Abstract

This paper / report attempts to analyze the success factors that place KONE in the league of most innovative companies in the world. Through KONEs example, the authors attempt to answer the following questions: How can companies differentiate themselves and innovate in an industry that is not typically described as being innovative? How are services adding value to the business? How can organizations design customer-focus in their culture, processes and offerings?

Designing Customer Focus: KONE

IDBM Business Case Report

Team 2: Tushar Malhotra, Ilona Ahovuo, Maritta Toivola, Hannamari Vahtikari, Jonna Salonen, Katariina Ketola, Raymond Hui, Nirmal Krishnamoorthy

Picture 1: KONE CEO highlights the importance of Customer Focus in his editorial in the People Flow magazine, Issue2, 2011

Contents
Abstract ..................................................................................................... 0 Introduction & Objectives ................................................................................ 3 KONE - Company Profile ................................................................................. 3 Towards Services ........................................................................................ 3 Focusing on Customer-Focus ........................................................................ 4 Designing Customer-Focus .............................................................................. 4 Measuring the Pulse: Customer satisfaction and loyalty .................................... 4 Net Promoter Score (NPS) background: One score to rule them all? ............. 4 NPS at KONE ........................................................................................... 6 Turning Detractors into Promoters .............................................................. 6 Following up on the scores......................................................................... 6 Employee Promoters: Engaging the employees to create better customer experiences ............................................................................................. 6 In their shoes: Customer Empathy ............................................................. 7 KONEs Service Portfolio: Service Design and Customer-Focus ............................. 8 Designing Services: Theoretical Perspective .................................................... 8 Note on Literature Surveyed ...................................................................... 8 Service package ....................................................................................... 8 Service design process .............................................................................. 9 KONEs services & solutions for the entire project lifecycle .............................. 10 Planning and Design Services ..................................................................... 11 Construction Services ................................................................................ 11 Maintenance Services ................................................................................ 11 Modernization Services .............................................................................. 12 Conclusion & Implications ............................................................................. 12 Works Cited ................................................................................................ 14

Introduction & Objectives

In 2011, KONE was ranked 39th on the Forbes list of the most innovative companies in the world (1). This recognition made it the only company in its category to have made it to the top 50. What is it that makes KONE, despite belonging to an industry that not many would associate with adjectives such as innovative, deserve this standing? This study is an attempt to propose an answer to this question or at least to delve deeper into what are perhaps two of the most important (and interlinked) reasons for KONEs success The emphasis on Designed customer-focus and the transformation from an equipment manufacturer to a service / solution provider. The authors trace how KONE managed to design customer focus into its organization culture and services. We explore the initiatives, tools, practices and processes embraced by and at KONE for this purpose. We also explore KONEs service portfolio and evidences of customer focus in the same. At appropriate points in the paper, in order to get a holistic picture and a better understanding, we also dig deeper into examining the corresponding theoretical background, concepts and research. From this perspective, this paper can be viewed as an attempt to document the process and tools that an organization can use to design customer-focus into its work-culture and service offerings. It also touches upon some theoretical perspectives on service design. Looking from this angle, KONE serves as a concrete, real-world case supporting the theoretical aspects discussed.

KONE - Company Profile

Headquartered in Helsinki, Finland, KONE is one of the worlds leading elevator and escalator manufacturer and service provider operating globally. In 2010, KONEs revenue was almost 5 billion euros and it employed more than 33,000 people. KONE has 800 offices in over 40 countries (2), (3).

Towards Services
Over the past few years, KONE has transformed itself from a primarily engineering and product focused company manufacturing elevators and escalators to one providing end to end people mobility solutions and services to its customers including planning, designing, construction, and maintenance services. This is also reflected in the companys slogan Dedicated to People Flow. In fact, KONEs services business accounted for 54% of total sales in 2010 and is growing faster than the new equipment business (3).

Focusing on Customer-Focus
Along with this visible and quantifiable move to offering a rich portfolio of services atop and around the product offerings, there has been another subtle but equally strategic and impactful transformation underway at KONE in the way the company conducts its business the creation of a deeply customer-focused organization. This has been a result of Customer-Focus being explicitly recognized as a key development and investment program under the companys new corporate strategy launched in 2005 (4).

Designing Customer-Focus
Striving to build a customer-focused organization isnt necessarily unique to KONE. It is a utopian goal that every company (or at least most of them), no doubt, wishes to attain. Very few, however, manage to succeed at it. KONE seems to belong to the latter category. How did it manage this success? Is there a process a series of actionable steps, perhaps that organizations can follow to replicate this success? Is it possible to design customer-focus in the processes and offerings of an organization? While those might be questions that require more in-depth conceptual and empirical research and deliberation, in this section we highlight our findings from studying KONE laid out in the form of such a sequence of steps in the hope that this would serve at least as a pointer in the right direction.

Measuring the Pulse: Customer satisfaction and loyalty

The first step in this process is to know where the organization stands by measuring customer satisfaction and loyalty. However, as rightly pointed out often in literature, both academic (for example (5)) and practice-oriented (6), this turns out to be rather hard because of the desired metrics being inherently subjective as compared to, say, measuring revenue, profit or other financial criteria. Net Promoter Score (NPS) background: One score to rule them all? In 2003, in his paper titled The one number you need to grow (5) published in the Harvard Business Review, Frederick Reichheld proposed a solution to address the challenges and problems associated with the traditional ways of measuring customer satisfaction including market and customer surveys. His argument was that the conventional methods were too complex, elicited low response rates, yielded ambiguous, non-actionable insights in most cases and were uncorrelated to companies revenue and profit growth. Also, there was no statistical data linking customer responses to actual behavior (such as repeat and / or referral purchases). In order to devise a better solution, Reichheld conducted empirical research to link thousands of customer responses to a 20-question Loyalty Acid Test (also designed by him and his colleagues at Bain & Co. (7)) to the purchase and referral histories. Based on this information, Reichheld

identified the survey questions that were mostly closely correlated statistically to the respondents purchase and referral behavior. He managed to identify a single question that seemed to be most closely correlated to positive user behavior across most industries How likely are you to refer the product / service to your friends and partners? Armed with these findings, Reichheld, along with his colleagues at Bain & Co. developed the Net Promoter Score (NPS) metric as a tool to measure customer loyalty and satisfaction. NPS tool, in its most basic form, consists of a single question as mentioned above. This question is administered to the customers / users and they are asked to record their responses on a 10-point scale. The scale has been designed and calibrated based on empirical research and categorizes the respondents into three groups: Promoters are the customers who respond with a score of 9-10. They are highly satisfied and active customers who act as companys virtual sales force, promoting the company by word of mouth. Passives (7-8) are the customers who are satisfied with the company but are not very enthusiastic or have only peripheral interest. Detractors (0-6) are the unhappy customers who are likely to stray to other brands / products / services given a chance.

The Net Promoter Score is simply the percentage difference between the promoters and detractors. The higher the score, the more loyal and happy the companys customers are.

The NPS tool, which promises to greatly simplify measuring customer satisfaction and loyalty, enhance response rates and quality and provide actionable, behavior inducing insights, has received a fair share of criticism, especially from the academic quarters (e.g. (8)). Academicians and researchers, while acknowledging

the value of simplifying customer satisfaction measurement have been skeptical of the claims that a single metric can successfully quantify an inherently complex, subjective and multi-dimensional aspect like customer loyalty. Potential flaws and gaps gave also been pointed out in Reichhelds original analysis. However, criticism notwithstanding, NPS has been widely adopted by a large number of global business organizations of all sizes and from all industries, KONE being one of them. NPS at KONE KONE has adopted the Net Promoter Score as the chief tool to garner customer feedback and measure customer satisfaction and loyalty. In the slightly modified version used at the company, over 20,000 customers provide feedback through the tool every year. Sections of the customers, selected on the basis of predefined criteria such as location, type of service (planning vs. maintenance) etc. are polled twice a year with the survey consisting of only two questions: 1. The standard NPS question asking the customer to rate KONE on a scale of 1-10 on the likelihood that they would recommend / refer the company to a friend / partner / acquaintance. 2. A descriptive question asking the customers to provide specific reasons for the score they chose to give KONE. The simplicity of the survey has helped KONE in soliciting very high response rates and high quality answers for the second question. (4)

Turning Detractors into Promoters

Following up on the scores Having measured the status quo, thanks to the simplicity of the NPS tool, the next step in building a customer-focused organization seems rather obvious turn the detractors (and passives) into promoters. This is however a goal which is much difficult to achieve. At KONE, the responsible employees are encouraged to personally follow-up with the customers on the feedback received from them (e.g. as answer to the additional Why? question), especially when the customers are not satisfied. This immediate follow-up helps establish confidence among customers and also provides actionable work items for the company / employees (4), (9). This also helps as an additional means of engaging the employees (see next section) in the pursuit if customer satisfaction. Employee Promoters: Engaging the employees to create better customer experiences In 2010, KONE started encouraging all its employees to participate in finding new, innovative People Flow solutions by introducing an online tool for sharing and

processing ideas. Employees can submit their ideas via the Innovation Tool at any time, which are then visible to the whole KONE community. Other users can then contribute by voting and commenting on the ideas. The ideas collected in the tool are regularly reviewed and evaluated, with the best ones being selected for further development. The tool currently has more than 850 users, and this number is steadily increasing. A built-in idea development process ensures that good ideas will eventually lead to real actions. KONE has already received tens of ideas that have been turned into real projects, product and process improvements, or corrective actions (10). This is just one example of how KONE engages its employees into creating value for its customers. The company realizes that motivated employees are the best promoters and go a long way in creating satisfied and enthusiastic customers. It strives to motivate and empower the employees by providing them ownership through delegation, enabling two-way communication between them and the leadership, and providing them ample growth and learning opportunities (9). In their shoes: Customer Empathy Building customer empathy a deep understanding of customers problems and explicit and latent needs and desires is a prerequisite for institutionalizing customer-focus in any organization. Realizing this, KONE has taken multiple steps to foster customer empathy among the employees and in the company culture, in general. Two of these that stand out are presented here. Identifying the touch points and mapping customer journey In 2010, a dedicated Customer Experience team was created at KONE. Chartered with creating and delivering positive customer experiences, the team has meticulously identified and defined all the major customer interaction points that KONE has with its customers and has created customer journey maps for the same as part of an ongoing exercise. A number of customer-centric improvements have already been implemented, for instance, to improve the content and methods of communication at these touch points (4). People Flow Day In 2010, KONE institutionalized another innovative concept to help disseminate and embed customer empathy among the employees The People Flow Day an annual field day when hundreds of KONE employees across the globe take to the streets to observe, talk to and learn from their customers and end users in their natural settings. For instance, in the latest edition of the event, held in October, more than 600 KONE employees from over 32 countries visited customer sites. The theme of the event this year was accessibility and five specific user groups were identified in this regard visually impaired, wheelchair users, senior citizens, parents with

young children and busy professionals. Also, specific building types (residential, hospitals, offices etc.) were identified to resonate with the theme and to reflect KONEs overall business and customer profiles. The insights gathered during these events are fed into a database and channeled to the appropriate people and projects within the company where they can positively impact the product and service offerings. The initiative has already had tangible impact, one example being the readjustment of the speed of escalators in Rome underground. (11) (12) The People Flow Day initiative has reportedly been very well received not only by the customers but also by the employees who participate enthusiastically. It is tools, concepts and initiatives like these which help in engaging the employees in the organization and turning them into promoter employees a concept we deal with in the next section where we also explore the critical role they play in creating positive customer experiences and consequently, more promoter customers.

KONEs Service Portfolio: Service Design and CustomerFocus

Designing Services: Theoretical Perspective
Service design is a growing industry. The main reason for this is that in an era where everyone has the access to the same technology, service is a factor for differentiation and for creating added value for the customer. Service design is needed to create and improve these services. Most services are combinations of a tangible product and a service, they can be categorized in four ways: 1) Pure services 2) Primarily services and partly goods 3) Primarily goods and partly services and 4) Pure goods (13). Note on Literature Surveyed The concept life cycle theory (13) and Satu Miettinen's book on service design (14) were used as the main sources along with the content covered during the course lectures. The authors noticed that the two theories have a fair amount of overlap. Also, the authors found evidence of the application of the theories in KONEs service design. Service package Service package consist of all areas of service product. It can be divided in two main categories; core and ancillary services. Ancillary services can be divided in assistant services which are normally necessary for the core service and supporting services that make the using of the service more pleasurable, add value and

differentiate the service. Often the success of the company has to do with the ancillary services. However, the most important part of service design is to understand the customers. It is equally important to involve different professionals and employees of the company to the design process to ensure that the end result will be feasible. In this case study we have limited our research into the visible side of the services of KONE and highlighted the customer and end-user involvement in the service design. Service design process In Crawford & Di Benedetto's concept life cycle (13) the process starts from identifying an opportunity, which often is a customer need or a problem, or a resource that a company has. This knowledge can be gained through context mapping, role plays, design probes, empathic design or co-creation. Analyzing this knowledge is also part of this phase. The second step requires forming an actual idea of the solution and generating product or service concepts around it. In the beginning of this phase prototypes can be light versions, for example drawn storyboards that can show fast if the concepts are going to the right direction. When developing concepts further, wider prototyping can be used. Part of this is scenario planning, visual story boards, mock-ups, plays, service blueprints, experienced prototyping and value chain planning to check that all aspects of the business have been taken into account. When the development process goes further, abandoning an idea comes more difficult and expensive for the company. By taking into consideration end-user perspective and customer insights on the early steps of the process, the company risk for unsuccessful products and services reduces. Evaluating the chosen concepts from technical, financial and marketing points-ofview leads the process to a selection state of the most potential concepts. Before the actual technical development it is highly recommended to test the product or service on its potential customers through some of the various concept testing methods, which are used to evaluate the new service concept in this phase of the process. As an example of a concept testing method Net Promoter Score (NPS) will be presented later in this study. Information and feedback gathered from the customers through the testing helps the company to identify preferred changes on the concept, estimate demand for the product or service, and possibly determine its customer segment, if it had not been done yet, among other things that can be concluded from the findings. When the concept is finished, it will move to production and marketing planning starts. When everything is ready the product or service is launched to the markets.

Even though the service design process has certain phases it is, and should be, always iterative and constant process. Even after launching the service it should be observed, evaluated and even prototyped again with customers to keep it relevant and working at its best.

KONEs services & solutions for the entire project lifecycle

As noted earlier, KONEs services and solutions business already accounts for over half of its revenue and is growing fast (3). Over the years, the company has clearly

focused on offering a gamut of services built on top of and around its products and this seems to have worked to its advantage. As sources in the service design and new product development literature (e.g. (13)) point out, being a first-mover in offering service innovations can pay back in the form of customer loyalty and an ameliorated image. Today, KONE offers a complete portfolio of services spanning the entire building / project lifecycle. As shown in the picture above, these can be broadly categorized as: Planning & Design services, Construction services, Maintenance services and Modernization services.

Planning and Design Services

At the project onset, KONE offers traffic analysis and planning services and tools to help define the optimal amount of equipment and layout required for a building / project. KONEs experts analyze people flows, research user behavior and propose optimal solutions to maximize the ROI for the customer. KONE also provides eight different web based tools (e.g. visualizing 3D interiors, customized CAD drawings) for builders, developers and architects providing up-to-date information necessary for planning elevator, escalator and autowalk installations. Further tool extensions are planned to also include optional features to reduce energy consumption and improve eco-efficiency.

Construction Services
During the construction phase of the building or project, besides supplying the equipment and products (elevators, escalators etc.), KONE also provides project management and installation services to the customers. Besides, the company also continues to strive and offer supporting innovations that are well appreciated by its customers. For instance, the Jump-Lift invented by the company, is built at the same time as the actual building and makes it possible for people and products to move fast, safely and cost effectively at the construction site.

Maintenance Services
Realizing that the longest phase (spanning even decades) in a buildings / infrastructure projects lifecycle begins after the construction when it is commissioned into use, KONE offers a wide range of post-construction maintenance services, ensuring that the customers get the longest lifespan and best performance out of their investment. The many innovative concepts offered by KONE in this phase include tailored maintenance plans, repair and upgrade services (upgrade for safety, reliability, eco-efficiency and / or ride comfort). Maintenance packages (both repair and upgrade) are offered even for competitors products so that the customers dont need to look to multiple providers for maintaining different parts of the building / project.

In addition, the customized KONE Care packages can include various additional services like Janitor, cleaning and training services.

Modernization Services
In the form of Modernization Services, KONE has identified a key opportunity to provide value addition to its customers. The company clearly articulates and communicates the value that modernization brings to different stakeholders. For example, for passengers, modernization with KONE means safety, comfort, and aesthetics. For building and facility managers, it means improved performance, energy efficiency and people-flow with minimum disruption and maximum availability, and for the owners, it means predictable life cycle management. KONE facilitates decision making on the part of customers by providing a thoroughly comprehensive information package covering a wide variety of topics like EU regulations and by offering an assessment service, covering an analysis of the existing equipment with respect to safety, accessibility, performance and ecoefficiency, to Kickstart the whole process. A number of web-based tools are also made available to the customers as aids to the decision making process After the assessment, the best possible tools and techniques are selected to execute the modernization process. KONE offers various modernization solutions to suit the customers needs. These services also differ by country and location. For example, the solution offerings differ between the UK and the US markets. Overall, the modernization process has been designed to be as easy as possible for the customer right from planning to installation. Also, the customer is involved at multiple touch points to ensure a better experience.

Conclusion & Implications

To sum up, we come back to the original question that we posed at the beginning of this paper / report: What makes KONE successful and causes it to be regarded as one of the most innovative companies in the world?

The figure below succinctly captures the answer, at least from the perspective that the authors have argued in favor of, in this study. As argued in the previous sections, the strategic move to offer end to end solutions and a complete portfolio of services throughout the building / project lifecycle has provided KONE a competitive advantage and enabled it to offer a distinctive KONE Experience to its customers. This is made possible, of course, by underlying product and technology innovations that cut across the entire set of service offerings. However, an even more foundational and core element behind KONEs success is the fact that it has managed to design customer-focus not only into its external, customer facing service touch points but also, into its internal processes and more importantly, its organization culture.

KONE People Flow Experience

Planning & Design Services

Construction Services

Maintenance Services

Modernization Services

Product / Technology / Business Innovations Designed Customer Focus

By emphasizing the word design in context of customer-focus (e.g. in the title Designing Customer-Focus at KONE), the authors have hypothesized, and through this paper tried to corroborate, that organizations and companies can indeed be intentional and methodical about becoming customer-focused both at their core as well as in their outlook. By providing evidence from KONE, the authors have presented the outline of an iterative process (which involves, for instance, measuring customer satisfaction, following up on feedback, building customer empathy and engaging the employees) that can be followed to achieve these ends.

Works Cited
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15. What is Net Promoter Score? NetPromoter.com. [Online] [Cited: December 2, 2011.] http://www.netpromoter.com.