can take further steps to enhance its operational efficiency.
While other elevator companies would be following similar IOT strategies, Otis should target elevators of other manufacturers. Otis can use its data from its initial 300,000 REM elevators as a head start to offer cheaper service contracts.
Otis also has the opportunity and ability to disrupt the service technician labor market. Instead of keeping technicians on its payroll, it can “Uberify” the technician market. This would reduce Otis’ fixed cost and also allow service technicians to work on their own schedule. By using predictive analytics, Otis should aim to perfectly match service technician demand with supply. In doing so Otis will need to be mindful in its allocation of value to landlords, service technicians and itself, making sure that all constituents benefits.
Ultimately, as it has been since 1852, Otis ultimately must consistently be innovating. (798 words)
 National Inventors Hall of Fame
 UTC Annual Report 2015
 IBISWorld Industry Report Elevator Installation and Service in the US – Chrystalleni Stivaros
 Network World Interview with Marcus Galafassi VP of Information Technology and CIO at Otis Elevator
 Otis Elevator Is Keeping Up By Going Digital – Hartford Courant – Stephen Singer
AT&T Press Release April 25, 2016
 IOT Connectivity Solutions Industry News
 Bureau of Labor Statistics – Elevator Installer and Repairer
 Facilities Net Interview with Glenn Rodenheiser, Director of Service Sales and National Accounts with Schindler Elevator Corporation
 Otis Remote Elevator Monitoring