Michelin Fleet Solutions Harvard Case Solution & Analysis

Michelin Fleet Solutions Case Study Solution

Overall Problem with MFS

Under MSF Michelin rely on service providers instead of employees in the transportation companies to facilitate geographical expansion, this increases the cost for Michelin i.e. company paying to its employees as well as service providers for the same purpose.

Another problem with MSF is that it is difficult to describe the potential benefits of MSF to customers in front of clients. While selling tires with tire management solutions, salespersons find it difficult to elaborate the actual value of MSF. The transporting companies are quite reluctant to pay an initial high tire price than others i.e. 400 along with a monthly fee for their tire management, which they can manage by their own at the time when they would feel it necessary. This can be seen that despite of having a specific sales team for selling tires with MSF Michelin only sold 50 contacts in 10 countries.

The problems with MSF after the contractual phase lie in the underestimation of the cost related to tire management, and contracting at low service fees than the cost. This low price contracts cause potential losses to Michelin. The major cause of underestimation is the inadequate financial forecasting and the long span of contracts i.e. 3-5 years.

Another problem with MSF is the conflict of traditional products sales force with MSF. They openly criticize the offer of their own company. These internal tensions are also one of the big problems with MSF.

One of the critical problems with MSF is the tensions within the organization’s top management. MFS business comprises just 5% of the total business but it accounts for 1/3 costs of the total business, which make the administration of Michelin overwhelmed by MFS.

Alternatives

Alternative 1- Keep MFS and Fix Operational Problems

Under the alternative 1, the company can revise its operations related to MFS to decrease the costs related to MFS. However, in doing so the company would face a risk of its shift from its core competencies of manufacturing and selling tires, which can result in declining sales of its traditional tires.

Pros:

• It would reduce the high costs related to MFS by acquiring operational efficiency.
• It would pacify the administrative concerns over the high costs of MSF by attaining efficiency.
• It would enable the company to continue with the MFS which can prove to be a sustained competitive advantage for Michelin in future.
• It would reduce the threat of declining market share due to acquisition of strategies similar to MFS by close competitors.

Cons:

• The fixation of operational problems may not provide the expected results, as it is only one problem attached with MFS.
• It may not decrease the operational cost at a level where the MFS fees would exceed the operational cost.
• It could result in the shift of company from its core competencies of manufacturing and selling quality tires towards the service domain in which the company has no experience.
• It may decline the sales of its traditional tires, by the shift of its focus and by the dissatisfied traditional tires salespersons.
• Focus on the operational problems related to MFS can result in declining quality of Michelin tires, which can result in customer shift.

Alternative 2- Repackage MFS

Under alterative 2, Michelin could repackage its service prices for its customers. It would increase the revenue from MFS strategy and reduce the losses faced by the company. However, the repackaging strategy may result in dissatisfaction of customers due to high service fees and pose a risk of customer shift to other competitors.

Pros:

• It would increase the revenue from selling MFS tires, reducing the losses from tire management services.
• It would make MFS a bearable strategy and make it sustained competitive advantage for the company in the long run.
• It is easy and quick to repackage MFS as compare to fixing operational problems.
• The company would have no requirement to shift its focus from its core competencies towards MFS.
• It would pacify the administrative concerns over the high costs of MSF by attaining efficiency.

Cons:

• It may results in the dissatisfaction of customers due to increasing prices.
• The overall cost of Michelin for its customers may exceed the overall value for customers.
• The competitors may capture the market if Michelin fails to justify its increasing service prices.

Alternative 3- Abandon MFS

Under Alternative 3, Michelin should abandon its MFS and continue with its core business model of manufacturing and selling tires. However, it may cause the company to fail in justifying its high prices and to lose a competitive position in the market in long run.

Pros:

• It would results in elimination of cost related to MFS i.e. 33% of total costs.
• It would pacify internal tensions related to MFS.
• It would enable the company to put its complete focus on its core business rather than on a completely different business area.

Cons:

• The company may lose its competitive position in the long run, and fails to justify its higher prices.
• Competitors may enter in the service market and wean the market share of Michelin.
• The substantial investment for MFS would become sunk cost, impacting the financials of the company.
• The step may provide a signal to the market about the incapability of company to manage its operations.

Recommendations

With the deep analysis of the pros and cons of each alternative, Michelin is recommended alternative 2 of Repackaging MFS. As the alternative 2 justifies the competitive position of Michelin in the long run by providing it a competitive advantage in for of MFS, which could not be seen in alternative 3, therefore the alternative 2 much suitable for Michelin than Alternative 3. On the other hand, it can also be implemented quickly and easily and would not force the company to shift its focus from its core business practices, therefore is better than the alternative 1 of fixing operational problems. The alternative have strengths in terms of increasing revenue from the sales of MFS contracts and in terms of providing the company a long run competitive position. These strengths of the alternative can be utilized to overcome the existing problem of losses from MSF and the future threat of declining market share due to absence of a competitive advantage. Although, the alternative have some weaknesses regarding the dissatisfaction of its potential customers and risk of customer shift to other competitors, but these weaknesses can be overcome by proper marketing of its contracts.

Implementation Plan

In order to implement the Repackaging Plan in an effective way which mitigate the threat of dissatisfaction of the potential customers and their shift to other competitors, the company should consider the following points. It first should examine the each and every cost related to the tire management solution deeply, than it should build up a cost budget related to MFS cost. After that it should set a price with a profit margin and a margin of safety to avoid the risk of loss by exceeding actual cost than estimated. After making a deep cost budget it should justify its increased prices in front of its customers by making them realize the cost of tire management by their own. It should justify its increase in prices with effective personal selling, demonstrating the value provided by Michelin through MFS. These all steps, if wisely taken would result in efficient implementation of its Repackaging Strategy.

Exhibits

Exhibit A: VRIO Analysis

Exhibit B: Porter’s Competitive Strategy

Exhibit C: Comparison of Michelin with Asian Competitors

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