Q1. What were the strategic reasons for Michelin restructuring in restructuring?

What were the

earlier service initiatives before restructuring?

Michelin was in the tire business; it was a company primarily focusing on a product based approach.
In its 2019 annual report, Michelin predicted that in 2020, the passenger car and light truck tire
markets are expected to decline over the year with flat growth in replacement demand. Along with
that, there was a sustained contraction in Original equipment demand. There was also a decline in
the truck and off the road markets. Owing to Slow growth and saturation in the market in 2017, they
reformulated the strategy and saw large market opportunities for mechanical services, therefore,
they incentivized the development of the S&S group. Michelin reformulated its strategy from being
providing a different variety of tires moving to experience, solution and services moving from
product to customer centric approach. The introduced various services and solutions such as tiers as
a service, feet management, connected mobility and Digital Service Platform (DSP). The entire
restructuring process was a step by step process aligned to its long term load of being a mobility
player. This led to the development of Michelin ON CALL 2.0, which provided services to the
roadside emergency situation of commercial vehicles. Now the organization wanted to shift from
tedious Paper and manual work resulting in delayed payments to a digital marketplace, in an
attempt to ease the process for dealers.

Still, Michelin had not attempted one area- fleet services. This accounted for 60 billion market share
from the outsourced maintenance business. However, there was a prominent player in this segment
“Dickinson” whose share was increasing heavily. This prompted the evolution of DSP.

Mechanical services provider market in the US and DSP, formed a core strategy of integrating and
digitizing the highly fragmented market in order to provide all tire-based services under a single
unifying network.

Michelin believes in putting innovation at the heart of its strategy, which led to the development of
DSPs Value proposition to seamlessly connect fleets, dealers and Michelin, to reduce operational
costs and inefficiencies. It is a major competitive asset that sets Michelin apart from the competition
and ensures our Group's long-term success.

The aim of connect DSP was building a truly customer centric value proposition by offering a
seamless connect with the fleets, and dealers while optimising the operational costs and reducing
the inefficiencies. This was like going back to their roots of being a mobility company and not a tire
company. DSP in specific was recognized as a large market opportunity for the company. There was
a huge market potential of tire business in the U.S. is $6 billion a year. The third party, outsourced
maintenance business on the other hand was a $60 billion value business. This implied $60 billion
flowing through this opaque process and going to mom-and-pop shops and truck centers. This
indicates an untapped potential which Michelin wanted to capitalize on. There were already
established players in the fleet service, Dickinson had seen an increase in annual revenue grew from
$29.9 million in 2006 to $86.9 million in 2016. Michelin believes in putting innovation at the heart of
its strategy, which led to the development of DSPs Value proposition to seamlessly connect fleets,
dealers and Michelin, to reduce operational costs and inefficiencies. It is a major competitive asset
that sets Michelin apart from the competition and ensures our Group's long-term success.

The various services provided were -

 Tires-as-a-service: Instead of buying tires, customers using this service could pay for every
mile they drove. This was a big business in the European trucking market and among urban
fleets in the U.S. The aircraft industry had been using pay-for-landing for years. This business
 accounted for almost two-thirds of the S&S group’s revenues.

 Fleet management: This included telematics, which connected cars and trucks to a satellite or
cellular system to track vehicle location. According to Dimenna, “Telematics provide a fleet
manager with information about how their fleet is working, where their trucks are, and what
they need to do for maintenance. It also lets a driver know if they can meet their on-time
delivery schedule.”

 Connected mobility: This business provided hardware technology for fleet management.
“These teams do both the R&D and sourcing of connected objects to connect our tires to
vehicles and the cloud, and then build data driven businesses,” explained Dimenna.
“Customers include insurance, maritime, mining, and agriculture companies. Most of our
work in this area is small at the moment, with $5 million to $10 million revenue, but it is
growing fast.”

 Digital service platform (DSP): DSP was the latest development in the S&S group. This
platform was developed to digitize existing dealer services (e.g., Michelin ONCall for
emergency road service), as well as introduce new services (e.g., Michelin Mechanical Care
for light mechanical servicea) on the platform.