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Tools for Transformation: Michelin's Digital Journey.

Michelin has been a tire company for 130 years. But over the past five years, Michelin has reimagined itself as a mobility company--a company embedded in the user's full mobility experience, not just the tires under the vehicle. Digital transformation is critical to that vision; being a leader in mobility will require the company to be a leader in digital mobility. Thus, the company has engaged in a digital transformation, one that supports its mission to provide customers "a better way forward" in a sustainable way and that also honors its history.

As Michelin's Chief Digital Officer, I have led that journey. My goal here is to give you an overview of the path we have taken and its foundations.

Michelin's Businesses--Current and Future

Michelin is actually not just a tire company. We have four businesses. The first one is tires, of course. We develop and sell tires for many, many applications. The second one is services and solutions, which to date are focused around tires and fleet management. Services and solutions represent about 5 percent of Michelin's revenues today. We want to double that in the next four years; we want services to get to 10 percent.

The third business is what we call the Experience business line; this is the Michelin guides--chefs, the Michelin restaurants. Most people do not know those guides are connected to Michelin, the tire company. But that's our third business.

The final business, which we started about two years ago, is high-tech materials. A tire, on average, has about 220 components. As they exist in nature, these components are not supposed to be able to stick together. However, inside a tire, they need to stick together for a long time; otherwise, safety is at risk. As a result, Michelin has a lot of expertise in chemicals and materials. We make the strongest metallic cables in the world. We have a lot of expertise in 3D metallic printing. Because of this our previous CEO, Jean-Dominique Senard, had the idea to commercialize this expertise outside of Michelin, in different industries, like the aeronautics industry. Boeing, for example, is a customer.

At about the same time, the CEO launched Michelin's digital vision, recognizing that digital will be key to the company's future. He structured the digital transformation effort, creating my position and separating the internally focused IT organization, headed by the CIO, from the customer-focused digital transformation, which I lead.

The Drivers of Transformation

The motivating energy for digital transformation came from two sources. The first began several years ago, when the company reimagined itself as a mobility business, not just a tire business. In general, services around mobility have a very strong digital component; they depend on digital relationships with customers. Consider, for instance, Uber, which owns none of the infrastructure or physical assets of mobility; through digital innovation, it has been able to control the customer relationship, and it has built a billion-dollar business on that control. If Michelin is going to be a mobility business, it must also be a digital business. That's the basic motivator.

The second motivator came from the company's historical habit of looking outside the boundaries of its industry. We are obsessed by what's going on outside of our industry, and we make time to do discovery in adjacent spaces. That discovery has pointed us to three critical megatrends that reinforce the importance of digital transformation for Michelin: the subscription economy, 5G technology, and artificial intelligence.

The subscription economy. During the last two years, the subscription economy grew five times faster than the S&P 500. Very often, when I discuss this with Michelin employees, they say, "Yes, Eric, but that's not happening in the automotive industry, right?" Actually, it is. In the United States, 16 car manufacturers are now offering their cars on a subscription model. In Paris, France, more than 60 dozen vehicles are available via subscription services. People living in big cities don't need to own vehicles; they are able to use them when they need them through these services. The subscription economy is coming, and we need to adapt our business model to that.

There are two areas where we do that at scale today. One is subscription services for truck fleets; we sell our tires as a service to fleets. These customers don't buy tires; they buy mileage on the trucks. The second is in the airline industry, where we sell plane tires by the landing. The airline pays for the number of landings the plane makes.

5G technology. 5G technology is going to bring an explosion of Internet of Things (IoT) devices. Some studies estimate that, two years from now, the average US home will have 500 connected things. Michelin is trying to get ready for that by trying to really understand what it means for tires, for vehicles, and for the cities that the vehicles operate in. We're trying to understand what impact 5G and its capabilities will have on what we do with tires, fleet services, and smart cities.

Artificial intelligence. Our global CEO believes that artificial intelligence is going to change everything we do at Michelin, so we are spending a lot of time understanding how the workforce will evolve in the era of artificial intelligence.

Those are the megatrends that we believe will shape what we do at Michelin. Together with the vision for the company's future in mobility, they are driving the transformation effort.

Digital Transformation

Our digital transformation effort is being shaped by four underlying principles that guide our approach:

1. Digital is an unprecedented opportunity for Michelin to get much closer to its customers. It should be a way to engage, to be much more intimate with customers than the company has ever been before. Keep in mind that most of the Michelin business is B2B2C; it's a B2B company with a B2C brand. Digitalization should provide ways for us to bridge that gap and engage much more closely and more meaningfully with both direct customers and end users.

2. The transformation will also engage employees. If we expect our employees to give our customers great, amazing digital solutions, then we need to raise the bar on everything digital for our employees. If we forget our employees, then we will not be able to deliver what we're promising.

3. We will transform the way we design, build, and announce services and products. In the past, like many companies, we worked on a project for 18 months, then we put it on the market, and then 18 months after that, we'd discover that the project was not meeting customers' needs. We don't do that anymore. Now we co-design from day one--with our customers, our dealers, our fleets, and our consumers--to make sure that we are not missing the mark. It takes more time to do that, but it eliminates bad surprises after you release a product that no one wants to buy.

4. Digital can provide ways to optimize operations. Most digital companies are obsessed with the experiences of their customers and employees. They count the number of steps, the number of clicks required to complete a given task. We are convinced that if you digitalize a complex process, you get a digitalized complex process--which is not what customers and employees are looking for. So we are working hard to simplify our processes to the extreme so that we can leverage technologies like robotic process automation and computer vision to accelerate processes to the highest level.

The digital transformation at Michelin is occurring across five domains: customers, employees, digital processes (including manufacturing, supply chain, R&D, and automation), platforms, and data analytics. The biggest domain, of course, is customers. That includes CRM, websites, e-commerce, social media, brand watching, B2B, B2D, and B2C services. There is really a big bubble around customers. From the beginning of the digital transformation, our ultimate priority, priority number one, has been to build better relationships with customers. To enable that, we're raising the bar for employees in terms of digital engagement.

Early Successes

We have made progress over the past few years, on a number of fronts. Two examples, one of a new internal structure and one of a new customer offering, suggest how we're moving forward.

Internal Structure: Digital Factories

One of the foundations of Michelin's digital transformation is the digital factory. In the digital world, we call these factories Digital Hubs or Centers of Expertise. I was really against referring to them as factories at the beginning, but it fits. A factory is a place where people make things, and our digital factories are where teams of people build digital platform competencies that we will be able to use all over the world. The creation of the factories was part of an effort to stop outsourcing digital projects, which is how we managed digital projects early on. We needed to stop moving knowledge outside the company. When we outsourced that work, we didn't learn anything internally. Now the people who are learning are inside the company. Sooner or later, all the necessary knowledge will be inside Michelin. We now have eight digital factories, each with its own role in the wider digital transformation:

Lyon, France. We have three digital factories in Lyon: the Digital Consumer Experience, e-Commerce and e-Retail Digital Solutions, and Connected (Tires and Vehicles).

Clermont-Ferrand, France. In Clermont-Ferrand, we have a center for digital operational excellence. The goal there is to apply all the operational principles to everything we do inside the digital group (so that we operate like a digital company).

London, England. In London, we acquired the number one reservation company in Europe. It is sort of like an OpenTable for Europe. We use that company's platform for michelinguide.com; it is a factory for the Experience business.

Charlotte, North Carolina, United States. The Charlotte factory is focused on B2B needs. That factory is deploying a worldwide CRM project to all the business lines in all the countries that we serve. The Charlotte team also works on the B2B experience and on customer analytics.

San Francisco, California, United States. Michelin's studio in San Francisco provides a link between Michelin and Silicon Valley, with a focus on working with startups. It helps Michelin be more agile in its work with startups; we have moved from a 25-page NDA to a 1-page agreement for working with startups, for example.

Sao Paulo, Brazil. Michelin acquired the leading fleet management company in Latin America, and we use that company's infrastructure as our global platform for fleet management.

Shanghai, China. Shanghai's digital factory focuses on the Chinese market. The word Internet is the same in the China as in the rest of the world, but the reality of the market and competition is not the same.

Pune, India. In Pune, we have a technology and innovation center that hosts three organizations--a digital team, an IT team, and an R&D team. The goal in Pune is to create a small Michelin center that can leverage the talent in India.

Digital Product: My Account

In Europe, 50 percent of truck fleets have fewer than 20 trucks. We could not assign dedicated salespeople to such small customers. But a couple of years ago, we realized that we could serve this market via a digital tool. We created a digital service for these customers called My Account. With My Account, small fleets can provide us with all the information about their fleets--what trucks they own, what tires they have, even if they're not Michelin tires. With this information, and with our predictive maintenance analytics, we know what needs to happen with the tires, and we use this information to help operators manage their fleets. We help them run their operations more smoothly. The fleet operators pay by the truck, per month, for this service.

We launched My Account a couple years ago. Within 18 months, we had more than 60,000 fleets in Europe giving us all the information necessary to deliver the service. We know everything about these fleets: we know how many trucks they have, and we know how many tires and which tires they have. We have digital relationships with all of these fleet operators, and through that relationship, we have been able to communicate promotions of Michelin's tires. The promotions work with the service; our services are better on Michelin tires, because we know our tires much better.

In two years, we've sold 1.5 million tires through this service. That's a great demonstration of the power of digital to create and leverage close customer relationships. When your customers start to see you not as a vendor but as a partner in their business, they start to prefer your brand. That relationship gives preference to your products. Only digital can do that at scale.

Next Steps--From Cohabitation to Assimilation

The next step in our journey, which will take place over the next three years, will focus on two things: making Michelin a data-driven company and starting to use artificial intelligence in specific areas. The dream is that, three years from now, we will be a data-driven company, able to use AI in important areas.

By 2024 or so, we aim to be using AI at scale across our business. We don't see AI as replacing humans. There is a futurologist who said that AI should be considered as an auxiliary intelligence, and that's the way we communicate inside Michelin. We look for AI to assist humans, make them better, stronger, more human, and more able to focus on human challenges.

Those are the three big steps of digital transformation: gaining some early successes, establishing a digital infrastructure and centers of excellence, and using data and AI to drive the business.

To accomplish these goals, we will have to continue to remake ourselves, to adjust the business model and our business processes to enable and support digital. Early in my tenure at the company, I showed the executive committee (which also acted as the digital board for the company) a diagram that included two bubbles below a much larger bubble that took up the center of the slide. One small bubble said "digital" and the other said "services." The large bubble represented the core of the company, its genetic heritage, which is to make the best tires in the world.

At that time I told the executive committee that digital and services were cohabiting with the core purpose of the company. All three elements lived under the same roof, but they didn't have the same needs. When roommates' desires conflict, they negotiate, they find common ground to maintain a good home atmosphere. If the conflict can't be resolved, the roommates break up; they find somewhere else to live.

I pointed out to the executive committee that the business model and the operational capabilities required to make the best tires in the world are different from those needed by a digital company. At some point, I said, the two will conflict. Finding a solution will require finding common ground, figuring out what's really important to the core of the company and what's really necessary for digital.

The end goal of this process is assimilation. Assimilation will happen when digital becomes part of the core purpose, when it is so pervasive in everything that we do that there is no mismatch or disconnect (Figure 1). At that point, the company won't need a Chief Digital Officer or a digital organization--the digital organization will be the company.

Those adjustments are already coming. I can give you countless examples, but I'll just discuss one important one. Historically, Michelin promotes from within, and people develop their careers by moving around to various jobs across the organization. People from R&D will go to marketing, people from marketing will go to QA, and so forth. It was fascinating to me, because I come from companies that don't manage people like that. But the results show that it's working well.

The company wanted to move fast with its digital transformation, however, and the digital expertise to make that happen didn't exist within the company. When I started to build teams, I heard that there was a lot of interest in digital and the digital organization from Michelin people and the digital organization. But the resumes I saw didn't have the necessary experience in digital or even in IT. We had to shift the focus of digital hiring from privileging internal hires to privileging expertise. If someone inside Michelin has the expertise we are looking for, of course, we are going to take the Michelin people. But expertise comes first. We don't have time for a long learning curve. As a result, 70 percent of digital team members have come from outside the company. The company's core HR processes had to adapt to make digital happen in this instance.

Lessons Learned

People ask how we made it happen. The big answer comes from Thomas Edison who said, "Vision without execution is hallucination." It works because we're doing it, not talking about it. We probably spend 5 percent of our time on the vision and 95 percent on execution. But beyond that there are five elements I would say are required for digital transformation.

Think big, act small. Everything the digital organization does, we do like a startup. We start with small teams, and we prove something; we get something to work, and then we start to scale it. We really act like a startup inside a 140,000-employee company.

Executive support. If you do not have executive support, good luck. And that support has to be open and known. I report to the global CEO, so no one ever says no to me. Sometimes they want to, and I can see it in their eyes, but they don't. Instead, they say, "It's going to be hard, but we can find a solution." And very often, they do find a solution.

Digital organization. The third imperative is establishing the right structure for the digital organization. The setup of digital transformation is critical. If you do not have the right structure, the antibodies of the organization are going to get rid of you at some point, no matter how smart you are and no matter how much money you spend. The digital organization has to be able to influence the core organization.

Talent. Be obsessed with finding and recruiting the right talent. That's one of the reasons we decided to go to India. The key question to ask is, where is the talent you are looking for? Where can you sustain this talent over time? For us, India was a place where we could grow talent.

Governance model. I'm a business person from the tech world. Maybe as a result, Michelin's digital organization has a very strong symbiosis with the business lines and with the regions. From the beginning, projects were never staffed only with digital team people; there has always been a mix of people from the business lines, the regions, and the digital team. Then, if we are not delivering the business results we expected, we all sit at the same table. Sometimes, technical problems are at the root of the issue; sometimes the business didn't do something it was supposed to do. But we sit at the same table and we fix things together. And then, when it's working, everybody celebrates the achievement.

In my experience, these are the five key things you need to get right if you want to be successful with digital transformation--not only at the level of the vision but with execution as well.

Conclusion

I'm convinced that the companies that will thrive in the future are those that can combine the power of a multinational company like Michelin (brand, worldwide reach, innovation) with the speed, innovation, talent, and mindset of a technology startup. The companies that can find a way to make these two worlds operate efficiently inside the same company will be the leaders of tomorrow. Michelin is definitely one of these companies.

Eric Chaniot has 30 years of experience in the technology business. He has created turnkey solutions to help international businesses become more digital, innovative, and automative. He has proven excellence in turning high-level ideas and strategies into reality, demonstrated in the improved productivity of the organizations, businesses, and companies he has served. He has worked for two of the most innovative companies in the world, Apple and HP, and created two startups. As the Global Chief Digital Officer for Michelin, he is driving the digital transformation of this iconic company. This paper is based on his talk at IRI's 2019 Annual Conference in Philadelphia, PA. eric.chaniot@michelin.com

DOI: 10.1080/08956308.2019.1661078

Published by Taylor & Francis. All rights reserved.

Caption: Eric Chaniot is leading Michelin's digital transformation.

Caption: FIGURE 1. Making digital part of the organization's DNA
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Title Annotation:FEATURE ARTICLE
Author:Chaniot, Eric
Publication:Research-Technology Management
Geographic Code:4EUFR
Date:Nov 1, 2019
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