Silvio Napoli at Schindler Case Write-up Background Top management of Swiss Schindler, a four generation business and technology

y leader in elevators and escalators, has selected Harvard MBA Silvio Napoli to build-up Schindlers subsidiary in India. Previously, Napoli worked for top management as Head of Strategic Planning. In this role, Napoli first and very successful ran a project developing the S001 elevator and redesigning the companys supply chain (Swatch Project) before he worked on the Indian Entry Project. In the latter project, he prepared the business plan to enter the Indian market via building up a subsidiary from scratch. Before, negotiations over a joint venture with Bharat Bijlee (BBL), an Indian elevator company benefitting from Schindlers technology during a decade long partnership, had failed and Schindler had not identified any other suitable Indian partners. The Indian elevator market In 1997, units installed in India stood at 40,000 with ~5,600 sold during that year. During the first part of the decade, the market enjoyed a stellar CAGR of 17% in unit terms and 27% in value terms. Indias growth potential was considered significant. The outlook was for 8-12% annual growth rate after a forecasted 5% in 1998 due to a real estate slump. Industry revenue was $125mn including service income. Alfred Schindler, the chairman and CEO, considers India a second China with huge growth potential and the companies Formula One Race Track i.e. test market for innovations. In 1997, the top 4 players held three quarters of the Indian market: Otis (50%), BBL (9%), Kone (9%), and ECE (8%). Residential, accounting for 70% of the market, was a strong growth driver. Commercial, Hotels, and Other accounted for 20%, 6% and 4% respectively. Just Mumbai and Delhi were 60% of the market. In the terms of products, market segmentation was as follows: Manual (28 stops) 50%, Low rise (2-15) 35%, Mid rise (16-25) 14%, High rise (25+) 1%. The middle segment of low- and mid rise was seen promising due to growing urbanization. Demand in the small top-end of the market was also growing due to an increasing number of high-rise offices, hotels, etc. The Indian entry strategy Napolis business plan for market entry contained two strategic elements which were distinctively different from competition: (a) the focus on a simple, standard product and (b) local outsourcing of most business activities to approved local suppliers. The focus on a standard product without customization was contrary to Schindlers strength in custom equipment and chosen with the goal of a unique source of advantage in the Indian market. It was also radically different to the approach of Schindlers key competitors and not yet tried in the Indian market. The approach only called for a product adaption to Indian requirements but no product customization to customer requirements whatsoever. The strategy aimed at winning market share in the low rise segment with Schindlers S001 product with the option to opportunistically pick up sales in the mid rise segment with the more sophisticated S300P product, which would be imported from Schindlers plant in South-East Asia. To keep overheads low, Schindler India would have no in-house manufacturing, assembly, or logistics infrastructure but use approved local suppliers in all these areas. Safety related components (~10% of value) would be in-house and imported from European plants. Maintenance contracts from new sales would stay with Schindler. Business plan implementation challenges and evaluation Napolis performance record was mixed after his first eight months. On the one hand, he had produced several strong results in a difficult environment and had proven that he would not sink. The business, on the other hand, was significantly behind its plans and Napoli needed to improve his management of the situation to ensure a successful establishment of Schindlers subsidiary. Napoli did excellent work in selecting and building the top management team of Schindler India. The across the board experienced people he mixed were all aligned with the requirements of the company and the combination of technical, business and market know-how they brought to the table appears very logical and well thought of. Napoli also did a very good job of managing the very first days and weeks of the company when it was important to form a strong team. He succeeded in

building an informal, open, responsive and proactive company culture. He also tried to gain his teams buy-in for his business model right from the start. On the negative side, Napoli was not well prepared for the cultural differences between the Western world and India. His preference for being a warrior rather than a monk led to several undesired results. His behavior and M.K. Singhs lack of industry experience led the rest of the management team to accept a business model, which they apparently did not really believe in. Napoli was also generally not open to alterations to his business plan and followed his plan even after customers in the market had given indications that a standard product would not sell as expected. Napoli is not responsible for the increase in import tariffs, the higher intra-company transfer prices and the delays in receiving design details and production specifications for the local production of the S001. However, these things happen when building a new business and his business plan and growth targets sound somewhat optimistic and ignorant of such surprises. Finally, Napolis management of his private matters appears suboptimal. Moving to a new country and culture is always an extra burden and never easy. However, it seems that Napoli and his wife did not have a clear plan how to handle the situation. It would have been better to have his family follow after several months and/or to agree on one location instead of splitting between Mumbai and Delhi. Napoli created an unnecessary double burden. Action Plan It seems that Napoli is personally involved into too many battles at the same time and that he is focusing too much on things that have made him successful in the past (the S001 product, the new operational model, the strengths of his personality traits in a Western environment). I believe Napoli must take the following actions: Use his network and know-how of Schindler organization to speed-up outsourcing. Explain to Mr Bonnard and maybe to Mr Schindler the challenges resulting from the new transfer prices and especially the high import duties of 56%. Secure his support for accelerated establishment of local S001 production and ensure that European plants quickly provide design details and production specifications. Design details, production specifications and clarifying the appropriateness of transfer prices are Napolis highest priority items. Redefine the roles and responsibilities of M.K. Singh and himself. Napoli should realize that he is the key person in maximizing the parenting advantage for Schindler India. He should consider focusing more on the interface of Schindler India with the rest of the Schindler group. At the same time, he should allow M.K. Singh to be more of a manager with discretion to build Schindler India and less of a coach to Napoli. M.K. Singh is likely better at getting the best out of the Indian management team, as manager and as messenger of Napoli. The innovative sales approach developed together with Matthews is an example. Revisit the business model together with the Schindler India management team. Integrate the first market experiences e.g. the high customer bargaining power in a competitive market as well as the general market experience of the Indian management team into the strategy. Napolis business plan, especially the standard model approach and the outsourcing model, must be critically discussed and alternatives to proceed must be assessed. Be more entrepreneurial about the business opportunity than theoretical. Focus more on tapping into the growth of the market than building the business exactly as described in the business plan. Be flexible and establish business where Schindlers skills meet demand e.g. by allowing glass walls in the S001 even if an individual transactions will run a loss. Next to being able to demonstrate the quality and reliability of the product, one cannot become a leading provider in the more profitable service business without selling elevators! Future service profits will also likely pay for initial sales losses during the entry phase. Explain the implications of any repositioning to top management. Revisiting and adapting the business model to build the business in a more flexible, sustainable way may negatively affect the growth path and reaching the break-even point. However, especially Mr Schindler is not unlikely to accept this, as a repositioning would make Schindler India more the Formula One Race Track business he is envisioning. Increase awareness of cultural differences, get training and adapt. It is not clear whether Napoli can adapt to a new culture. Assuming he can, training and the support of a coach could help him to better manage his team.