Case study:

MichelinGroup:

EmbracingCultureWhile AdaptingtoChange

On a beautiful fall day in the small French town of Clermont-Ferrand, Florent Menegaux, chief operating officer of Michelin Group (Michelin), the French tire manufacturer, walked down the hallway towards the conference room to his meeting with the Group Executive Committee,which included Michelin's most senior leaders.There was much to discuss, including progress on the recent company-wide reorganization, updates from the non-tire businesses, and efforts to align employees across the world with the company's purpose.It was September 2018, and Menegaux was slated to take over as CEO in early 2019.As he greeted his colleagues and the meeting commenced, he contemplated the future of the company, and what initiatives he should prioritize to help Michelin achieve near-term growth and profitability, while remaining competitive in an ever-changing global mobility marketplace.Additionally, Menegaux neededto reconcile Michelin's rich history and deeply rooted culture with the need to be nimble and proactive in an increasingly high-tech and connected world.

The automotive industry was in the midst of a significant transformation that presented the company with unique challenges, and also opportunities, relating to serving its customers in a cost-competitive way while still fulfilling its promise of safety and quality.Menegauxrepeatedly asked himself the question, "How do we, as a company, continue to execute on our core tire business while adapting to changing customers and going after new opportunities?"¹ Meanwhile, other high-ranking employees in France and the U.S. headquarters in Greenville, SouthCarolina,worriedabouthowtomovequicklyenoughandputtherightteamsinplaceto stay relevant in a sea full of start-up companies, Internet giants, and foreign competitors, all seemingly determined to win with the customer.

BACKGROUND

At year-end 2017,Michelinwasthesecond-largest tiremanufacturer inthe world.The company designed and produced tires for the automobile and light truck, motorcycle, heavy truck, agricultural and earthmover vehicles, and aircraft industries (see Exhibit 1).The company's corporate headquarters was located in Clermont-Ferrand, France, and its U.S. headquarters wasin Greenville, South Carolina.Apart from tire design and production, the company operated three important adjacent business lines: Services and Solutions, Experiences, and High-Tech Materials.

Company History

Thecompany's historydated backto1889,whenbrothers Andrand douard Michelin bought a rubber and farm equipment factory in Clermont-Ferrand, France and renamed the company Michelin.From that point forward, Michelin was responsible for many notable product developments and patent filings for various rubber tire inventions.In 1891, the company developed the first detachable tire for bicycles, and in the same year, famous French cyclist Charles Terront won the 1,200-kilometer Paris-Brest-Paris race on a bicycle fitted with detachable Michelin tires.Four years later Michelin introduced the clair, the first pneumatic automobiletire.Anotableaddition in1898 was Bibendum, the iconic and jolly"MichelinMan" made out of a stack of tires, a mascot that would continue to represent the brand 120 years later (see Exhibit 2).The first Michelin Guide, which rated restaurants and hotels on a three-star scale for excellence, was published in 1900, and the Tourist Guide for travelers was introduced later in 1929.

One of the company's greatest inventions was the introduction of radial tire technology in 1949. The first radial touring tire, the MICHELIN X, was more technologically advanced, safer, smoother, and offered greater endurance and fuel efficiency than the existing technology at the time, the bias tire.The radial tire involved the addition of an extra thread to the bias diagonal structure, thereby creating a 90-degree angle.²Over the next 40 years, Michelin applied the radial tire innovation across all different vehicle classes, including tractors, motorcycles, heavy trucks, earthmovers, and airplanes.In 1979, 30 years after the introduction of radialtires, South African racing driver Jody Scheckter won the Formula One Driver's Championship in a Ferrari outfitted with Michelin radial tires.

TireIndustry Overview

In 2016, the global tire market totaled $150 billion in revenue, representing approximately 1.7 billion tires byvolume, both originalequipment and replacement, across various vehicle classes. Bysales, passenger car and truck tires comprised about 60 percent and 30 percent of the market, respectively,and theremaining10percentwasagricultural, earthmover,aircraft, and other tires.³

Tire industry growth was highly dependent on the number of vehicles manufactured and sold worldwide, as well as the overall mileage of those vehicles.Approximately 800 million cars were onthe road in the year 2000, and that number was expected togrow to 1.6 billion by2030. In addition, air traffic was expected to increase twofold between 2014 and 2030.⁴In 2017, the globalpassenger carand light trucktiremarket expandedbythreepercent interms ofthe number of tires sold, with the bulk of this growth coming from South America.The global truck tire market grew by four percent in 2017, spurred by significant growth in Asia and South America. In addition, specialty tire markets, including earthmover, agricultural, motorcycle and aircraft tires, all saw growth in 2017 over 2016 levels.

The tire market had become considerably less concentrated over time, as new players emerged from developing countries such as China and India, including Zhongce Rubber Group (China) and Madras Rubber Factory(India).Michelin had a 14 percent share of the globaltire market in 2016, just behind Japanese manufacturer Bridgestone with a 14.6 percent share.The other significant player was American manufacturer Goodyear, with a 9 percent share.Mid-sized tire makers,eachwith asharebetween2 to6percent, represented28.2percent ofthe market, and the remaining 34.1 percent was made up of smaller tire makers, each with less than a 2 percent share.⁵In 2000, the same top three tire manufacturersBridgestone, Michelin, and Goodyear represented 60 percent of the worldwide tire market.

Michelinin2018

In2018, the world's second-largest tire manufacturer sold tires under a variety ofdifferent brand names for unique markets and regions, including Michelin, BFGoodrich, Uniroyal, Kleber, Warrior, Kormoran, Riken, Siamtyre, Taurus, and Tigar.

With 107,800 full-time employees at the end of 2017, Michelin reported annual sales of 21.96 billion and operating income of 2.74 billion (see Exhibit 3).With a commercial presence in 170 countries worldwide, Michelin produced 187 million tires at 68 different production sites in 17 countries.Apart from tires, Michelin had three other key business lines.Services and Solutions referred to pay-per-use product offerings, telematics offerings, fleet management services, and other digital tools to assist customers with maintenance needs and fleet efficiency. Experiences included the company's famous travel-related Maps and Guides, mobile apps, and lifestyle branded products.High-Tech Materials was responsible for monetizing Michelin materials technology and innovations outside of the tire industry.

Company Leadership

A number of Michelin's senior leaders had been with the company for many years (see Exhibit 4).Menegaux, who was set to become CEO of the company in early 2019, had a 21-year career at Michelin, having joined in 1997.Other members of the Group Executive Committee had similar tenures, including Executive Vice President ofAutomotive Business Lines Yves Chapot, whohadbeenwiththecompanysince1992,andExecutiveVicePresidentofResearchand

Development Terry Gettys, who had first started working at Michelin in 1979.One of the company's newer executives was Sonia Artinian-Fredou, who joined Michelin in 2016 as headof corporate development, and was later named executive vice president of Services and Solutions, Experiences, and New Ventures (which included High-Tech Materials).

As part of the evolution of the organization, Menegaux would be replacing Jean-Dominique Senard, who had been with Michelin since 2005, and had served as CEO since 2012.One of Menegaux's many priorities in the design of the reorganization was to empower his senior leadership to make actionable decisions without the constraints of the traditional bureaucraticand hierarchical leadershipstructure that had historicallydefinedMichelin.As Menegaux put it, "My job is to inspire the leadership and make sure that they are organized and their setup is correct so that they can enable their own teams to deliver the results."

Although not part of the Group Executive Committee, several other executives working in the United States held significant leadership roles at Michelin in 2018.Chief Digital Officer Eric Chaniot worked in Charlotte, North Carolina.Senior Vice President of Global Services and Solutions RalphDimenna had a25-year historyatMichelin,and workedat theU.S.headquarters in Greenville, South Carolina.Chairman and President of Michelin North America Scott Clark and GlobalMarketing Director ofServices and Solutions Eric Duverger alsowere inGreenville.

COMPANYREORGANIZATIONVIS--VISADEEP-ROOTEDCULTURE

In June 2017, Michelin announced its first global reorganization in over 20 years.The company's primary goal was to "boost growth by adapting its operations to meet the evolving demands of its customers and employees" and to "improve the company's reactivity andmaintain competitiveness, enabling it to smoothly meet future challenges."⁶The reorganization was also intended to simplify operating procedures and speed up digitalization. The implementationbegan in early2018 and manyemployees, especially those inClermont-Ferrand, felt challenged bythe pace and extent ofthe changes underway.It was a difficult adjustment for many, as the working environment became less hierarchical and more collaborative.Employees were expected to shift from embracing a product-driven mindset, focused on the tire, to one focused on the customer experience.

Michelin had a long, 130-year operating historysupported bya proud family tradition.From its modest beginnings in Clermont-Ferrand, Michelin had over the years grown into a large tire manufacturer with a strong global presence.In fact, more than 60 percent of the company's2017 net sales were generated outside of Europeand more than 90 percent came from outside of France.Furthermore, nearly 46,000 Michelin employees worked in countries outside of Europe.However, the company's French roots were undeniable.All members of the Group ExecutiveCommitteeworkedatthecorporate headquarters in Clermont-Ferrand,whichwas also the de facto power and decision center for the company, and all but one member was French.In order to rise through the ranks to senior leadership positions, employees were expected to be fluent in French and to have lived in France.

While Michelin's historic Frenchculture was an invaluable asset, there was concernthat it could slowthepace ofchangeneeded fortheorganization toadapttochangingmarketconditions.The automotive industry was in the midst of multiple transformations that would have a significant impact on Michelin in 2018 and beyond.Apart from the increasing commoditization of the tire, largely as a result of low-cost producers and changing vehicle ownership patterns, many of the changestakingplacewere outside ofthetraditionaltirerealmandweretechnologicalandservice oriented.As a result, the company found itself in a position where it needed to adjust and adapt its business and growth strategy accordingly.

Another unique aspect for Michelin was its historically industrial, product-focused culture,whichpersistedin2018, and was responsible for promulgatingthe widespread convictionamong employees that "the qualityofthetirewassacred above allelse," asDuvergerput it.⁷Michelin's priority had always been tosell the safest and highest-qualitytires, whichrequired an abundance of investment in research and development and time in product testing.Consequently, themodus operandi of the organization was zero risk tolerance or room for error, as the safety of its tire customers was the principal motivator within the company.However, automotive industry changes now required Michelin to pursue opportunities outside of tires, specifically in Services and Solutions and Experiences, which were more entrepreneurial businesses that required experimentation and iteration in business models.As Clark described:

It is an interesting challenge for us because our history is as a very capital- intensive, industrial company, with a focus on ROI.However, applying that mindset to a start-up mentality is not always healthy and productive, and that is one of the challenges we face in some areas.⁸

Duvergerfurtherexplainedthechallenge:

In tires it is the life of consumers that is at stake.But in services that is not the case.In services you can take more risk and move faster.Michelin has built its brand equity on safety and quality.And so now you want to go to the service world and you need a new set of skills and a new mindset.The shift is crucial.

Michelin was at a critical juncture in its business diversificationstrategy.Customers throughout the value chain expected Michelin to provide more and more service along with tires, including maintenance andschedulingalertsanddetailedinformation aboutperformanceand durability. In order for the company toreach its targeted customer satisfaction levels, especiallyamongst an influx of mobility related start-ups, Menegaux and his group leaders would need to infuse their teams with people with entrepreneurial backgrounds.However, this skill set was a significant departure fromthe typicalMichelin tire employeeprofile, and bringing mid-career outsiders into the company had previously been a challenge.As Clark put it, the transformation the company wasfacedwithwouldrequireachangeinmindsetthatnoteveryonewouldbeabletoadopt.He

worried about how the company would deal with this shift without "destroying the strengths of the culture."

CulturalDifferencesAcrossthe Pond

A vast majority of the senior corporate leadership in France was French, whereas most of the North American operational leadership was American.The two management teams haddifferingapproaches andattitudes towardworkand productivity.Duverger,whowas Frenchbut worked intheGreenville office,characterized Americanpeople as generallymore optimisticand open to risking resources, whereas the traditional Michelin culture was more cautious and prudent with its approach.For Menegaux, Michelin was truly a global company representing many different cultures around the worldand one that took advantage of the collective strengths throughout the organization.However, a key difference between the French and American cultures related to execution.In Menegaux's perspective, "Michelin originated from Francebutwe are not aFrenchcompanyperse.We spenda lot oftimeexchanging cultures,and the French education is very conceptual.So the American, on the contrary, is very programmed to action."

Dimennaadded:

In the Michelin French culture, those that think are on a higher plane than those that don't.And I think we have just not traditionally put enough emphasis on executing the plans the way they were designed.But I believe very strongly that the Group is making an incredible effort to fix that.⁹

Ultimately, Menegaux viewed these differences within the company as complementary, and wanted to preserve the uniquely French and American characteristics through a collaborative approach.He explained: "the good mixture is when you have French people connecting and working with American people...you get the right balance between delivering results, putting together processes, and having a vision and being able to drive things." However, for some American leaders there remained the inherent complexity of having more freedom working inthe United States, but still needing the buy-in and support of the management team inClermont- Ferrand, to deliver their latest offerings.

TheImportanceofPurpose

Menegaux felt strongly that Michelin should have a deliberate and meaningfulpurpose, and one that was relatable to the company's employees and customers around the world.Although tires represented almost 98 percent of the overall business, and were typically front of mind in customer perceptions of the company, tires per se were not explicitly part of its purpose. Menegaux explained, "In our purpose we do not talk about tires.The purpose of the company is we want to make a contribution to humanity's progress.And we do that through mobility because we are convinced mobility is a very strong driver for human progress.

MoreThanaTireCompany

Michelin's purpose was togive people a better way forward, and todo so safely, efficiently, and in an environmentally friendly way.Menegaux knew that Michelin expected to see significant future growth from its non-tire business lines, which were tied together by the concept of mobility and aligned with the purpose of helping people move forward.Michelin laid out a sustainable growth strategy to achieve its goal of sustainably enhancing customers' mobility through1)innovativetiresthatmetcustomerneeds;2)mobility-relatedservicesandsolutions;

3) enjoyment of unique Michelin mobility experiences; and 4) leverage of high-tech materials expertise in new markets.

This strategy clearly presented opportunity for growth, but also a challenge, as Michelin had to diversify away from tire manufacturing and make a name for itself in the more vague field of mobility.The strategy relied on growth and profitability from the Services and Solutions, Experiences, and High-Tech Materials business lines.Although Menegaux described these businesses as crucial in order to "protect the tire," their existence also sent a message that Michelin was "more than a tire company."Each segment required vastly different resources, both in terms of talent and financial investment, than the tire business.The move required a dramatic mindset shift for employees, from a singular focus on the product to one more focused on service and the customer experience.

ServicesandSolutions

The Services and Solutions business was at the core of Michelin's growth strategy, and encompassed first-to-last mile support for customers, digital services (telematics) for road haulage fleets, fleet management, a worldwide network of distribution centers, and alternative billing models for specific customer segments (i.e., charging per mile traveled, per ton transported, or by number of aircraft landings).Telematics referred to gathering, storing, and transmitting vehicle information for tracking purposes, and analyzing vehicle performance, vehicle conditions, and driver performance.

MenegauxdescribedServices andSolutions as "absolutelyessential" forthe company's core tire businessand the key to staying connected with fleets and preventing third parties from intermediating Michelin's relationship with its customers.As he explained, "Fleets need somebody to manage information for them and to provide them with turnkey solutions so they know they are protected and that somebody is managing the asset properly."

Michelin had made a number of investments to build out its Services and Solutions business.In 2014, Michelin acquired Sascar, a digital fleet management company in Brazil.In 2017, the company acquired NexTraq, a telematics solution provider to utility vehicles in North America. Both acquisitions brought Michelin criticalsolutions that it could offer its customers to improve driver safety, fuel management, and fleet productivity.

While other leaders appreciated the importance of Services and Solutions, Menegaux struggled with how to increase the segment's revenues and gain critical traction to make a meaningful contributiontothecompany'sgrowthstrategy. AsGettysnoted,"ServicesandSolutionsisa

very interesting adjacent business, andvery strategic, to be able to maintain relationships withour customers and our fleets; but we need to accelerate its growth and contribution."¹⁰

Experiences

Whenreferring totheExperiences business, Menegaux explained that "connecting through food, connectingthroughtravel, andconnecting throughexperiences helpspeoplegrow"and helping people grow was directly correlated to mobility and the notion of helping people move forward.

In 2015, the companysold 13 million Michelin maps and guides; and in 2016, it sold 20 million licensed lifestyle products.ViaMichelin, a trip-mapping service, calculated over 200 billion kilometers of trips for customers.In 2016, diners booked 39 million tables through bookatable, the company's restaurant reservation application.

Michelin had actively invested in the Experiences business since the company unveiled its sustainable growth strategy in 2016.In July 2017, Michelin acquired a 40 percent stake in Robert Parker's Wine Advocate, an international reference for wine reviews based on the 50 to 100 point scoring system.With this acquisition, the company hoped to establish a firm position within the fine food and wine market, specifically in North America and Asia.Several months later Michelin acquired a 40 percent stake in Guide du Fooding, an annual restaurant guide and event marketing company.

High-TechMaterials

Michelin had recognized through its own process of innovation in tire manufacturing that materials technology had benefits beyond just the tire industry.Menegaux explained the crucial role of the High-Tech Materials business:

High-Tech Materials exists because we need to continue investing massively to have the best tire in the world because that is our signature.But our capacity to extract value from all the innovation in the market will become more and more difficult.But there are many other businesses that are truly benefitting from our know-how (in materials technology) if we apply it to other sectors.

Specifically, the company had developed the capability to make mold components by 3Dmetallic printing.Michelin enjoyed a first-mover advantage since the industry was focused on plastics at the time, and recognized the opportunity to take that technology to market for components other than tire molds.

To enhance the presence of its High-Tech Materials business, Michelin entered into a joint venture in 2015 with French industrial machine manufacturer Fives Group in order to bring the technology and 3D additive manufacturing process to the market at a level competitive withlarge 3D metallic printing companies.

COMPETITIVESHAKEDOWN

By 2018, after a 15-year period of increasing fragmentation in the global tire market, Michelin faced fierce competitionand theresulting pressure onpricing;at thesame time,rawmaterials for its products were becoming more costly.Most of the tire industry's newer entrants and disruptors did not have an existing brand to protect.Therefore, those other players enjoyed significantlyhigher agilityandrisktolerance for developing new competencies andenteringnew markets.While Michelin was still regarded as a leader in tire innovation, the company's competitiveness and future success, especially in its adjacent businesses, could not rely on that standing.Severalsenior executives felt that Michelinwas incatch-upmode, andtherewas some concern whether the company could maintain its product leadership position given the changesin purchasing criteria and the growing commoditization in certain tire segments.This was compounded by a cultural attitude that had long persisted inside of Michelin.As Clark explained, "Our weakness is that historically we had enormous product performance gapsrelative to our competition. We still have gaps, but they are not as big.I think that bred a littlebit of complacency and arrogance."

TheDisruptors

The tire manufacturingmarkethad seen aninfluxofnewentrants between 2000and 2018. Many of these new competitors were Chinese companies, and while Menegaux viewed this increased competition in China as an opportunity for Michelin, others viewed it as a significant threat to the company's core tire business.China represented the world's largest car market at the time, which translated to strong demand for tires, both in the original equipment and replacement markets.Michelin did have a strong presence in China, with strong brand equity, significant revenue contribution, a growing market share, and three production facilities. However, the influx ofChinese domestic players had raised concerns of overcapacity, and many of the Chinese competitors had come to market with a low price strategy, intentionally taking a loss on the sale of their tires to undercut other manufacturers and grow share.

Regardless of whether China was an opportunity or a threat, or perhaps both, Michelin felt the weight ofother competitivepressures.Internetgiantslike Amazonand Alibabaposed a threat to the value chain by getting between Michelin and the end customer.Chapot remarked, "The big threat with these companies is if they know the customers better than Michelin and tell us,'Okay, just provide us the tires. We'll take care of the rest.'"¹¹ The company's leadership believed that it was critical for Michelin to maintain a direct relationship with its end customers.

Apart from the pricing challenges and margin pressures imposed by e-commerce companies and the threat of disintermediation, Michelin also felt the heat from small yet nimble mobility start- up companies focused on providing excellent and targeted customer service.Chapot expanded on this threat, noting, "We are finding that our value chain can be disrupted by players that are not coming from our industry, but who are focusing on specific pain points of consumers, professional customers, distributors, and dealers."

KnowThy Customer

It was apparent that Michelin had to prioritize the importance of owning the communication channel and maintaining the frontline relationship with its customers.Customer service had evolved over the years, and simply delivering a superior product was no longer enough to win. As Clark described the situation, "One of the challenges we face is transforming from what historically was very much a product-driven company to truly providing our customers with an experience that is of the same quality and performance as that of our product."

How would Michelin provide this exemplary experience to its customers?Especially at a time when many consumers had lost interest in hearing about tires, Michelin had to find a novel approach to capturing customer attention.Menegaux was convinced that its non-tire business lines were key to unlocking new opportunities, remaining competitive, and winning over customers.Menegaux hoped Michelin would appeal to its customers on an emotional level, and he felt that the Experiences business, specifically the Michelin Guides, were the "jewel" of the company.His vision was that Experiences would become a leaderin the world of gourmet dining and travel services.He elaborated:

Wearegoing tobetheir trustedpartner for theselection oftheir accommodations, their food, and what is nice tosee.And we will have them organized and we will connect them.We will be a trust partner to our customers on very important social stuff, just like Michelin is in the tire.

THEDIGITALFUTUREWASNOW

Michelin's ability to survive and maintain its strong position in the market was dependent on its continued innovation in tires and beyond.Changes in the automotive industry were abundant and werethedriving forcebehindMichelin's need toadaptandpursue new opportunities.These changes were beginning to reshape the landscape of several industries, as carmakers, tire manufacturers, and technology all intersected.Some of the changes underway in 2018included a growing number of automated vehicle features; a prevalence of Internet-connected vehicles;the availability of electric vehicles; the popularity of ride sharing and ride hailing; a transition from individual vehicle to fleet ownership models; and the introduction of autonomous driving technology.The rate and scale of change was unprecedented.Gettys remarked: "[it was] more of a transformation than when we moved from the horse to the car."

These changes had a profound impact on the purchase criteria forboth vehicles and tires.Electric cars such as Teslas had higher torque than gasoline-fueled automobiles, which led to heavy wear on tires.Ride hailing companies like Uber and Lyft eliminated most rider preferences regarding vehicle type or tire brand.The move to fleet ownership models placed greater emphasis on value and maintenance, as basic needs could be fulfilled by many different tire types.The tire purchasing process was increasingly influenced by factors like cost and fuel efficiency, and less bybrand name and perceived quality.These changes begged the question of whether tires were becoming more of a commodity as opposed to a differentiated product.

Digitalization

The common thread among the changes underway was the shift to highly connected mobility. Menegauxand other leaderswithinMichelin oftenreferred tothe"digitalization"thatwas taking place within the company.Digitalization was "the use of digital technologies to change a business model and provide new revenue and value-producing opportunities."¹²Understanding how its tires were used and how they performed in various locations and environments was absolutelyessentialtoMichelin'scustomer valueproposition.Chapot viewed this asa "fantastic opportunity" because it would allow the company to speak "directly with each individual consumer" and thus be able to "send the right message to the right person at the right moment."

While being more connected to customers and digital-centric in service offerings offered many advantages, at its core, Michelin remained a tire manufacturer.Digitalization was transforming the company's internalprocesses ina quickand cost-effective manner, but it had little impact on the physical engineering principles of making tires, which still required rigorous safety testing, durability validation, and qualitycontrol.Chaniot elaborated that an"assimilation" phase would occur "whenthe DNA oftires intersected withthe DNAof the digital efforts,"¹³ as digitalization became increasingly critical to all of the company's efforts.

Michelin was still in the early stages of this transformation, and there was not yet an established winner in the marketplace.So, while there were clearly many advantages and opportunities associated with digitalization, Michelin had to move quickly, since, as Chapot stated, whoever was the first to "master the way the object [the tire] will speak to the vehicle would become the tier-one supplier."

Menegaux felt Michelin was well positioned for the future.He commented, "Our group hasbeencharacterizedbyinnovationfor 125 years.Todaydigitaltechnologyopensup new fields of innovation.30 percent of the company is already connected.Everything will be digitized in the next 10 years."¹⁴

ServicesandSolutions

TheServices andSolutions business linewas developedto leverageMichelin's tireexpertiseand customer knowledge in order to address mobility solutions for a larger market.The group's strategy was based on three data-driven elements.The first was having connected tires, using radio frequency identification, or RFID sensors, that could capture data and link to connected vehicles.The second element was to expand its suite of offerings for vehicle and fleet management operators.The final element was creating a digital ecosystem and marketplace for fleets and serviceproviders.Nothing was as simple as justselling atireanymore, and customers expectedunique,custom-tailoredproductsandservicessuitedtotheirspecificneeds.According

toDimenna, Michelin had "a tonofinformation,data,andalgorithmsaroundtireusagethatwere quite powerful" and likely "the best in the industry."Despite that asset, the Services and Solutions group was still in its infancy.Dimenna pondered the task at hand:

How do we create an ecosystem where tires are connected to vehicles, are part ofa fleet management system where we can drive enough predictive data to tell the autonomous vehicle or the driver when and where to go to get whatever he needs to have serviced so it is not inconvenient, and so that it is done during masked downtime from when the vehicle is being used?

Menegaux and the Group Executive Committee expected the Services and Solutions business, with Artinian-Fredou at the helm, to double in revenueover a 3- to 4-year period.Menegaux was matter of fact, and said, "I am very demanding of what I expect out of them.If you don't grow profit immediately, that's okay, provided you grow very fast."Gettys described Services and Solutionsas "very strategic... butnotyet growing and profitable asitisintendedto be." Thebusinesswas nodoubt underpressureand, asDimennaput it, "weare treading a lot ofwater to try to make sure we can prove that we are adding value."

Artinian-Fredou was actively pursuing opportunities that would drive significant growth, and in late 2017 launched four new digital services to help grow the fleet management business: MyBestRoute helped drivers choose the optimal routing; MyInspection digitized and standardized vehicle inspections; MyTraining facilitated driver training; and MyRoadChallenge motivated drivers todrivesafely.Thegroup's internalgrowth forecasts from2018 through2022 saw 10 to 15 percent annual growthfar from what it would take to double the business.

OrganicGrowthVersusAcquisitionStrategy

At the top of Artinian-Fredou's mind, and others within Services and Solutions, was whether to pursue growth organically or through acquisition and partnership.She needed to move quickly in order for the business to establish an early mover advantage, but she worried about investing heavily "so far from the core business."¹⁵She even wondered if Services and Solutions would functionbetter asaseparate entity,at least in its initialstage, since it hadsucha "differentDNA" and risk profile than the tire business.Artinian-Fredou was also concerned about how this business would be valued relative to the tire business.She explained:

The multiples in the tire industry are very different from the multiples in digital businesses, and by having a big business of Services and Solutions, in Michelin, underthetirebusinessvaluation,we couldbecounter-performingfromafinancial markets point of view.

Another concern of Artinian-Fredou was whether her team had the necessary skill sets and mindset to achieve significant growth in a high-tech and service-oriented domain.Michelin had longemphasized growingthrough theranksandhiringfromwithin,butArtinian-Fredouhadher

15Interviewwith SoniaArtinian-Fredou,July16,2018.Subsequentquotationsarefromtheauthor'sinterviews unless otherwise noted.

doubts as to whether the skills she required for her group could be taught.Gettys detailed the complexity of the internal aspects of change:

We are trying to operate like Silicon Valley technology companies, however that is, emerging from within an existing corporation that has a long culture and history.So, you have to continually push people to take more risks, to go faster, to listen to the customer directly.We have not achieved that cultural transformation yet, when we take somebody out of their background of tires and put them in the domain of service.

Artinian-Fredou believed that hiring externally was the quickest path forward.However, shewas concerned that it would be difficult to attract new hires with a more entrepreneurial risk profile and mindset to her group if they perceived Michelin as "just" an industrial tire company. She reflected, "To be frank, the new generation, they are not all so excited to join a large company like Michelin, which tends to emphasize a long-term career path.So I worry about whether or not I have the right skill sets in our teams."

Chapot agreed with Artinian-Fredou about the need to attract talent.He commented, "There are two ways to build new competencies inside of a culture and history like Michelin: hire from the outside; and acquire companies with that talent and therefore inject those competencies into Michelin."

CONCLUSION

With the corporate reorganization underway, a clearly defined growth strategy in place, and ambitious financial goals set, Michelin was actively pursuing a number of initiatives and programs heading into the second half of 2018.Nonetheless, the company still faced two fundamental challenges.First was the continued deconsolidation of the global tire industry, as China and other developing countries entered the market aggressively, with competitive prices. The second challenge was the threat of disruption to parts of the automotive value chain by companies that were able to move much faster than Michelin.

Menegaux had faith in his senior leadership team and was committed to making the necessary investments to achieve growth, especially in the non-tire businesses.He reflected:

We have a huge initiative to empower the entire organization and to bring all the intelligence that exists withinthe group towork in harmony.Today it is still a bit hectic, so the critical thing is being able to build this [human setup] so that it can adapt to anything that may happen.

There would be little room for error in executing this plan.Two prior attempts at revenue diversification in the mid-1990s and early 2000s had both ended in failure and were completely halted after a few years.Gettys hoped that things would be different this time because of a "much stronger commitment" from the company.Indeed, the recent telematics and food/dining acquisitions were evidence that the company was serious about supporting growth outside of tires.

However, there was some remaining skepticism within the company.Chaniot was adamant that "the DNA of service" was drastically different than "the DNA of making the best tires in the world."Expanding on that sentiment, Duverger said, "I think in four years we will not be there, it is going to take more time.We know how to go to market with tires but we have a big hill to climb when going to market on services."Gettys predicted that Michelin's failure to grow and succeed down the road would be a result of not being able to move quickly enough.He elaborated:

If we derail in fouryears, my best guess would be that we were too slow to react to changechanges in purchasing practices, changes in distribution practices, changes in reacting to customers' expectations and trends.We did not adapt our processes and our people and our culture and our whole business approach for those domains differently than the domain of tires.

AsMenegauxlefttheGroupExecutiveCommittee meeting, hefeltconfidentthatMichelincould leverage its heritage of safety and quality in the traditional tire segment with digital innovations to give customers a "better way forward."The technology push underway was a big bet for the company, but the alternative of keeping the tire "round and black" was an even greater risk.He felt strongly that Michelin had "a lot of richness inside" and that the company was "very powerful because of that culture."

Question :

Michelin is going through a transformation from a product-driven company to one that provides customers with an experience that is of the same quality and performance as its products

The company is also exploringthe opportunity for the use of analyticsas part of its digitalisation strategy

What are the challenges the company will face in pushing these changes through successfully?