Otis Elevator Company, Inc. Business Information, Profile, and History

Company Perspectives:

Over 22,000 Otis mechanics maintain one million elevators, escalators and moving walks worldwide. They are supported by a comprehensive range of maintenance, communications and service dispatching networks which remain unmatched in the industry. Indeed, Otis remains very much a global company. Its products are offered in more than 200 countries and territories, and Otis maintains manufacturing facilities in the Americas, Europe, Asia and Australia, and engineering and testing centers in the U.S., Japan, France, Germany and Spain.

History of Otis Elevator Company, Inc.

Otis Elevator Company, Inc. is the world leader in the manufacture, maintenance, and service of elevators, escalators, moving walkways, and other horizontal transportation systems. After more than a century in business, Connecticut-based Otis has more than 1.2 million elevators and escalators in operation, controlling about 22 percent of the world's elevator market. Almost 80 percent of the company's business is done overseas. Since 1975 Otis has been a subsidiary of United Technologies Corporation (UTC), a conglomerate that also owns Pratt & Whitney and Carrier. Otis contributes approximately 23 percent of UTC's annual sales.

Development of the Safety Hoist in 1852

Although vertical hoisting devices date back as far as the construction of the pyramids in Egypt, they all contained the same drawback: if the supporting rope or cable snapped, the platform plummeted to the ground. Vermont-born Elisha Graves Otis, a mechanic living in Yonkers, New York, invented the first safety hoist in 1852. He attached saw-toothed rachet bars to each of the four side guide rails and placed a wagon spring on top of the platform. When the lifting cable was attached to the upper bar of the spring, the pull from the heavy platform made the spring taut enough to keep it from touching the rachet bars. If the cable snapped, the tension on the spring would be released, and each end would engage the ratchet bars, locking the platform in place and preventing it from falling.

Armed with two unsolicited $300 elevator orders, Otis opened his own factory in Yonkers on September 20, 1853. The following year he demonstrated his invention at the Crystal Palace Exposition in New York City. By the end of 1856 he had sold more than 40 elevators, all for use in carrying freight. The next year he installed the first passenger elevator--with a completely enclosed car--in a five-storied New York retail building. A classic Yankee tinkerer, Otis developed his elevator design without a drawing board, blueprint, or prototype model, illustrating his invention only to the degree required for a Patent Office application. But his talents did not extend to business. When Otis died in 1861 of 'nervous depression and diphtheria,' he left an estate of only $5,000, counterbalanced by $8,200 in debts.

Otis's two sons, Charles and Norton, took over the business, which became known as Otis Brothers & Co. Between them they amassed 53 patents for elevator design and safety devices. By 1872 the company had built more than 2,000 steam-powered elevators and taken in more than a million dollars. In 1878 Otis introduced a faster, more economical hydraulic elevator. During 1880-81 the company received orders to install elevators in the Capitol, the White House, and in the Washington Monument. The year 1889 marked the introduction of the first successful direct-connected electric-powered elevator and the exhibition of the first escalator--the term was an Otis trademark until 1950--at the 1900 Paris Exposition. In 1903-04 Otis introduced the gearless-traction electric elevator, a design that remains essentially unchanged today.

The Otis Elevator Co. was formed in 1898 from the $11 million merger of Otis Brothers & Co. and 14 other elevator companies. This proved so powerful a combine that in 1906 the company had to agree to stop collusive bidding and other restraints of trade. Otis started buying established firms overseas as early as 1902. By 1912, when net income came to $883,317, the company owned seven factories in the United States and by 1924 had subsidiaries in Canada, Germany, Italy, and Belgium. To offset slow sales during recessions, Otis began selling contracts to service and maintain its installations in 1922. Net income reached nearly $8.4 million by 1929 before dipping sharply with the advent of the Great Depression. The company lost money for the first time in 1933 and 1934, yet continued to pay out dividends, an unbroken tradition since 1903.

1931: Otis Elevators in the Empire State Building

The first third of the century saw constant improvements in Otis elevators. In 1915 the company introduced a self-leveling device that allowed the elevator platform to stop exactly at floor level. A push-button system introduced in 1924 made stops and speed automatic rather than at the option of the operator. When the Empire State Building was completed in 1931 and became the world's tallest building, its Otis elevators were capable of a record speed of 1,200 feet per minute. The following year Otis installed the first double-deck elevator in a Wall Street office tower; it featured eight double-decked cars that stopped at two floors at the same time.

During World War II Otis filled military orders. The war generated not only orders for elevators, but also for rangefinders and tank and aircraft engine components. Defense contracts continued to be important during the Korean War era, accounting for 22 percent of Otis's business in 1953.

Even before World War II push-button elevators were common in apartment houses, private residences, and small office buildings for many years. In 1948 Otis introduced the improved Autotronic system for commercial installations. Electronic controls were sufficient to operate the cars, and a computer directed a bank of cars to handle traffic most efficiently. Two years later Otis introduced Autotronicelevators that could function without an attendant. By 1956 the position of elevator attendant was no longer a job with a rosy future; every major commercial building using Otis elevators wanted Autotronic equipment. Unlike the earlier push-button models, these elevators were large, fast, and could change speeds and adjust their schedules to suit traffic demands, bypassing floors when fully loaded. Moreover, Otis projected an annual saving of $7,000 per car in labor costs. In 1956 it did some $20 million worth of conversion work from manual to automatic.

Despite these developments, the decade following World War II was a period of some stagnation for Otis. Although net sales passed $90 million in 1948 and approached $120 million by 1954, net income fell from $12.1 million to $9.6 million. In 1952 Otis's share of the nation's new elevator business dropped to an unusually low 40 percent due to high prices. The company had to cut its operating margin from 20 to 11 percent to regain market share from its competitors. Other problems identified with making elevators were the cyclical nature of the construction industry and growing suburbanization, which in this period was characterized by ranch-style homes and single-story shopping centers.

To jump-start its flagging business, Otis began to diversify. Its first outside acquisition since 1898 was the purchase of Transmitter Equipment Manufacturing Co. (Temco) in 1953. Temco, which held a contract to make electronic pilot trainers, became Otis's defense and industrial division. The following year, Otis bought forklift truck manufacturer Baker-Raulang Co., which became its truck division. Toward the end of 1955 Otis began producing automatic bowling pinsetters. None of these ventures would prove profitable over the long run: Temco was a poor performer and actually lost money in 1963; Baker lost money every year but one between 1955 and 1961; and after a strong start the pinsetter operation fell into the red and was sold in 1963. Between 1955 and 1968 Otis's net sales increased fourfold, from $121 million to $481 million, but its net income rose only from $11.9 million to $22.1 million during the same period.

In 1968, a year after Otis installed 255 elevators and 71 escalators in New York City's newly completed World Trade Center, the company held nearly half the U.S. elevator market. It continued to look to other areas for profit, however. In a 1968 Forbes article, President Fayette S. Dunn explained: 'Elevator prices are down. With everyone trying to increase their market share, we just can't make the money on contracts we should.' Between 1967 and 1970 Otis acquired five companies involved in materials handling: York Manufacturing Co., a maker of large lift trucks; Moto-Truc Co., producer of smaller lift trucks; West Coast Machinery, manufacturer of postal and in-plant vehicles, golf carts, and personnel carriers; Euclid Crane & Hoist Co., builder of hoists and cranes; and Saxby, S.A., a French manufacturer of hoists and cranes. In 1969 the company established the Diversified Systems Division to apply elevator and escalator technology to automated automobile-parking, container-handling, and warehouse systems.

The company also was actively engaged in designing and manufacturing automated horizontal moving systems. Otis's 'Trav-O-Lator' moving walkways were engineered to carry people, horizontally or on an incline, quickly and comfortably at airline terminals and other points where large numbers of people had to be moved without congestion. By 1973 Otis had passed $800 million in sales. Maintaining plants in 17 countries, and dependent on overseas operations for 37 percent of its net income, Otis's share of the elevator market in low-rise buildings had increased from 19 percent to 30 percent in five years. Earnings had risen every year since 1968. The backlog of orders in March 1973 was $1.1 billion, an all-time high. Net sales reached a record $1.1 billion in 1974--more than half of which was generated overseas--and net income a record $43.5 million. Among its foreign operations in 1975 were five special glass-walled observation elevators for the world's tallest freestanding structure, Toronto's 1,815-foot-tall CN Tower.

Otis's rapid expansion overseas was not without hazards. In 1976 the company revealed to a federal agency that it estimated it had made between $5 million and $6 million in improper payments during the past five years, some of them to foreign government officials and employees. These payments were made in connection with installations in large buildings where government involvement was substantial and bribery and kickbacks were allegedly normal procedures. In 1975, 65 percent of Otis's $752.7 million in new orders had come from foreign sources.

United Technologies Purchases Otis in 1975

In October 1975 United Technologies Corporation (UTC) made a cash offer of $42 a share for more than 55 percent of Otis's stock, which was trading for $37.63 a share at the time. UTC's motivation was to end its heavy dependence on military contracts at the end of the Vietnam War. Otis's management at first resisted the offer but dropped its opposition in November after UTC agreed to pay an additional $2 per share and buy up all of Otis's common stock. The cost was estimated at $276 million. The untendered shares were exchanged for shares of a new convertible preferred United Technologies stock under a 1976 merger.

Otis continued to grow as a UTC subsidiary. Sales volume passed $1.5 billion in 1980, $2 billion in 1986, $3 billion in 1989, and $4 billion in 1990. The flagship Yonkers factory, parts of which dated back to 1868, was deemed obsolete and abandoned in 1983. An elevator test tower and engineering center was completed in Bristol, Connecticut, four years later. This exceptionally slender, 383-foot, 29-story, $20 million structure was just 54 feet across but accommodated 11 elevators and an escalator. The structure, which helped Otis develop models that rode more smoothly, operated more efficiently, and broke down less often, was its first North American test tower; others were located in France, Italy, Japan, Spain, India, and China.

Otis unveiled its 'Elevonic 101' system--the first elevator control system using microprocessors to control every aspect of elevator operations--in 1979. The Elevonic 401, introduced in 1981, was the first control system with synthesized speech, information display, and security systems. It dispatched cars in response to variations in building traffic as they occurred. The Elevonic 411 system, introduced in 1990 for gearless elevators, was capable of modifying its software-based dispatching rules for more responsive elevator service. When linked to a new computerized control system, it enabled building managers to coordinate the performance of up to 64 elevators.

New artificial intelligence software patented by Otis in 1993 used 'fuzzy logic' to estimate how many people were waiting for elevators at a given moment in office buildings or hospitals where several elevators were operational and traffic patterns changed throughout the day. The program tracked traffic flow by compiling information about time elapsed between stops at the same floor, the number of buttons pushed by people boarding a car, and the car's changing weight load. It then combined this data to arrive at an estimate of the number waiting and decided which car to send--not necessarily the closest one. The first Otis elevator system incorporating fuzzy logic modules was installed at the Hyatt Osaka Regency Hotel in Osaka, Japan, which opened in 1994.

OTISLINE, a computerized, 24-hour-a-day dispatch service for mechanics, was introduced in 1983 to aid the world's largest elevator service workforce. In 1985 an Otis people-mover system was introduced to connect Harbour Island and downtown Tampa, Florida. People movers also were installed by Otis in Serfus, Austria, and Sun City, South Africa. In 1992 the company completed a similar 'horizontal elevator' in the new Tokyo international airport at Narita, Japan. Like the Florida shuttle, it combined elevator and Hovercraft technology, transporting a total of 9,800 standing passengers and their luggage 900 feet between two terminals each hour. One-car trains moved at 13 miles an hour on a half-inch cushion of air.

In 1984, when Otis accounted for 20,000 of the 100,000 elevators sold in the world each year, the company signed a joint venture to build elevators in China; a decade later, it had three Chinese joint venture plants. In 1990 Otis renewed a relationship with Russia in which it had not engaged since providing Czar Nicholas II with three elevators in the early part of the century. By the end of 1992 Otis had formed four Russian and one Ukrainian joint ventures to manufacture, install, and maintain elevators and was maintaining about 20 percent of the elevators in these two countries by 1994. It opened its first major manufacturing plant in Southeast Asia--in Malaysia--in 1993. The following year, the U.S. government lifted its trade embargo with Vietnam and Otis negotiated two joint ventures with Vietnamese companies to sell, install, service, and maintain elevators throughout that country.

Otis had 24 percent of the world market for elevators and escalators in 1990, twice as large a share as its nearest competitor. By then the company had installed 1.2 million elevators. However, it was not resting on its laurels. Its president, Karl Krapek, told a correspondent for the London-based magazine Business, 'We are one of the few American industries that can compete long-term and successfully against the Japanese. There are very few left: jet engines, helicopters, and elevators. Boy, we have to do that. And we will do that.' By late 1992 Otis had raised its market share in Japan to 13 percent, compared with three percent 20 years earlier.

With the end of the cold war, Otis replaced aircraft engine manufacturer Pratt & Whitney as UTC's largest income producer. UTC lost money in 1991 and 1992, mainly because of Pratt & Whitney's problems. To cut costs the company modernized manufacturing techniques. Otis was one of the UTC units to abandon standard assembly-line production in favor of worker teams that assembled products from start to finish. UTC claimed that by giving workers more responsibility it reduced mistakes and eliminated downtime. As an example, the company noted that workers at an Otis plant in France were, in 1993, turning out a top-selling elevator in five days, compared with five weeks in 1991.

In 1994 Otis's revenues of $4.64 billion comprised nearly 22 percent of UTC's total revenue, while its operating profits of $421 million were more than 27 percent of the parent company's total. It held 23 percent of the world market in new elevator equipment in 1994 and was selling about 39,000 elevators and escalators annually. Otis also serviced about 790,000 elevators and escalators. Two-thirds of its approximately 66,000 employees were field installers and mechanics averaging 15 years of company experience. Installation and maintenance accounted for 61 percent of Otis's revenue in 1992 and an even greater proportion of company profits.

Otis continued to thrive in the mid-1990s, although the meltdown of the Asian economy in 1997 threatened the company's well being. Otis was forced to restructure its Asian Pacific business. Approximately seven percent of the region's workforce was cut, and other cost-saving measures were taken. In addition, Otis consolidated operations in other parts of the company, reducing engineering centers from 19 to six and closing its European headquarters. In all, Otis shed 1,100 jobs or 1.6 percent of its total work force.

Otis, determined to maintain its position as industry leader, was not afraid to embrace change. In what at first glance might seem an incongruous marriage for a traditional manufacturer, Otis turned to the Internet in 1999. The company announced that it had teamed with IBM and Next Generation Network to bring the Internet to its elevator cars. The new service, called e*Display, would feature flat-panel screens that displayed full-motion, full-color displays of information (new, weather, sports, and entertainment), which would be provided by an Internet hook-up and change every five to ten seconds. There would be no audio, which tests had indicated would be too intrusive. Not only would the system be able to provide building owners with a way to efficiently and inexpensively broadcast important notices to occupants, it promised to be a boon to advertisers. Elevator riders tend not to make eye contact or engage one another and were likely to find the screen a welcomed distraction. It was estimated that the average employee in an office building used the elevator six times a day, with each trip lasting 45 seconds, but what was especially attractive to advertisers was the demographics of the riders. Depending on the office building, advertisers could target some of the highest paid professionals, who had the ability to immediately get on-line and buy a product. Advertisements could be tailored for the type of tenants that occupied a particular building. Within two or three years Otis hoped to sell more than 10,000 screens at the cost of $5,000 each. Furthermore, it would share in advertising revenues. Otis also announced two further Internet initiatives. E*Direct allowed new customers to shop for elevators and escalators on-line. e*Service provided customers with an Internet capability of monitoring the performance of their elevators and escalators, taking advantage of Otis's computer-based system diagnostics and performance measurements.

More important than its entry into e-business was the introduction in 2000 of the Gen2 elevator system, which the company boasted was the first major advance in lift technology in nearly 150 years. Gen2 elevators were intended for buildings that ranged from two to 20 floors, a market that accounted for 75 percent of new elevators sold each year. Gen2 elevators used steel belts encased in polyurethane. Because the belts were far more pliable than steel cables, the traction sheave above the elevator was only one-fifth as large, and the size of the motor could also be reduced so that the entire drive mechanism could be installed inside the elevator shaft. As a result there was no longer a need for a machine room (in some cases, an entire floor) devoted to elevators, thus saving builders money and creating the potential for more rental space. The Gen2 elevators, offered at first in The Netherlands, Austria, and Switzerland, became the company's fastest selling new elevator product in its history. Otis also looked to expand the technology to high-rise buildings.

The future for Otis seemed secure, but where would it go from here? Perhaps the answer is space. When NASA speculated in August 2000 about the possibility of building an elevator that would carry passengers into space, Otis was eager to accept the challenge, claiming that if the technology on which the company was currently working was applied to the project, a space elevator could be constructed within ten years. The multi-deck 'car' would be hoisted 22,000 miles above Earth to a point in space known as 'genosynchronous orbit' via a thin diamond fiber. It sounded fantastic&mdash, likely, did the concept of the elevator more than 150 years ago.

Principal Operating Units: L.I.S. and Canada; Latin America: North Europe; South Europe; Central and East Europe; South and Central Asia; Japan.

Principal Competitors: Schindler Holding Ltd.; ThyssenKrupp AG; KONE Corporation.

Chronology

• Key Dates:

• 1852: Elisha Graves Otis invents first safety-hoist elevator.
• 1861: Otis dies; two sons take over business.
• 1889: First electric-powered elevator and escalator are introduced.
• 1898: Otis Elevator Company is formed.
• 1975: United Technologies Corporation buys company.
• 2000: Gen2 belt-driven elevator is introduced.