From Product to Service

When we hear Michelin, we think of tyres and—thanks to the eponymous guide—restaurants, but the fact that Michelin is also a pioneer in services is not widely known.

Founded in 1889 by André and Édouard Michelin, the company drove crucial innovations in tyre technology and design from the start. In 1891, Michelin took out its first patent for a removable pneumatic tyre. Later product innovations included the run-flat tyre and radial tyres.

As a tyre manufacturer and pioneer in tyre technology, Michelin’s engineers were interested in better understanding the performance of their tyres when actually in use by customers. To ensure access to such tyres, Michelin engineers in France arranged for them to be ‘rented out’ to some customers, with responsibility for maintenance resting with Michelin. By taking on responsibility for maintenance, the engineers created an opportunity to gather valuable performance data that could be used to further improve their product. This approach was first adopted in the 1920s on a very small, non-commercial scale, but it informed and inspired Michelin’s shift into services later on.

Seeing the potential in providing tyres as a service, Michelin launched Michelin Fleet Solutions in 2000. This organisation formalised the tyre-as-a-service concept first conceived by the company’s R&D team. Customers—operators of large fleets of trucks or buses—would no longer buy the tyres but rent them and be charged per kilometre driven. Tyre maintenance was provided by Michelin.

By selecting the right tyres for the operation and optimising parameters such as tyre pressure, Michelin could extend tyre lifetime and increase the fuel efficiency of its customers’ operations. Outsourcing ownership and maintenance to Michelin not only helped large fleet operators cut costs, but also allowed them to focus on their core business.

As a manufacturer, Michelin had accumulated a deep body of knowledge about tyres that it monetised by establishing a services business.

Subcontracting and Innovation

It is common knowledge that subcontracting is an option for contractors to augment their capabilities and bring in external expertise.

What is less known is that a contractor – subcontractor relationship can yield more than just immediate financial benefits for the subcontractor side.

Research suggests (e.g. Rachel Bocquet. Product and Process Innovations in Subcontracting: Empirical Evidence from the French “Sillon Alpin”) that taking on work for other organisations can positively impact product and process innovation.

 What is key is how the relationship is structured. Contractual mechanisms that guarantee incentives for innovation, mid-to-long term contracts, organisational structures that favour knowledge exchange and a collaborative approach are all factors that can help improve a company’s ability to innovate.