Lithonia Lighting

Lithonia Lighting makes use of IT in an interesting way, which gives it a sustainable competitive advantage in the industry of lightning equipment. In this page, I will investigate the shift in the structure of the industry that compelled Lithonia to leverage IT, and then I will describe the strategy that Lithonia adopted in the 1980's, and explain how this practice differs from the traditional ones.

1. The Industry of Lighting products in the 1980's

During the 1960's, the industry for Lighting products was fragmented, largely dominated by Mom and Pop firms. By the end of the 1970's, the industry saw the emergence of "super lighting companies". The competitive nature of the marketplace changed radically:

• Price competition started as economies of scale became more and more important.
• Companies began providing "product packages" aimed at a given customer's need or project's need.
• Organizational complexity increased both in the company and in its environment. Growth management became critical.
• The distribution channels and the organization of the marketplace changed dramatically. 7 actors played different roles and interacted together in many different ways. In the mid 1980's, they were:

• Several Lithonia Divisions designing and manufacturing lighting products
• Lithonia Sales Management Team
• 40 Field Warehouses, holding inventories locally.
• 86 Independent Agents, carrying Lithonia's product and non-competing complementary products nationwide.
• Electrical Contractors, seeking quotes and ordering materials.
• 2500 Distributors nationwide, serving local markets and working with Contractors, Purchasing agents and other buying influences.
• Specifiers, writing the specifications for any lighting project.

These 7 actors interact heavily and informally with each other on any given contract.

Moreover, the future expected growth will increase the need for coordination between these actors.

2. Lithonia's strategy and its value proposition

Lithonia decided to respond to the increased competition and complexity by devising a new vision: Lithonia should have three goals in the future:

• Be the best value in lighting, which means high quality, competitive costs/prices and superior service.
• Be easy to do business with, which includes providing expert advice on the products, quick and accurate communication, prompt fulfillment of orders, and clear, understandable business documents.
• Caring about doing things right for our business, our customers and our people.

In order to achieve this vision, Lithonia reorganized itself according to its vision, and leveraged IT capabilities to create a common platform between the 7 actors. The key characteristics of this strategy are ...:

• The Agents will be considered as the center of the new distribution system, and will coordinate the cooperation with all the other players. Lithonia will only play a support role and provide the end-customers with the products that they need.
• Lithonia will reorganized itself according to the new organization of the distribution system: it will become decentralized, and each division will be responsible for one product line only. Sales and Marketing will remain centralized, and provide support to the whole distribution system.
• The Lithonia brandname will become a sign of excellence, consistent quality and efficiency not only for purchasing the parts but for all the steps leading to the delivery of an installed lighting system and for all the actors involved in this process.
• Lithonia will provide every player of the distribution system with the IT systems that they need to achieve the business strategy.

As a result of this strategy, Lithonia introduced a new system for each of the actors of the marketplace:

• ACE +, for the Agents
• CALL, for the contractors
• DIAL-L, for the distributors
• SOS+, for the field warehouses
• SELL, for the Sales Management Team
• SPEC-L, for the Specifiers
• COPS/DOPS, for the Lithonia Divisions

Each system was designed around three key features:

• It is a complete solution for each actor, including Personal software (Word processor, etc.), Accounting software, Design tools (Expert systems for example).
• It can be bought cheaply or leased from Lithonia. In the latter case, Lithonia maintains the system.
• During the implementation, Lithonia trains the users on the system.

In addition to these systems in the field, Lithonia reengineered its internal processes to link them with the market and optimize the logistic and the information flow across the value chain.

In effect, Lithonia changed the rule of the game in the Lighting equipment industry in 6 ways:

• The core product has been extended by a full range of services.
• The barriers to entry are higher, since Lithonia now controls the Information Systems of the major decision makers in the marketplace.
• The decision making has been shifted to the agents, who are clearly in the best position to coordinate the whole system.
• The costs have been optimized across the value chain. The value delivered by the various actors to their respective clients is enhanced through a faster, more consistent service.
• The response of the overall system to any change in the end market is faster, and information gets disseminated more quickly. Innovation is fostered as market needs can be identified quickly.
• The growth of the system is managed in a very decentralized way.
• The use of Decision Support Systems, Expert Systems and Automation helps manage the growth of the system, by ensuring consistency across the different locations. This builds the Lithonia brandname.

3. How this practice differs from the traditional one

Lithonia's practice differs from the traditional one in 4 points:

• A decentralized decision making and a shift in the the relationships between the key actors in the marketplace: Lithonia let the various users of the network coordinate between them. IT here is used as a link between the actors and as a way to enable fast, efficient coordination in the marketplace. In addition IT enabled the agents to become the main participant in the decision making process.
• A complete transparency of the information across the value chain: any information about the market, or the inventories, or any specific project is available at any point of the value chain. This enables every actor to optimize the value chain, either in terms of logistics, or of design, or of market information.
• A sharing of the value created between all the actors: This new system benefits to all, either customer, division or intermediary. This ensures a deep cooperation between Lithonia and its distribution system.
• A scaleable system, which manages its growth autonomously: The Lithonia system is scaleable, decentralized and does not need any particular attention to grow.

4. Conclusion

Although most of the available information dates from the early 1990's, news article reports that this system not only was a success, but enabled Lithonia to further extend the value proposition through the further development of support systems. One good example is the introduction of a system to help engineers design the layout of lighting systems to avoid reflection of Display Screens in a room.

It seems that the competitors did not copy as quickly as one would expect Lithonia's network. In addition to the difficulty to execute such a strategy, the introduction of Lithonia's systems by major agents actually locked competitors out. However, the Internet, today, seems to have reduced dramatically the barriers to entry, as new entrants develop interchange networks based on the Web technologies to give the same service as Lithonia is providing while still increasing the competition.