Competitive Environment of the KCI Konecranes - Essay Example

KCI Konecranes Table of Contents Title Page Number I. Competitive Environment of the KCI Konecranes and the Recent Changes in its Strategy……………………………… 1-2 II. Evaluation on the Way the Development and Implementation of Non-Financial Measures was Organize at KCI………………………………………………………….. 3-4 III. Other Non-Financial Measures that Could Have Been Considered as Useful for the Field Services Segment of the Maintenance Businesses at KCI……………………………... 4-5 IV. Evaluation of the Limited Application of Non-Financial Measures Developed by CFO Rintamaki at CSF…………………………………………………………... 6 Bibliography…………………………………………………………….. 7 I. Competitive Environment of the KCI Konecranes and the Recent Changes in its Strategy In various Manufacturing as well as transportation industries worldwide, the KCI Konecranes serves as the supplier of crane and services for transport and material handling wherein its strategy is to achieve high growth by capitalizing on global market approach and increasing service revenue. Currently, it operates in 30 countries around the globe (Lukka, K and Granlund, M., p.160) The Company designs, manufactures and delivers huge cranes for harbor and shipyards cranes. Specifically, it caters to ports, terminals, shipyards and offshore industry. After several years of operation, the company started to also provide expert maintenance as well as after-sale support. This is one strategy that they are using in the recent years. This company adopts the CXT hoist technology which creates competitive products which supports its market claim of offering good quality products (“KCI Konecranes: Global Port Crane Services,” 2007). The company is making sure that they deliver performance upgrades to fully engineered comprehensive structural and mechanical modernizations. They do this to be at par and even surpass other highly competitive products. They have to do this to meet the demands of the current competitive environment (KCI Konecranes into Japan. 2007). 1 The main competitors of the KCI Konecranes are the OMZ, Sibtyazhmash, Krasnoyarsk, Kharkiv Lifting and Transportation Equipment Plant, Kharkiv, Ukraine; and Demag, Germany (“KCI Konecranes Plc. - Konecranes VLC Corporation - Port Crane Services – Headquarters”). By identifying critical success factors both for the two new equipment business areas and for maintenance services business, Rintamanki had started the development Process according to strategic importance of being reliable in the eyes of customers. KCI aims to sell the availability of cranes instead of selling repair services, based on fixed price long-term maintenance services contracts wherein the key element was proactive maintenance activities. Its goal is that cranes will always be in working order and by broken cranes no down-time will be caused. And since in using this service approach there is no competition, KCI considers the focus to reflect a differentiation strategy. It also aims to consider the maintenance needs at the product development phase by current standard of installing a condition monitoring device in all new equipment (Lukka, K. and Granlund, M., p. 165). 2 II. Evaluation on the Way the Development and Implementation of Non-Financial Measures was Organize at KCI One non-financial measure which is being developed and implemented by the company is the labor negotiations with its workforce regarding increasing efficiency. In 1991, KCI has developed a project which involves non-financial measures. This was developed during a top management conference of the crane division of Kone Oy wherein they deal with the issues on quality. The one who primary initiate the development project was Stig Gustavson. The major issue that was raised is the notion of reliability, understood from the customer’s viewpoint, and through systematic measurement they felt that the factors which contribute to reliability should be made visible. The one who owns the projects and was given responsibility for practical development of measures was Teuvo Rintamaki wherein he describes the reasons for this solution. KCI’s goal is to sell as well as maintain safe cranes which function without breakdowns. For the global business concept of KCI, reliability was regarded as important. KCI aims to be “globally local” which means they must respond to local competitive pressures as well as meet local demands all over the world. In order to survive they have to be flexible globally (Lukka, K and Granlund, M., p.164). 3 While developing non-financial measures for the Maintenance Services business, the CFO focused on motivating services unit mangers to take advantage of existing growth potential in their respective markets. “Rintamaki viewed that it is important to continuously obtain new customers under service contracts, even if they may appear small from the start. All customers, based on his experience tend to create sales of about five times their order size in the course of time (Lukka, K and Granlund, M., p165). III. Other Non-Financial Measures that Could Have Been Considered as Useful for the Field Services Segment of the Maintenance Businesses at KCI Rintamaki developed non-financial which can be useful in the Field of Services Units of maintenance Services business area which includes: 1) Lost Contact Ratio is the number of lost service contracts per number of new service contracts multiplied by on hundred. It implies that discontinued orders initiated by the KCI are not counted, nor are renewals counted as new, a ratio value of 100 percent means that KCI has lost as many old contracts as it has been able to win new ones during the period, by winning new customers, the ratio is intended to stimulate growth and problems are indicated by high figures and its formula is written as; Lost of Contact Ratio = Number of Lost Service Contracts X 100 Number of New Service Contracts 4 2) Service Hit Ratio is the total orders received per total quotations multiplied by one hundred. This ratio is measured on a monthly basis, in monetary units. Problems are indicated both by very low figures and high ones. Very low figures indicate that KCI is not considered an attractive service provider while high ones can be a sign of lost growth potential. Together with the volume as well as development contribution, this ratio should be interpreted wherein its formula is written as; Service Hit Ratio = Total Orders Received X 100 Total Quotations and 3) Pricing Ratio is the measure of sales or orders quoted at (pre)fixed prices per total sales or orders multiplied by one hundred. This ratio indicates that high percentages are favorable, since in the long run services which are based on fixed prices are in the interest of both KCI as well as its customers. The formula of this measure is written as; Pricing = Sales or Orders Quoted at (Pre)Fixed Prices X 100 Ratio Total Sales or Orders In 1992, the said three non-financial measures were implemented. No pilot tests were made by the CFO. In order to begin the non-financial measurement immediately, they just calculated a motivation letter as well as reporting instructions around the organization (Lukka, K and Granlund, M., p.166). 5 IV. Evaluation of the Limited Application of Non-Financial Measures Developed by CFO Rintamaki at CSF Rintamaki states that “After implementation of the new non-financial measurements, even though financial measures have always been and still are the core measurement at KCI their relative importance decrease. However it does not cause any change in the financial measurement system which was applied at KCI” (Lukka, K and Granlund, M., p.165). From the operating units, CFO noticed a declining activity level in 1994, with regards to the provision of non-financial information. Rintamaki observed that in the Maintenance Service business, the main positive effect of the non-financial measurement is the increasing emphasis on long-term service contracts which contributes to the changing image as well as the growing importance of the service business in the business portfolio of the KCI (Lukka, K and Granlund, M., p167). 6 Bibliography KCI Konecranes: Global Port Crane Services. 2007. Finland. KCI Konecranes into Japan. 2007. Konecranes. KCI Konecranes Plc. - Konecranes VLC Corporation - Port Crane Services - Headquarters (ID: 31246). Lukka, K. & Granlund, M. KCI Konecranes: Developing Non-Financial Measures in a Global Crane Company. Cases in Management Accounting. 7 Read More