Harvard Case - SKF Bearings Series: Market Orientation Through Services (A): Restructuring the Before and After Market
"SKF Bearings Series: Market Orientation Through Services (A): Restructuring the Before and After Market" Harvard business case study is written by Sandra Vandermerwe, Marika Taishoff. It deals with the challenges in the field of Organizational Behavior. The case study is 11 page(s) long and it was first published on : Jan 1, 1990
At Fern Fort University, we recommend SKF adopt a comprehensive strategy to restructure its "before and after" market by leveraging its existing strengths in manufacturing and engineering to develop a suite of value-added services. This strategy should focus on building a strong service-oriented culture, investing in talent development, and deploying technology to enhance customer experience and drive revenue growth.
2. Background
This case study focuses on SKF, a global leader in bearings and related products, facing a critical juncture in its market orientation. The company traditionally focused on manufacturing and selling bearings, but the changing market landscape demands a shift towards providing value-added services to customers. This shift is crucial for SKF to maintain its competitive edge and secure future growth.
The main protagonists in the case are:
- Thomas Lundgren: CEO of SKF, tasked with leading the company's transformation towards a service-oriented model.
- The SKF management team: Responsible for implementing the strategic shift and navigating the challenges of organizational change.
- SKF employees: The workforce that will be directly impacted by the restructuring and need to adapt to new roles and responsibilities.
- SKF customers: The ultimate beneficiaries of the improved services and the driving force behind the need for change.
3. Analysis of the Case Study
This case study can be analyzed using the Porter's Five Forces framework to understand the competitive landscape and identify opportunities for SKF.
- Threat of new entrants: The market for bearings is relatively mature, with high barriers to entry due to economies of scale and technological expertise. However, the emergence of new players with innovative service offerings could pose a threat.
- Bargaining power of buyers: Customers in the industrial sector have significant bargaining power, demanding high-quality products at competitive prices. They are increasingly seeking value-added services, giving them further leverage.
- Bargaining power of suppliers: SKF relies on a global network of suppliers for raw materials and components. The bargaining power of suppliers is moderate, as SKF can leverage its size and reputation to secure favorable terms.
- Threat of substitute products: Alternative technologies and materials could emerge as substitutes for bearings, posing a long-term threat. However, the established dominance of bearings in many applications makes this threat relatively low in the short term.
- Competitive rivalry: The market for bearings is highly competitive, with several established players vying for market share. This rivalry is further intensified by the increasing focus on services, as companies seek to differentiate themselves.
Key challenges for SKF:
- Organizational culture: SKF's historical focus on manufacturing may hinder its ability to embrace a service-oriented culture.
- Talent development: The company needs to invest in training and development programs to equip employees with the skills necessary to provide high-quality services.
- Technology adoption: SKF needs to leverage technology to improve operational efficiency, enhance customer experience, and gain a competitive advantage.
- Communication and change management: The transition to a service-oriented model requires clear communication and effective change management strategies to ensure employee buy-in and minimize resistance.
4. Recommendations
SKF should implement the following recommendations to successfully restructure its 'before and after' market:
1. Develop a comprehensive service strategy:
- Define target customer segments: Identify specific customer groups with high potential for service-based revenue.
- Develop a portfolio of value-added services: Offer a range of services tailored to the needs of each customer segment, including predictive maintenance, remote monitoring, and customized training programs.
- Leverage existing expertise: Capitalize on SKF's strong engineering and manufacturing capabilities to develop innovative service solutions.
2. Invest in talent development and organizational change:
- Recruit and retain service-oriented talent: Implement a targeted hiring strategy to attract individuals with strong customer service skills and technical expertise.
- Develop training programs: Invest in training programs to equip employees with the skills necessary to provide high-quality services and manage customer relationships effectively.
- Foster a service-oriented culture: Promote a culture that values customer satisfaction, innovation, and continuous improvement.
3. Deploy technology to enhance customer experience:
- Implement digital platforms: Develop online platforms for customer interaction, order management, and service delivery.
- Leverage data analytics: Utilize data analytics to optimize service delivery, identify customer needs, and personalize offerings.
- Embrace Industry 4.0 technologies: Explore the adoption of advanced technologies like IoT and AI to further enhance service capabilities and drive efficiency.
4. Implement a strategic communication and change management plan:
- Communicate the vision clearly: Communicate the strategic rationale for the shift towards a service-oriented model to all stakeholders.
- Involve employees in the change process: Engage employees in the development and implementation of the new service strategy to foster buy-in and ownership.
- Provide ongoing support and training: Offer ongoing support and training to help employees adapt to the new roles and responsibilities.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Leveraging existing expertise in manufacturing and engineering aligns with SKF's core competencies and supports its mission to provide innovative solutions for customer needs.
- External customers and internal clients: The recommendations address the needs of both external customers seeking value-added services and internal clients, such as employees, who need to adapt to new roles and responsibilities.
- Competitors: By focusing on developing a strong service portfolio and leveraging technology, SKF can differentiate itself from competitors and gain a competitive advantage.
- Attractiveness: The recommendations are expected to drive revenue growth, improve customer satisfaction, and enhance SKF's profitability.
6. Conclusion
By implementing these recommendations, SKF can successfully restructure its 'before and after' market and position itself for long-term success in the evolving industrial landscape. The company needs to embrace a service-oriented culture, invest in talent development, and leverage technology to enhance customer experience and drive revenue growth.
7. Discussion
Alternatives not selected:
- Focusing solely on manufacturing: This approach would not address the changing market needs and could lead to a decline in market share.
- Acquiring service providers: This option could be expensive and risky, and may not provide the necessary control over service quality and customer experience.
Risks and key assumptions:
- Resistance to change: Employees may resist the shift towards a service-oriented model, requiring effective change management strategies to mitigate this risk.
- Technology adoption: The successful implementation of technology requires significant investment and expertise, posing a potential risk if not managed effectively.
- Customer acceptance: The success of the new service offerings depends on customer acceptance, which may require significant marketing and communication efforts.
8. Next Steps
SKF should implement the following steps to effectively execute the recommended strategy:
- Develop a detailed implementation plan: Outline specific timelines, responsibilities, and resource requirements for each recommendation.
- Establish a dedicated team: Form a cross-functional team to oversee the implementation process and ensure alignment across departments.
- Pilot test new services: Pilot test the new service offerings with a select group of customers to gather feedback and refine the service delivery model.
- Continuously monitor progress and adjust strategies: Regularly monitor the performance of the new service strategy and make adjustments as needed to optimize results.
By taking these steps, SKF can successfully navigate the challenges of restructuring its 'before and after' market and emerge as a leading provider of value-added services in the industrial sector.
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Case Description
In the spring of 1987, Mauritz Sahlin, CEO of SKF, the world's largest bearing company, decided to transform the company to improve profitability and return on assets. Production had already been rationalized and was fully automated, leaving little room for savings. Neither could R&D expenditures be cut, given the company's reputation for technological prowess and quality standards. The only viable long-term solution was to change the strategic orientation of SKF from the production line to the market, which would now be segmented into the before market and aftermarket. The plan required a complex reorganization of the company with far-reaching consequences throughout the organization, but there was no other option. Intended to be the springboard to a new SKF market culture, SKF Bearing Services was created, and Goran Malm was asked to be its CEO. A 1995 and 1997 ECCH award winner.
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