Lessons from Hilti on What it Takes to Shift from a Product to a Service Business Model
In a previous post, I explained how business model patterns can help executives shift from outdated to a more competitive business model.
Here I illustrate one of the patterns, the shift from product to service, with Hilti. And we go behind-the-scenes with Dr. Christoph Loos, CEO of Hilti, to understand what it takes to lead such a business transformation.
In the early 2000s, tool manufacturer Hilti shifts from selling high-quality tools to selling tool fleet management services to construction companies, after a key customer requests a holistic tool management system to increase productivity.
It’s a beautiful case illustrating the “from product to service” shift with a happy ending. CEO of Hilti Dr. Christoph Loos explains how this transformation helped his company withstand the test of the 2008 Global Financial Crisis. At a time when the whole construction industry came to an abrupt standstill.
In our research for The Invincible Company, we interviewed Dr. Christoph Loos and discussed this shift from the CEO’s perspective.
Source: The Invincible Company by Strategyzer
Dr. Christoph Loos shared the “biggest challenge was getting our sales force behind this shift. They were used to demonstrating and selling single tools to tool crib managers or project leaders on the job site. And now they had to learn a much longer sales cycle of a conceptual sale to the executive level of our customers that they usually didn’t have access to. This shift took us many years.”
Dr. Loos described other key challenges as:
• Putting in place the fleet management infrastructure
“We also struggled with many operational challenges in capturing the new contractual obligations in our IT systems (ensuring fleet customers wouldn’t be charged for repair costs, tool pick-ups and deliveries)”
• Adding heavy fleet management costs
“Out of a finance perspective, it’s easier to sell a tool and to get your money after 30 days than delivering a few hundred tools to a customer and receiving monthly instalments over 4 years while piling up receivables on your balance sheet.”
When the time to shift a business model comes, leaders always face a challenging endeavour. They need to continue to operate the expiring business while simultaneously exploring the shift to a new, competitive one. We asked Dr. Loos how he managed to overcome these challenges. He pointed out “a very strong alignment of the executive team at Hilti and staying the course despite internal resistance over a long time period (>15 years). And to allow enough time for the required change management to take hold by scaling it up step-by-step, country-by-country. The approach in each new country was to generate initial successes, typically with customers with strong ties to Hilti, with strong senior management involvement and our best sales team members. Their initial success was then used to inspire the rest of the team.”
A business transformation is always a challenging endeavour. Still, before your business model expires, I hope you’ll find inspiration in the Hilti shift to renovate your existing business model to a new, more competitive one.
There are 12 shift patterns in The Invincible Company to inspire your next business model shift.
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Note: an earlier version of this post was originally published on the Strategyzer blog
