Schindler Case Analysis
Schindler Case Analysis
Schindler Case Analysis
Executive Summary
The case discusses the period when Schindler, a manufacturer of elevator and escalators, first made its decision to establish a fully owned subsidiary in India under the leadership of Mr. Silvio Napoli, a young Harvard graduate. The case highlights the difficulties faced by Mr. Napoli in setting up operations in a country which was almost a total contrast to his home country Switzerland. As an expatriate in India, Mr. Napoli had to first acquaint himself with the culture of the country. His problems were augmented by Indias protectionist tariff policies, cost considerations and staff who doubts his ability to get things done his way. All these threatened to keep him from starting operations in accordance with his business plan and in turn threatened to finish off his career as well. Napoli found himself hard pressed for time to come up with a cost effective solution to make and sell core, standardized products in India.
The case also describes how Mr. Napoli started the Indian operations from the scratch, beating the cultural differences. One of his first steps was to create a cohesive top management team who then worked as a combined unit to propagate his ideas further. This also helped him overcome the initial resistance and reluctance for the Indians to take orders from a foreigner. It also helped create a culture within the organization that was compatible with the Indian culture
In this report, we have focused on the national context of the two countries, the difficulties posed by the cultural differences and even the differences in management styles between the two countries. We have tried to highlight these differences and also to understand what prevented Mr. Napoli from being able to proceed as per his plans. Finally, we have given a few recommendations that would make the journey smoother for both Schindler and Mr. Napoli.
Table
of
Contents
Overview.............................................................................................................1 The India Business Plan Challenges .............................................................1 Elevator Market and the Condition in India ..................................................2 Competitor Analysis ..........................................................................................3 Strategy Analysis of Schindler..........................................................................3 National Context ................................................................................................4
National Culture!.............................................................................................4 Business Culture!...........................................................................................5 Institutional Culture!......................................................................................6
Schindlers Organization Profile .....................................................................6 Understanding Cultural and Management Challenges faced by Napoli......6
Through Hofstedes model!...........................................................................6 Through Trompenaars model!......................................................................7 Application of the models to Schindler! .......................................................7
Silvio Napoli as an Italian .................................................................................8 The Leading Team .............................................................................................8 Managing Expatriate Assignments ..................................................................9 Cultural Issues Faced ........................................................................................11 Is there a Solution? ............................................................................................12 Conclusion ..........................................................................................................12 Exhibit 1: Market Share of Competitors in India ..........................................13 Exhibit 2: Comparison of Hofstedes Scores for India, Swiss and Italy .......13 References ..........................................................................................................14
Overview
Established in 1874 in Switzerland by Robert Schindler, the company began manufacturing elevators only 15 years later in 1889. Alfred Schindler was the fourth generation to lead the company in 1987. Being young and dynamic, he transformed the companys culture from an engineering-based manufacturing company to a customer-oriented service company. Within a decade, the worldwide revenues touched 6.6 Billion Swiss Francs (US $ 4 Billion), and was perceived as the technology leader in elevators and its number one producer in the world. It employed 38000 people in 97 subsidiaries, but failed to have its own operations in India. Schindler did not have a very great experience in the Indian market. Although its first elevator was installed in 1925, it was not until 1958 that it entered into a long-term distribution agreement with ECE. In 1985, it terminated its agreement and entered into a technical collaboration with Mumbaibased Bharat Bijlee Ltd. to manufacture, market and sell its elevators. It acquired 12% stake in this venture and supported it completely, resulting in it climbing up to the second spot in the Indian elevator market and a market share of about 10-15%. In 1995, Schindler took time off his regular schedule just to review the companys long-term strategy. He travelled to China, Japan and several other Far-Eastern markets to explore opportunities. He spent several weeks in India and saw a huge growth potential. In 1996 when a separate joint venture talks did not materialize with Bharat Bijlee Ltd., it started considering options to establish its own operations in India. Napoli, who had spent nine months developing a detailed analysis of the market size, legal environment and competitive situation, and had made a business plan based on his research, was put in-charge of the new subsidiary set-up.
Need to sell a focused line of standard products (different from competitors strategy of
customization)
Competitor Analysis
Indian market had four main players in the elevator industry Otis, BBL, Kone & ECE. Otis led the market with 50% market share (Exhibit 1). It was said that all buildings above 15 floors had Otis elevator installed. They had 70 service centers across the country and a national service centre in Mumbai. They held 85% market share in the high end hotel & commercial segment. Schindler would have to come up with a very formidable strategy to gain market share from Otis. The challenges that Schindler would face would be in the area of proving their credibility over the established players. Moreover the outsourcing strategy described by Mr. Silvio which also includes outsourcing of the installation processes would make the customer feel insecure and question the authenticity of the quality promise. The servicing of the elevators brought in major revenues for the company (80%). But the service standards were pretty steep. Clients like five star hotels would demand an on-site engineer. Hospitals and commercial buildings would demand a quick response (2 hrs) to resolve technical issues. Schindler would have to develop a strong service network to compete with Otis which already had 70 service centers that were fully staffed. Moreover market surveys clearly showed that buying decision of a client would be centered, not just on the cost but also the service & financial terms. Thus providing a good service would be one of the pillars for establishing a strong reputation in the Indian market.
honoring transfer pricing and supplying technical information to Mr. Schindler. Mr. Schindler can use his influence to insure Silvio can meet the very aggressive time frame that has been established. Creating a sourcing function in India took longer than expected To overcome the duties and equalize the exchange rates, Silvio and his recruited management team started sourcing efforts in India. These efforts took more time than expected. Cultural differences were immediate and costly This sounds like common sense, but Silvio said its one thing to say it, and quite another to live it. From reading the case study its clear that Schindler manufacturing sees high customization driving higher gross margins, and that this new Swatch strategy is a definite threat to their approach to business. Don't confuse tactical wins with strategic victories in foreign markets Within six months Silvio had opened offices in New Delhi and Mumbai, hired five Indian managers, each one very skilled in local elevator markets, and begun to aggressively implement the business plan for the subsidiary. Still, no new business was won. Tactically the execution had been perfect, yet strategically the swatch strategy was not winning any deals. Bottom line: Silvio should sit down with his management team and re-evaluate the business plan. One area of concern is centered on the intended market place. Silvio's business model requires high levels of growth, even within the first year. The business plan also laid out a business model that had never been attempted in the Indian Elevator market. Lastly, neither the business plan nor Silvio allowed flexibility. Flexibility is generally required in a highly competitive market. Each of these items are obstacles that need to be conquered prior to experiencing growth. Most of these items are in direct conflict with a target of high growth in a short time period.
National Context
National Culture
Switzerland Switzerland is dominated by two cultures: French speaking and German speaking
The French speaking segment follows a hierarchical structure with top floors reserved for the
executives. This aspect is also illustrated in the case with Napoli occupying the highest floor in Schindler, Switzerland
Position held in the hierarchy is given more importance than age. This factor is again
illustrated in the case where it is seen that an aged veteran in Schindler is scared of Napoli because of the position he holds
Believe in controlling outcomes and their own environment (output controlled) Universalistic culture Low context Averse to risk taking Highly decentralized
India
Follows an emotional culture Mix of various organizational profiles Size of ones office space indicates their position Culture is ascription oriented Indians tend to be more sensitive towards organizational power and relationships Particularistic culture High context
Business Culture
Switzerland Extremely time conscious. Punctuality is of prime essence
Strong rule-by-law Task-driven Extremely monochromic Orderliness is valued Any interruption in business working is taken very seriously Managers are expected to be pragmatic and unpretentious in decision making Being reserved, objective and level headed are some of the key characteristics of Swiss
business nationals
Decision-making process is somewhat protracted Desire is mainly to seek agreement down the hierarchy and seeks non-confrontational,
collective approach at senior management level. It is important in Switzerland for the bulk of the people to feel involved in the process India
Adherence to time and deadlines is slack People driven Trust between parties is important Indians go with the flow Maintaining harmony is given importance Flexible attitude characterized by willingness to compromise and customize
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Institutional Culture
Switzerland Technical competency and academic qualifications are highly respected
Decisions are made following a collegiate model, where decisions evolve amongst peers over
a period of time rather than emanating from one, dynamic, charismatic 'mover and shaker'
Adhere to high quality standards A direct parallel between these two points of decentralization and delegation of decisionmaking can be found in Swiss business structures. Companies exhibit great strengths on the operational side of the business India
Alma mater and the institution one graduates from, is given importance
Napoli was used to such a hierarchical model in Switzerland, that when he came to India he found it hard. This can be attributed to the fact that India as such, does not have a single organization profile. The country is often characterized by a mix of different styles of management. Especially since Schindler was considering a start-up, the approach that would have given the organization success was a team based approach in running the start-up. It is here that the culture which Napoli was used to served as a deterrent to him running the Indian subsidiary. Napoli used to hierarchy, even though he was unaccustomed to the Indian culture and work environment took all decisions based on the strategy designed by the Switzerland leading team.
High power distance (French speaking), while the German speaking segment has low power
distance
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Strong uncertainty avoidance (well-oiled machine) High Masculine and individualistic attributes Short term orientation
While India has:
High power distance Weak uncertainty avoidance (Family tribe) High Masculine and collectivistic attributes Long term orientation
Parameters
Universalistic vs Particularistic
Switzerland
Universalistic
India
Particularistic Communitarian Emotional Diffuse Ascription
Communitarianism vs Individualism Individualistic Neutral vs Emotional Specific vs Diffuse Ascription vs Achievement Time Environment Emotional Specific Achievement
Expatriate Selection-The first question that needs to be tackled is that how to identify the right man for the job. Did Schindler do the right thing by selecting Napoli for this assignment? The following parameters can help us assess this decision Selection Criteria Cultural Toughness Our Assessment This parameter involves how well an individual can withstand cultural shocks and adapt to the new culture. The organization assumed that since Mr. Napoli was young he will be flexible to cultural changes. However, evidence from the case points out that reality was totally different. Mr. Napoli represented a typical western style manager driving for results and not being aware of the organizational relationships. He depended on Mr. Singh for understanding the dynamics. Silvio Napoli was young and was in good health based on the information given in the case. The inference here is that he could handle the hardships. Mr. Napoli had done his MBA from Harvard and had performed well in the corporate planning function. Although he had successfully managed an important project for his organization still he did not have the real life experience for managing a complex assignment like India Mr. Napoli was highly enthusiastic about this project and had done the whole groundwork that involved creating the business plan. When other candidates refused, Napoli was given the offer which he accepted as he was involved in the project since the beginning Mr. Napoli relocated to India with his wife and two children. His wife had chosen Delhi to set up their residence while the headquarters were in Mumbai. Mr Napoli kept shuttling between the two cities which created a lot of hardship. Further, his family encountered a lot of health issues and he never felt settled which affected his work.
Physical and Emotional Health Age, Experience, Education Motivation for foreign assignment Family Issues
Our Assessment Mr. Napolis leadership style was centered around hard factors like deadlines, clarity in communication, directness, impatient for results etc whereas in India soft factors like managing relationships, exercising patience with people matters a lot. Hence, there was misfit between his leadership style and the requirements of his Indian sub ordinates
Interpretation - From the above table it is clear that with regards to leadership style, cultural toughness and experience Mr Napoli was not the ideal candidate. Further as a family man he needed greater support which was lacking and hence, a lot of time and energy was wasted by him at this front. However the organization could not find suitable candidates for this position and decided to offer it to Napoli on account of his education, age and motivation in drawing up the business plan and willingness to work on this assignment. Managing the Adjustment Process - It is clear from the case that Silvio Napoli was on his own. He received no support from his organization with respect to managing housing, education and health requirements of his family. He spent a lot of time in arranging accommodation and schooling for his children. Further, he decided to have his third child in Italy. All this took a toll on his work life and added to the stress. Further, he had no connection with the headquarters. His boss Luc Bonnard could have been supportive during the transition. Training - Training, a significant aspect in any expatriate assignment was completely missing here. Mr Napoli had no prior experience on working on an international assignment. Hence, it is imperative that he be trained on the cultural issues. Further he was new to India and needed to be acquainted with the business nuances of the country. A technical element should have been introduced as he was a generalist and may not have in-depth knowledge regarding handling marketing and operations for elevators in emerging markets like India. Frequency of Updation - Napolis entire strategy was based on transfer pricing and government regulations, whose details were outdated. For any expatriate assignment to be successful, he should have kept himself tuned to the dynamic changes of the emerging market. Performance Appraisal - Mr Napolis business plan outlined a target of 50 units to be installed in the first year. However it seemed unlikely that this target would be achieved as his sales team had committed to orders that required significant modification of his product as against the standardized version envisioned by him. Also a new transfer price system adopted in the company had raised costs while the budget increased the expenditure involving imports of specific non-core goods by a whopping 24%. The assignment was a high risk career move for Silvio Napoli and given the external factors that were impeding his performance he felt a high
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amount of stress. In addition, he had very little contact with the headquarters and was primarily on his own. As a result he faced the dilemma whether the headquarters would understand his situation or take an adverse stance which may affect his career progress.
Napoli had faced a hard fought battle between family relocation and company start-up in India. Though he and his family had been on a look and see visit to India, Napoli still found it difficult to build trust with new faces and had to adapt his management approach accordingly. Feasibility of the business plan: Several of Napolis managers were not convinced with his business plan particularly with the strategy of selling only standard elevators. The concept of outsourcing in this industry was also new. As a result, during his visit to Italy, key managers in India signed contracts that were against the strategy of the business plan. Impact of Transfer pricing on costs: The new Indian Budget had increased import duties on specific non core goods including elevators. This could not meet Napolis strategy of containing costs to the extent he had planned for originally. Local sources for elevator components could not meet requests coming from Schindlers European plants. This shows Napolis lack of understanding of Indian business culture. Indians are very complacent when it comes to time. They always push things to the last minute. But this is not the way Napoli functions. This factor acted as a huge deterrent to Schindler Indias smooth functioning. Another characteristic of Indian workers is that they over-promise but under-deliver. When it comes to projects, they invariably bite more than they can chew. This characteristic goes against the Swiss habit of precision delivery. Indian top management are usually willing to customize while Napolis irritation of not sticking to the business plan can be attributed to the Swiss fetish for orderliness. Clubbing this along with their task oriented nature may give the reason why the Indian staff considered Napoli to be a hard- driver, impulsive and impatient (while Singh to be friendly, easy going and patient). In terms of communication, India tends to be high context while the Swiss appreciate a low context communication style which may be why Napoli was considered over communicative.
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Is there a Solution?
Yes, there is a solution. First, the strategy should be revisited with inputs from the top management of the Indian subsidiary and considering the cultural, economic and technological elements of India and Schindlers target market. Once the strategy is revisited, the top management of the Indian subsidiary should be empowered to operate and take decisions on their own to a certain extent. As a VPS for Asia Operations, Napoli should focus only on the high-level regional decision making. These steps would take care of the cultural issues as most of them are bound to be addressed at the strategy formulation level when all the stakeholders are involved.
Conclusion
The case brings out the nuances of culture among the countries in which a global business is set to operate. A detailed analysis on the cultural dimensions has been conducted through Hofstede and Trompenaars model. A brief picture of the national context is given to understand the environment that influences the issues faced by Silvio Napoli. After analyzing the backgrounds of the countries and people involved, the cultural issues are identified and a very high-level solution has been provided.
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Market Share
24%
8% 9% 9%
50%
56
68 70
India
Italy
PDI - Power Distance Index, IDV - Individualism, MAS - Masculinity UAI - Uncertainty Avoidance, LTO - Long-term Orientation
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References
International Management - Culture, Strategy and Behavior, 6e, by Hodgetts, Luthans
and Doh, Tata McGraw Hill
Riding the Waves of Culture - Understanding Cultural Diversity in Business, 2e, by Fons
Trompenaar and Charles Hampden-Turner
http://geert-hofstede.com/india.html
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