On 9 July 2010 at Tasmac, Pune our MBA strategy class discussed a very interesting case – ‘Silvio Napoli at Schindler India’. The case is brilliantly written by Professors Perry L. Fagan, Michael. Y. Yoshino and Chris A. Bartlett. Its a favorite in B Schools to understand the complexities of India entry strategies. The highlights are presented below for academic learning.
Schindler Group was founded in 1874 by Robert Schindler in Switzerland. It comprises two core areas of business: Elevators & Escalators. Alfred Schindler assumed the role of Chairman in 1995 and decided to take a six-month “sabbatical” to step back and review the long-term strategy of Schindler in the Far Eastern markets. He saw a huge growth potential in India second only to China. “India will be our Formula One racing track.” In the auto industry, 90% of all innovations are developed for and tested on Formula One cars and then reproduced on a much larger scale and adapted for the mass market. We are testing things in India – in isolation and on a fast track – that probably could not be done anywhere else in the company. The expectation is what we prove can be adapted to the rest of the group.” It was decided to strengthen Schindler presence in India.
Schindler Groups India opportunity
Silvio Napoli a 33 year old Harvard Business School MBA joined Schindler in 1994. As head of
corporate planning he reported directly to the CEO. The corporate executive committee (VRA) chaired by Alfred Schindler asked Napoli to formulate the India strategy. Napoli contacted experts in India to assess the elevator market demand. It took 9 months for the business plan to be approved. Napoli accepted the challenge to create the Indian subsidiary. His colleagues felt such a high-risk decision was crazy.
As vice president for South Asia he was responsible for India and few nearby export markets in Schindler’s elevators and escalators division. Negotiations to gain more control (51%) with their JV partner Bharat Bijlee (BBA) broke down and BCG could not find another suitable alternative. A Greenfield route appeared inevitable. Napoli relocated to India and began the task of building the task of building the company that would implement his business plan. Napoli and his family were based in based in New Delhi, where he opened a marketing and service office, but spend most of a typical week in Mumbai at the company’s HQ. It was quite a battle shuttling between settling the family in Delhi and the start-up challenges in Mumbai.
Top class global executive search consultants Egon Zehnder helped Napoli to select his team.
(a) Mehar Karan (MK) Singh, 42, IIT Delhi & IIM (A) as MD reporting to Napoli and eventually to head the subsidiary. Patient, easy going and friendly. Tough at times.
(b) T.A.K. Matthews, 35 to head field operations. 9 year direct elevator experience with Otis India.
(c) Ronnie Dante, 39 as GM Engg. Several years hard-core elevator experience at Otis.
(d) Pankaj Gupta, 32 as HR head. In Napoli’s words “Mr Schindler had convinced me that the company really needed a front-line HR manager who was capable of developing a first-class organization. But I certainly did not want a traditional Indian Ivory tower personnel director. Pankaj convinced us to hire him through his sheer determination to care for our employees”.
The India Business Plan – Challenges
Napoli worked to gain commitment to his business plan that had two basic elements: the need to sell a focused line of standard products (different from competitors strategy of
customization), and the ability to outsource key manufacturing and logistics function.
Competition was quite fierce – Otis (50%), BBL (8.6%, Finland’s Kone (8.8%) and ECE (8.4%). Indian market was highly price sensitive. Service was an important factor in buying decisions. The elevator life cycle had seven distinct phases: engineering, production, installation, service repair, modernization and replacement.
Napoli was shocked when he saw the transfer prices on the standard elevators were 30% above the costs he had used to prepare his plans as costs had increased. The import duties were increased sharply by the Indian government.
Napoli decided on an outsourcing strategy to keep overheads low with neither in-house manufacturing nor a logistics infrastructure. This would help maintain low costs as the import duties had also been increased. He believed he could set up a local manufacturing network that would preserve Schindler’s quality reputation.
Inter-company collaboration to the new low-cost subsidiary was sporadic, delays in parts lists, design specifications and engineering support. This added to the woes of the local manufacturers.
Managing a team in India
Napoli was known to be a “strong-headed and single-minded manager. He wants everything done yesterday. And in India things don’t get done yesterday”. Napoli acknowledged that “To survive in India you have to be half monk and half warrior; I was more inclined to the warrior side”. When he left Switzerland for India Luc Bonnard, Vice Chairman Schindler Holdings advised “You will have to work on your monk part.”
As said by an Indian executive “Silvio was clearly the driver and the boss but MK was great in helping Silvio understand the Indian environment.” Out of this interaction emerged a company culture that was ‘informal, open, responsive and proactive’.
Napoli’s new management team questioned him on the feasibility of his plan of selling only standard elevators. They also worried about the outsourcing strategy.
When Napoli had traveled to Italy for urgent family reasons he was informed that the company had accepted an order for an expensive glass pod elevator that was to be imported from Europe. His reaction – ‘I was first just surprised and then pretty angry, since it clearly was a violation of the strategy we had agreed on’. He could not stop it as it was too late – the project was committed. Once again for the second time in two months his Indian managers had submitted an order for a nonstandard product – to put a glass rear wall in one of the standard elevators.
Reflections of an expatriate manager
Napoli reflected, “You know the expression, ‘it’s lonely at the top?’ Well I’m not at the top, but I feel lonely in the middle …. I have to somehow swim my way through this ocean. We have yet to install a single elevator and have no maintenance portfolio.” The first-year sales
objective was planned to be 50 units.
Thinking back on the eight months in his new job, Napoli described the multiple demands. On one hand he had to resolve the challenges he faced in India. On the other he had to maintain contact with the European organization to ensure the support he needed. On top of both these demands was an additional expectation that the Schindler’s top management had of this venture.
It was November 1998 and Luc Bonnard the Vice Chairman was visiting New Delhi for the first time to review progress on the start-up. Things were not going according to plan and he asked – “So, how are things going so far, Mr. Napoli?”
Postscript – Schindler’s success
The company is now present in more than 140 countries and employs 45,000 persons worldwide. 60% of Schindler’s core business in India and other countries in South Asia.
What lessons can we learn from this case?