NEW MODELS OF

BUSINESS IN THE DIGITAL AGE

Case: HILTI

EMBA: 36
Headquarters: Madrid–Pozuelo de Alarcón

1/07/2021
67110

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 Introduction

In the early 2000s, the power tool manufacturer HILTI transitions from

selling high-quality tools to selling fleet management services for tools

to construction companies, after one of their main clients Batigroup

will request a comprehensive tool management system to increase productivity.

In this case, we will see the shift from 'product to service' and how this transformation

helped the company withstand the global financial crisis of 2008, at a time when

that the entire construction industry had come to a standstill.

In its beginnings, HILTI was a small tool workshop founded in Liechtenstein.

(1948 by Martin HILTI) and is currently present in 120 countries.

The mission of HILTI is:

To grow as a global leader and create products that are innovative, different and

stand out from the rest.

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QUESTION 1

In the power tools industry, the main business models

dominant were those of Hitachi and Bosch (within their conglomerate of activities),

Makita, Black & Decker (DeWalt), Techtronic, Illinois Tool Works (ITW) y HILTI

(As a manufacturer of power tools).

All of them had a direct sales business model to their clients both B2B and

B2C and the main focus of all of them revolved around the product. All of them manufactured

their own tools, they had their own suppliers and invested in departments of

R&D to develop the best tools.

Starting in 1990, HILTI begins to have a problem; its billing stops growing.

they begin to lose market share and their sales decline. They realize that the market

it is "saturated", there is a lot of similar and undifferentiated supply, a war is starting to occur

of prices among competitors. In addition, HILTI also observes that the technology that

the tools he was using were already exceeding his clients' expectations.

For them, the functional quality of the tools was already good enough and it wasn't going to

pay more for tools with more features, more reliable or better made.

Therefore, the strategy of improving the product no longer translated into an increase in the

market share nor the increase in sales.

Traditional Business Model of HILTI.

Sale
direct

Company

Client
70% Product
Commercial
Premium
30%
Residential

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 The company continued to focus on the commercial segment (tool market)

small, premium type) and develop the following strategy to differentiate themselves from their

competitors.

Premium provider

Focus on direct sales.

Proximity to the customer. Adapting the concept of lead user, integrating the

clients in the process of developing new tools.

Improvement in development times thanks to client participation.

Value-added products (warranties, after-sales service…)

But still, the company continued to lose ground against its competitors in the market.

of small tools. The competitors were lacking and the market share was declining.

Competitor benchmarking: (ANNEX 1)

QUESTION 2

HILTI forward to 2 types of clients; the B2C or residential market that were clients

that they did not need added value as they did their own work, this market

represented 30% of the market and then there were the B2B commercial clients who

they represented 70% of the sales volume. It was in this segment that it was developed

the old business model where companies owned the tools and

where he also bought from different manufacturers, thus increasing his spending. This

it meant that these companies were responsible for the management of the tools. But

the tools were not the main business of these construction companies and not

they could take care of proper management. The unpredictable repair expenses and

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replacements constantly interrupted the work and diverted the main focus of the

the clearing that was being carried out. This caused continuous delays in the projects.

In summary, the main pain points for the client were:

Brand diversification within a company complicates and raises costs.

the repair and maintenance processes.

Repairs could represent a significant extra expense in addition to the time.

for elevated repairs. Many customers did not have that time.

Spare parts, difficult access.

Replacement of tools, availability was not immediate.

Customer's inability to manage their tools, loss of efficiency

due to lack of maintenance.

Logistical and administrative managements represented an extra expense of money and

time.

Theft and loss of tools accounted for between 15% and 25% of the

tools.

The main added value that HILTI provided to its customers compared to the

competition was excellent service and closeness to their clients to try to cover

all their needs. But even with excellent service, customers continued

having special needs that no company had met until now.

In that GAP was the opportunity in the change of business model for

HILTI.

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QUESTION 3

HILTI shifted from selling high-quality tools to selling a management service.

tools to construction companies. Thanks to the fact that in the year 2000 one of its

main clients in Switzerland (Batigroup), proposed a comprehensive management solution for

tools, it was then that their general manager and CEO realized that

clients did not want to own tools, but rather their workers could

improve their productivity. And in Switzerland, it started its pilot program for management of

tool integral. In 2003 and after the success achieved with Batigroup transfer

the service to everyone.

With this new service management, HILTI became more relevant to companies.

contractures and helped increase their productivity by reducing unproductive time

of the workers (breakage, repair of tools...). Furthermore, he realized that

the customers were indeed willing to rent more tools than they would have before

purchased. It even reached the point of including other brands in the product portfolio to avoid

waiting times when the tools would break or needed to be repaired.

Old Model New Model

Product Service

Transactional sales Monthly income from

tools service

Activity related to the Provision of services

producto

Sales channel Service canal

Customer acquisition cost Cost management of

herramientas

Short-term client relationship Long-term client relationship

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QUESTION 4

The main requirement faced by HILTI was the request from one of its main

clients (Batigroup) the implementation of a holistic tool management system

and the outsourcing of the fleet, including administrative activities,

maintenance and financing.

In addition, the undifferentiation of the market where products and services that the

companies offered were very similar. There was no clear differentiation between

competitors and customers chose based on price. It should be considered that HILTI played in

the market for power tools was already mature. There are many

competitors and profitability was low.

HILTI realizes the new needs of customers and was not willing to continue

losing market share and implemented the following changes:

1- Understand the current needs of your customers; HILTI set out to put the

pay attention to what your clients are trying to achieve with the tools,

how they are used and the problems they face in their day-to-day work on the site. It focused on

understand the result better than anyone, and found the advantage of being able to design

solutions that helped achieve better results for their clients.

For the clients, managing the tools was becoming complicated, delaying the delivery.

of projects and the costs were increasing.

Then HILTI began to truly understand its customers. After examining

in the work the true needs and problems, identified a great opportunity

regarding the competition that focused solely on product quality and price. HILTI

he stopped selling tools. He rented them out. They created a rental model for management

from the tool fleet. Instead of buying tools individually and having

to manage its maintenance and management, now the customer paid a monthly fee, and

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You could have all the tools you need for the job, perfectly.

cataloged, organized, and repaired.

The new value proposition for the customer was "We take care of everything, you always".

you will have the latest technology and the safest, well-organized tools ready

to use.

The following change made was:

He transformed his business model and created a very business model.

different from that of its competitors, guided by understanding the needs of the

clients. This is called innovation in the business model. (The market was

demanded.

This new rental model represented a very different value proposition compared to its

competitors in the market for power tools and to offer this new

value proposition, needed to adjust its current business model.

HILTI becomes a service business and not a product one.

Change in the way of selling. The sales department has to

updating moves from selling unique products (tools) to selling services

complete for works. The commercial shifts from interacting with the workers to the

site managers. The sale is no longer one-time and becomes a complex sale to

long term.

The structure of benefit income is being restructured. The client no longer pays for the ...

purchase for months. There were fewer sales transaction numbers, but with

larger size. The margins will be higher, but so will the costs

general and administrative initials.

Internal reorganization, there is a need for a change in resources.

and activities to implement the value proposition.

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 Change in contract management with clients. Increases flexibility

depending on the needs of the moment and the work.

Continuous availability of tools in good condition to cover the

client needs. For this, I needed software and programs that

they allowed connecting the stock of construction tools with HILTI, coordinating

automatically, needs, shipments and deadlines for tool replacement.

Development of a website where customers could easily control the

entry and use of tools in each project, making their use very comfortable

accounting.

Thanks to the previous changes, HILTI becomes the market leader.

Start testing the new business model with Batigroup in Switzerland in 2004

seeing such extraordinary results for the client implements the new model of

business at a global level.

With the standardization of this new business model, productivity improves.

I work at the construction site. The tools are always ready to use, if there are breakdowns we

They change, and if they break, they are replaced. It reduces the clutter in the warehouse.

tools, the organization and inventorying is more effective. All the tools and

organized accessories are from the same manufacturer. Online coordination and forecasting with

a single supplier.

Administration and management of invoices decrease when working with only one supplier and having a

only contract with monthly payments that covers the entire management of tools.

Unforeseen costs decrease, as does the project completion time.

The new business model is represented below Business Model Canvas.

HILTI Business Model Canvas (Annex 2)

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QUESTION 5

I consider the idea of tool fleet management to be a brilliant idea, as it

gave HILTI the opportunity to differentiate itself from the competition and create a new model

business based on service their clients and where they could cover all their

needs.

The new service greatly simplified planning and management.

customer's financing. Thanks to the fixed monthly fee, which covered all their tools,

including usage, service, and repair costs. There were no hidden costs.

Providing comfort and establishing personalization for each of the clients was the factor

of business success.

Below, I present the main benefits of fleet management for the customer.

and for HILTI.

CLIENT HILTI

Increase in productivity Differentiation of the competition

Minimize the risk Innovative model based on the customer

Improve the management and optimization of the Gains market share against its

costs of the work competitors

Savings on logistics costs Long-term customer relationship

QUESTION 6

The main competitive advantage that HILTI had over its competitors was

how to integrate the client into the value chain of their development process

the tools. The company's R&D department evolved to include the

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active listening of the client. This CO-CREATION (collaboration) was such that HILTI was able to

detect before the competition what the new needs of the customers were and

develop together with the client their new business model. This allowed him time to

faster development process.

Therefore, the main barrier that competing companies have encountered

to be able to imitate their business model is the little involvement of customers in their

productive processes, as they were too focused on development of

products; more effective, cheaper, lighter... instead of including the customer in

they focused on the technological development of the product in their value chain.

The main competitive advantage of the new business model was the new proposal.

of value with a unique service in the tool rental market. Its model of

decentralization guaranteed the availability of electric tools anywhere

moment and place. This helped clients increase their productivity and focus on

your business. Thanks to this new model, customer relationships were long-term.

instead of short (old model). One of the drawbacks of the old model was the

short-term investment that HILTI had to make to supply all its customers,

This implied an increase in its logistics and warehouse fleet.

In addition, the significant investment made in R&D for the development of new products

(old model), shifted towards an investment in innovation and management systems that

allowed to supply tools to each of the clients.

HITLI does not maintain any retailers or intermediaries in between, which improves its

income and profitability. It operates only through direct channels with the help of its team.

of sales. In this way, it creates its own niche and offers consumers a

unique shopping experience.

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QUESTION 7

If the company Bitigroup had not proposed this new business model to you,

completely broke with the strategies in the market of the industry of the

power tools, HILTI would have had to make a decision in order to

surviving in a saturated market of competitors where the product had ceased to be

the differentiation between brands. Currently, value is no longer created in a linear manner or

chained, but in a network where different interested groups interact and the

clients are a very important part of this network. The proposals mentioned below

they could have satisfied the short-term needs of some customers. But

I believe that in the long term (+10 years), HILTI would have had to modify its

business model, since the product differentiation strategy is tangible and

tends to disappear over time (loss of technological value) and the services are

Intangibles give you a competitive advantage over your competitors.

Network of own stores for direct sales (B2C and B2B).

New distribution channels (wholesale and retail). Physical store

own and large stores of specialized products.

Online Channel: development of a premium platform for sales of

tools and accessories for all types of customers.

Development of new premium products: (R&D), using the advantage

competitive that has included the customer in its process of

development. (Improve battery performance, lighter tools, with

greater durability.

Improve after-sales service / Recycling of materials.

International Expansion: new markets in emerging (Asia,

Australia...

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 Conclusions

HILTI realized that the sale of power tools, which was its business model

with which he had been working since its foundation in 1948 by Martin HILTI was a

deficient business model where there was a lot of competition and the market was already

maduro. So he decided to change the way he did things and proposed a model

of enormous business success. It shifted from a product-centered business to a model based

in customer service. Thanks to their strong relationship with customers and to manufacturing

customized electric tools, HILTI, was able to help its clients improve their

needs and offer them a service where they no longer had to worry about the

management and transportation of tools.

HILTI had a wide sales and management network, which is crucial for achieving

new contracts with clients and thus generate more income for the company. Thanks to the huge

investment in research and development, was able to present new designs and

innovators at all times. Furthermore, HILTI believed in the policy of decentralization,

according to which it ensures that decentralized centers are available for

ensures that power tools and accessories are available to customers at all times.

All of these aspects combine to give HILTI a competitive advantage in the business.

of the construction.

In addition, Hilti's family ownership ensured transparency, credibility, and

responsibility. In this way, it can achieve its main objective, which is to grow and

becoming a global leader by creating innovative products and solutions

differentiators.

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 Bibliography:

The HILTI Tools Administration. Converted into a model of

success in your priority. (Harvard Business School - Sep 2018)

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shift from a product to a service business model

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content/uploads/2019/12/Hilti_MIPLM-Industry-Case-Study-Series.pdf

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tools-Hilti-A-converting/4914341.html

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 ANNEXES

Annex 1 - Competitors table.

Billing data from the year 2000

BRAND / ORIGIN TYPE STRATEGY TYPE PRICE DISTRIBUTION EMPLOYEES BILLING*
COMPANY BUSINESS CLIENT
TES
Linchesterin Manufacturer B2C
Proximity to the customer Premium
tool and product of ,
quality B2B
Germany Conglomerate Innovation and B2C Price +84 countries 197000 $136 million
ado expansion of its , half
portfolio B2B under
States Manufacturing Quality / Price B2C Price +100 countries 23600 $4560 million
United of Change chain of , medium intermediaries
tool supply and B2B os
sy globalization
accessories
Japan Producer Distribution and Premium Japan and 8000 $1.3 billion
of customer service Europe
tool
s
Japan Competitive cost B2C conglomerate Price Japan and $617 million
do and tools , half America
wireless B2B under (Home
(B2C) center)
Hong Kong Manufacturer Price B2B Price All the $397 million
China tool Positioning , medium world
s of the market by B2C under (retailers)
acquisition

States Manufacturer Large wallet of B2B Price USA 55000 $10,000

United diversification products middle mill
global onion Specialization
Decentralization
Growth
inorganic

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Annex 2–HILTI BUSINESS CANVAS

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