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Power-by-the-hour: The role of technology in reshaping business strategy at Rolls-Royce


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There is a recognised trend of manufacturing companies offering not only products, but also services and even complete solutions to business problems. Research has highlighted economic, market demand and competitiveness factors as responsible for the reshaping of business strategies that this has involved. This study analyses the extent to which another factor, technology, has been a significant factor in the switch from product oriented to service-oriented strategies. A case study of the aero engine manufacturer Rolls-Royce is used to analyse the impact of technology, which is found to have led manufacturers to reshape their business strategies. The study finds that developments in one technology in particular, namely digital electronics, have been a powerful enabling factor facilitating the implementation of service strategies. This provided original equipment manufacturers like Rolls-Royce with a competitive advantage relative to conventional service providers, by enabling them to acquire new knowledge management capabilities.
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Technology Analysis & Strategic
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Power-by-the-hour: the role of
technology in reshaping business
strategy at Rolls-Royce
David J. Smitha
a Nottingham Business School, Nottingham Trent University, Burton
Street, Nottingham, NG1 4BU, UK
Published online: 06 Sep 2013.
To cite this article: David J. Smith (2013) Power-by-the-hour: the role of technology in reshaping
business strategy at Rolls-Royce, Technology Analysis & Strategic Management, 25:8, 987-1007, DOI:
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Technology Analysis & Strategic Management, 2013
Vol. 25, No. 8, 987–1007,
Power-by-the-hour: the role of technology in
reshaping business strategy at Rolls-Royce
David J. Smith
Nottingham Business School, Nottingham Trent University, Burton Street, Nottingham, NG1 4BU, UK
There is a recognised trend of manufacturing companies offering not only products, but also
services and even complete solutions to business problems. Research has highlighted economic,
market demand and competitiveness factors as responsible for the reshaping of business strate-
gies that this has involved. This study analyses the extent to which another factor, technology,
has been a significant factor in the switch from product oriented to service-oriented strate-
gies. A case study of the aero engine manufacturer Rolls-Royce is used to analyse the impact
of technology, which is found to have led manufacturers to reshape their business strategies.
The study finds that developments in one technology in particular, namely digital electron-
ics, have been a powerful enabling factor facilitating the implementation of service strategies.
This provided original equipment manufacturers like Rolls-Royce with a competitive advan-
tage relative to conventional service providers, by enabling them to acquire new knowledge
management capabilities.
Keywords: technology and innovation studies; case study; aerospace industry; knowledge
management; business and corporate strategy; R&D management
1. Introduction
The management literature urging manufacturers to make the transition from supplying products
to supplying products and services on an integrated basis is very extensive (Oliva and Kallenberg
2003). In terms of industry sectors, the literature that has highlighted and analysed this trend
extends mainly to capital goods, including computing, cranes, trains and aerospace (Howells
The logic behind manufacturers moving forward along the value chain to include the provision
of services as well as manufacturing is normally attributed to three main determinants: economic
factors, demand conditions and competitive advantage(Oliva and Kallenberg 2003). The economic
argument is that through the provision of services additional revenue can be generated from an
installed base of products especially if the product life cycle is a long one with products remaining
in service for many years. To reinforce this, it is also pointed out that services typically yield
significantly higher margins than products. The case for demand conditions is that as customers
become more sophisticated their expectations rise and they demand solutions rather than mere
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988 D.J. Smith
products. Often this is set in terms of the trend towards greater specialisation and a move on the
part of many companies to outsource services as they focus on core competences (Pralahad and
Hamel 1990). Finally, the case for competitiveness rests on the notion that services are often more
difficult to imitate and therefore are a source of potential competitive advantage.
However, very few studies have looked at alternative perspectives. For instance, there has been
little consideration of what one would intuitively expect to be an important driver behind this
trend towards the provision of services, namely technology. One might well argue that such has
been the attention given by strategy researchers to concepts like core competences (Pralahad and
Hamel 1990), that technology, particularly long-term technological change has taken something
of an analytical back seat, when it comes to analysing the forces that shape business strategy. This
study attempts a reassessment. The study looks specifically at the part that technology plays as a
factor in the transition from products to services, especially the move towards offering integrated
solutions using new business models. The aim is to analyse the role of technology in reshaping
the business strategy of manufacturers as they extend their product offerings. The study seeks to
answer a single research question – what role did technology play in reshaping business strategy
in the aero engine sector? Here, the focus is on the industry environment (Grant 2008, 66) and how
this has changed as a result of macro-level factors, specifically developments in technology and the
resulting response from manufacturers in terms of revising and reshaping their business strategy.
To answer this question, the study analyses recent developments in the aero engine sector of the
aerospace industry through a case study of a company often cited as an example of a manufacturer
leading the way in offering not merely services, but integrated solutions, namely Britain’s largest
manufacturing company, the aero engine manufacturer, Rolls-Royce.
2. Review of the literature
The trend towards manufacturing companies moving into the provision of services was first high-
lighted in the 1980s by Vandermerwe and Rada (1988, 315), who coined the term ‘servitisation’
to describe the phenomenon. The provision of services is now a conscious and explicit strategy
for many firms, resulting in a steady flow of research papers analysing this trend with a variety
of terms used to describe it. Baines et al. (2009, 547) refer to it as ‘integrated product-service
offering’ and Howells (2004, 25), noting the way services are sometimes bundled as a ‘wrapper’
complementing products, uses the term ‘service encapsulation’. Wise and Baumgartner (1999),
Davies (2004) and Windahl et al. (2004) on the other hand note that the move into services some-
times involves very much more than simply bundling the provision of complementary services
along with the product. They use the term ‘integrated solutions’to describe a business model where
services are typically not an add-on to a product, rather products and services are combined to
address specific customer needs.
A key feature of the integrated solutions business model is that it is about much more than just
moving down the value chain to provide services as well as products. With this business model
manufacturers typically ‘take over the risks and responsibilities of performing activities previously
handled in-house by their customers’ (Davies 2004, 732), and in exchange for providing much
greater value, they get a significantly higher return. Risk in this context refers to the possibility
of a product malfunction leading to a potential loss of service, and the responsibility is to fix it
ensure there is no loss of service. Assuming a level of risk implies more than providing additional
services since services are being provided on a quite different basis, leading to the use of terms
such as ‘performance-based contract’ (Kim, Cohen, and Netessine 2007) and ‘outcome-based
contract’ (Ng, Maul, andYip 2009) to describe packages where the customer is buying not merely
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services along with a product but, ‘a predetermined level of availability to meet the customer’s
objectives’(Kim, Cohen, and Netessine 2007, 1844). What is provided goes well beyond replacing
the sale of goods with the sale of goods plus support services. With such contracts, the integrated
solution typically extends to the service provider agreeing to carry out all necessary maintenance
and guaranteeing a given level of product availability and performance, at a fixed price normally
based on usage.
Davies (2004) suggests that the trend towards the provision of outcomes is particularly a feature
of capital goods producers. Given that capital goods tend to have a comparatively long life, this
has led some researchers to use expressions like ‘long-term service agreement’ (Kerr and Ivey
2001, 290) and ‘through-life management’ (Ward and Graves 2007, 457) to describe the provision
not merely of products but support services for them over the course of their life.
According to Wise and Baumgartner (1999), the particular attraction of servitisation for capital
goods manufacturers is that it allows them to make use of their installed base comprising the
total number of their products currently in use. For capital goods manufacturers whose products
are durable and have a relatively long lifespan, this is typically many times greater than the
value of their annual sales of products. As examples Wise and Baumgartner (1999) cite trains
(i.e. locomotives), civil aircraft and tractors, where the installed base is 10 or more times greater
than annual sales.
The inclusion of aerospace is no coincidence as several studies have looked at servitisation in the
aerospace sector. These range from studies that mainly cite aerospace as an example of this trend
to ones that provide a more detailed analysis of the factors at work and the impact on the firms.
Among the former are studies by Baines et al. (2009), Davies, Brady, and Hobday (2006), Howells
(2004), Neely (2007) and Oliva and Kallenberg (2003), which note how engine manufacturers like
General Electric and Rolls-Royce now provide engine maintenance on an hours flown basis, and
studies by Ng, Maul, and Yip (2009) and Kim, Cohen, and Netessine (2007), which use airframe
maintenance as an example of the provision of performance-based maintenance.
Four studies (Johnstone, Dainty, and Wilkinson 2009; Kerr and Ivey 2001; Lorrell et al. 2000;
Ward and Graves 2007) specifically analyse the move to servitisation in the aerospace industry.
Johnstone, Dainty, and Wilkinson (2009) provide an in-depth case study that analyses how one
engine manufacturer has moved into the provision of services. It broadly confirms Oliva and
Kallenberg’s (2003) findings from other sectors noted earlier in this paper, i.e. the three factors
leading to servitisation are economic factors, customer demands and the pursuit of competitive
advantage. The authors (Johnstone, Dainty, and Wilkinson 2009) pinpoint two of these three fac-
tors, namely economic factors in the form of cost pressures and the need to provide a stronger
customer focus given the trend towards greater use of outsourcing.They also note that implemen-
tation creates challenges in terms of gaining employee involvement and the integration of different
parts of the organisation. A study by Ward and Graves (2007) surveyed 11 companies operating
in different parts of the aerospace supply chain. It identified four factors behind servitisation.
Three were those noted by Oliva and Kallenberg (2003).The additional fourth factor identified by
Ward and Graves (2007) was risk, specifically a desire to push the risks associated with revenue
streams, down the supply chain. The authors noted that this factor was less significant than the
other three. Ward and Graves (2007) also highlighted the importance of information systems in
implementing this kind of service. Significantly, Ward and Graves (2007) like Johnstone, Dainty,
and Wilkinson (2009) said little about the part played by technology, in providing information in
the first place. In contrast, an earlier study by Lorrell et al. (2000), while noting the importance
of the factors identified by Oliva and Kallenberg (2003), also cited industry specific institutional
changes, in the form of market deregulation, as an important driver particularly in the commercial
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990 D.J. Smith
sector. This they argued had caused manufacturers to rethink the way they do business. The study
cited the move into services as a direct consequence of institutional changes, though it said little
about the strategies of particular companies.
The most comprehensive analysis of servitisation in the aerospace sector is that by Kerr and
Ivey (2001). It focuses specifically on the aero engine sector and provides extensive contextualisa-
tion covering not only institutional changes, but also other changes affecting the sector in general
and maintenance services in particular.A feature of the study is the attention it gives to economic
factors especially the economics of engine maintenance. It also highlights the crucial importance
of knowledge of engine performance characteristics in the provision of maintenance services, par-
ticularly the scope such knowledge provides for accurately predicting maintenance requirements
and optimising engine performance. To this end, the study notes that engine data is increasingly
becoming available on a real time basis through the development of engine monitoring systems,
and the authors highlight the implications of this for the engine manufacturers. However, relatively
little is made of the part played by technology in facilitating this, nor does the study consider the
wider implications of this for the strategies employed by the engine manufacturers.
Overall, the studies of the aerospace industry support and reinforce Oliva and Kallenberg’s
(2003) general perspective on servitisation that there are three main factors acting as drivers
for servitisation, namely economic factors, customer demands and the pursuit of competitive
advantage. The studies identify a small number of additional factors contributing to servitisation,
namely risk (Ward and Graves 2007), institutional changes (Lorrell et al. 2000) and the increased
availability of information (Kerr and Ivey 2001), but none of the studies identifies any of these
factors as being particularly important.
Significantly none of the studies specifically cites technology, especially advances in technol-
ogy, as a driver for servitisation. One might argue that the study by Kerr and Ivey (2001) comes
close because it did note how increased knowledge of product performance is becoming available
through the development of engine health monitoring systems. However, the study said nothing
about the technologies that are helping to make this possible. In the light of this, and the way in
which studies of servitisation in aerospace like studies of other sectors have ignored advances in
technology, as a possible factor behind servitisation, this study seeks to rectify this omission.
3. Methodology
A case study methodology was selected for two reasons. First, because Eisenhardt (1989) argues
that case study research focuses on the dynamics present in a given setting or context and the focus
of the study was factors influencing the reshaping of strategy in a specific industry context. Second,
because Voss, Tsikriktsis, and Frohlik (2002) maintain that case study research is particularly
appropriate for analysing changes in technology and the impact of technology was a theme
running throughout the study.
Following Leonard-Barton (1990), a ‘dual’methodology was used for data collection, involving
both archival materials and interviews and both public and private in nature. The former were
largely publicly available archival materials and reliance on them was justified on the grounds that
Lazonick and Prencipe (2005), who have researched aerospace extensively, maintain that with
company-level research on strategy, much can be achieved with such materials.
The archival materials included a range of documentary sources. They consisted of documents
published by the case company together with a range of specialist published materials covering
aviation in general and the aerospace industry in particular.Among the case company documents
consulted were annual reports from 1970 to the present, the in-house quarterly magazine published
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by the case company from 1979 to the present, together with a range of reports that included
technical summaries and market reports. The specialist published materials included both printed
and online resources. Of these, the most used item was the searchable online digital archive of
the specialist aviation periodical Flight International, which is available from 1909 to 2009. This
provided a number of contemporary reports (Lewis 1999; Paddon 1988) on developments in
engine technology. Other specialist aviation periodicals consulted included Aviation Week and
Space Technology (Terino 2005), Aerospace (Baldwin 1993; Robins 1994; Ruffles 1986), Air
International (Walters 1999) and Airways (Davis 2010). This was supplemented by further data,
much of it technical in nature from specialist technical publications. These included material
from the trade press such as Military and Aerospace Electronics (Wilson 2003) which had been
identified from online databases including Business Source Complete and Science Direct and
reports, lectures and other materials published by the principal professional body in the UK
dealing with aviation, the Royal Aeronautical Society (Howse 2004; Robins 2004).
Alongside these documentary sources a number of specialist texts were used covering various
aspects of aviation. These fell into two broad categories, those that were essentially of a technical
nature and those that were largely historical. The former included several works covering a
variety of aspects of engine technology (Gunston 1995; Kay 2007; Miller and Sawers 1968;
Rolls-Royce 1966), while the latter included biographies (Hooker 1984; Rowe 2005); corporate
histories (Donne 1981; Pugh 2002); and studies of the aviation industry (Bluestone, Jordan, and
Sullivan 1981; Langewiesche 2010; Whitford 2007).
The use of a number of different types of document served to ensure the quality of the evidence
used. The various types of document used were written either by specialist technical authors and
journalists with many years’ experience, including a number who had previously worked in the
industry often in a technical role, or by senior technical figures working for the case company,
with extensive personal knowledge of the technologies and technological advances detailed in the
case study.
The data gathered in this way were corroborated and verified through a small number of inter-
views conducted using the key informant approach, a technique widely used in ethnographic
studies (John and Reve 1982; Phillips 1981). Five key informants were interviewed, having been
selected not on a random basis but specifically because they occupied, or had until recently occu-
pied, senior roles within the aerospace industry. This meant that they had specialised knowledge
of the issues being researched (Kumar, Stern, and Anderson 1993). They included a commercial
director, a business development manager, a new product development manager, a finance director
and an aerospace industry consultant. Four had been employed by companies that were partners
of the case company on joint ventures or partnerships for major engine programmes at some point
during the period covered by the case study. One had had worked as a contractor to the case com-
pany for many years. The interviews were in Marshall and Rossman’s (1989, 94) terminology,
‘elite interviews’ with respondents well qualified to comment on the case company’s strategies,
as well as industry trends and practices. Identification of the sample of key informants followed a
snowballing strategy similar to that outlined by Healey and Rawlinson (1991, 346), whereby hav-
ing interviewed ‘one good senior contact’that individual’s personal network proved very effective
in identifying further suitable key informants. The interviews, which were semi-structured, lasted
between 40 and 90 minutes and were recorded and transcribed. Four were conducted face-to-face
interview, while one was a telephone interview.
Having amassed a substantial body of data in this way, it was then subjected to content analysis
(Bryman and Bell 2007) using a simple manual coding system based on critical incidents in
relation to the development of aero engine technology. From this, a timeline tracing the historical
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992 D.J. Smith
path of advances in engine technology was produced, which in turn formed the basis of the
narrative for the detailed in-depth case study. In terms of analysis, the archival materials provided
the initial basis for the development of the case study. The key informant interviews were then used
to triangulate the emerging picture of developments within the case company and to evaluate the
extent to which new technologies had contributed to the reshaping of business strategy within it.
4. Case study: Rolls-Royce plc
4.1. Jet engine technology
The jet engine that forms the powerplant of today’s modern jet airliner is a gas turbine made up of
three main elements, namely a compressor, a combustor and a turbine (Figure 1). While the first
jet engines were turbojets, since the 1960s more efficient turbofan designs have been used. These
have an inlet fan at the front which both draws air into the compressor and sends some into a
bypass duct around the engine in order to cool it, reduce noise and generate a significant proportion
of engine power. The function of the compressor, which comprises rows of ever smaller rotating
blades on a central shaft (Scranton 2011), is to compress the incoming air. The high pressure air
is then mixed with atomised fuel and burnt in the combustor. This produces very hot gases which
expand rapidly and are forced out of the back of the engine under intense pressure to provide the
thrust which propels the aircraft forward (Rolls-Royce 1966). On the way, the exhaust gases drive
a multi-stage turbine rotating at high speed which powers the compressor. The power generated
is measured in pounds of thrust and early jet engines produced only limited thrust, typically less
than 10,000 lbs.
Although the jet engine was readily taken up by the military in the years immediately after
Second World War for applications such as interceptor fighters (Geels 2006), largely because
of its performance in terms of power to weight, it was more than a decade before jet airliners
became anything like a serious proposition for the world’s airlines. The cause of the delay was
that although jet travel offered passengers the twin potential benefits of speed and comfort, the
development of the jet airliner in the early years was held back by two key factors, namely poor
fuel economy and poor durability (Geels 2006). Early jet engines used a lot of fuel. Specific fuel
consumption (SFC) on the first generation of turbojet engines was about 0.9 lb/hr/lb, making
them significantly less fuel efficient than the piston engines they replaced (Figure 2). Although
Figure 1. Schema of a modern jet engine.
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The role of technology in reshaping business strategy at Rolls-Royce 993
Figure 2. Improvements in SFC of civil jet engines 1950–2000.
Source: Whitford (2007, 116).
simpler than piston engines by virtue of replacing a reciprocating motion with a rotating motion,
jet engines also required more maintenance than equivalent piston engines, by virtue of their
novelty and their high operating temperatures (Miller and Sawers 1968, 178), which demanded
new and unproven materials. General Electric’s J-47 engine for example, admittedly a military
rather than a commercial engine, went for only 500 hours between overhauls even in the mid-
1950s (Miller and Sawers 1968, 186). Poor durability meant that mechanical parts like turbine
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994 D.J. Smith
Table 1. Comparative performance of Rolls-Royce engines.
Conway RCo. 12 (1960) Trent 892 (1998)
Application Boeing 707 Boeing 777
Max. thrust (lbs.) 17,500 91,500
Engine weight (lbs.) 5147 16,000
Bypass ratio 0.3:1 6.5:1
TET (C) 1050 1750
SFC (lb/hr/lb) 0.87 0.575
Pressure ratio 15:1 40.8:1
Thrust; weight ratio 3.4:1 5.7:1
Sources: Davis (2010); Gunston (1995); Kay (2007); Owen (2001).
blades had to be replaced after a short time, a serious problem for commercial airlines in view of
the high levels of usage demanded of their aircraft.
Key factors in improving engine performance in terms of fuel economy were the bypass ratio,
the pressure ratio and turbine inlet temperature (TET). As a base line Rolls-Royce’s first generation
turbofan engine the RCo12 Conway which powered both British and American airliners in the
1960s had a bypass ratio of 0.3:1, a pressure ratio of 15:1 and an operating temperature of 1050C
(Table 1). To improve the fuel efficiency, engines needed to operate at higher temperatures and
higher pressures so as to ensure fuel was turned into energy as efficiently as possible. Improving
durability required a combination of factors including the development of stronger heat resistant
materials, more effective design and improved manufacturing processes.
4.2. Advances in engine technology
Over the last 40 years, successive generations of new engine have introduced advances in engine
technology that have progressively improved not only engine performance but also engine dura-
bility. Rolls-Royce’s RCo42 Conway engine which entered service in the 1960s included one
significant innovation designed to boost durability, over first-generation turbojets. Although the
compressor utilised what were then conventional extruded aluminium blades (Howse 2004),
the Conway pioneered the use of forged nickel alloy turbine blades incorporating internal air
cooling (Gunston 1989; Hooker 1984; Whitford 2007), which significantly extended the life of
turbine blades.
The successor to the Conway (Donne 1981) was the Rolls-Royce RB211, a very much larger
and more powerful high-bypass turbofan engine that powered the first wide-bodied airliners like
the Lockheed L-1011Tristar and Boeing 747. Entering service in the early 1970s, it was designed
to operate under more demanding conditions, including a much higher 5:1 bypass ratio, twice the
pressure ratio and an operating temperature of 1250C. It was more than twice as powerful as the
earlier Conway and significantly more fuel-efficient (Figure 2). It also incorporated a number of
technological advances designed to improve durability. Following the lead given by its American
rivals General Electric and Pratt and Whitney, Rolls-Royce switched from forged to cast turbine
blades, manufactured using the ‘lost wax’process (Hooker 1984). Substituting investment casting
for forging not only allowed harder alloys to be used but it also facilitated more effective and
reliable internal cooling of turbine blades, resulting in them being significantly more durable. The
524 variant, a later and more powerful version of the RB211engine also incorporated film-cooled
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The role of technology in reshaping business strategy at Rolls-Royce 995
Figure 3. Applications of wide-chord titanium fan blade technology.
Source: Baldwin (1993).
turbine blades enabling them to operate at even higher temperatures, while the 535 variant used
a new ‘directionally solidified’ blade (Howse 2004, 12) that was both stronger and more durable.
Later versions of Rolls-Royce’s 535 engine, designated the 535E4 that entered service in
the late 1980s (Walters 1999), saw the introduction of one of the most significant advances
in engine technology (Robins 1994), the hollow titanium wide chord blade fitted to the large
fan at the front of the engine. Hitherto engine manufacturers had used narrow solid titanium
blades. These suffered a number of disadvantages.They were heavy, a large number of them were
needed and they required a mid-span support or snubber to prevent vibration. This significantly
reduced aerodynamic efficiency. Rolls-Royce’s introduction of the much lighter and stronger
hollow titanium wide chord fan (Prencipe 2001) on the E4 version of its 535 engine, produced by
an entirely new process of diffusion bonding (Howse 2004, 18), resulted in a fan that was much
lighter and much stronger (Figure 3). Many fewer blades were required, 22 as opposed to 33 on
earlier versions (Baldwin 1993), and it dispensed with a mid-span support, resulting in a significant
(4%) improvement in fuel efficiency (Figure 2). Being wider and stronger, the blades were also
more robust and durable resulting in less susceptibility to bird strikes and foreign object damage.
Rolls-Royce’s latest generation of engine, the Trent and its associated variants that entered
service in the late 1990s and 2000s on the new generation of large twin jet airliners like theAirbus
A330 and Boeing 777, introduced further advances in technology associated with design, materials
and manufacturing processes, which again resulted in improvements not only in fuel efficiency
(Figure 2) but also particularly in engine durability. These included turbine blades made from
advanced single-crystal titanium alloys which eliminate the grain boundaries which reduce the
life of conventionally cast blades (Owen 2001, 132) and the introduction of thermal barrier coatings
(Howse 2004, 12). These advances in technology combined with improvements in internal cooling
mean that turbine blades can now operate at 1800C, while the base material only has a temperature
capability of 1350C. Another development with later versions of the Trent was the introduction of
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996 D.J. Smith
swept fan blades. Introduced on the Trent 900 engine that powers the Airbus A380, the swept fan
requires fewer blades and significantly increases damage resistance and durability by centrifuging
debris away from the engine core and down the bypass duct (Howse 2004, 18). These changes
mirrored similar developments at its rivals General Electric and Pratt and Whitney.
With the development of ultra high-thrust engines like the Rolls-Royce Trent in the 1990s,
manufacturers were forced to develop engine control systems capable of handling a much greater
number of engine parameters (Brusoni and Prencipe 2001), as the hydro-mechanical engine
control systems used up until this point, as one commentator (Paddon 1988, 33) put it at the
time, ‘just could not cope ...they were becoming mechanical monsters’.As a result, Rolls-Royce
and the other leading engine makers who developed similar ultra high-thrust engines introduced
full authority digital electronic control (FADEC) systems, which were fundamentally different
from earlier engine control systems. Data on engine parameters, such as turbine temperature,
fan speed, and altitude, were now collected via electronic sensors in the form of transducers and
thermocouples and communicated electronically to a computer, which managed all aspects of
engine performance. This mirrored the development of fly-by-wire control systems for aircraft,
described by Langeweische (2010, 99) as, ‘a marriage between electrical control circuits and
digital computers’.
The switch to digital electronics provided a number of benefits, particularly in terms of engine
durability and reliability. First, FADEC systems record any deviations from the ideal operating
range of the engine, thereby facilitating more effective maintenance. Second, they ‘treat the engine
very gently’(Paddon 1988, 34) meaning that because a FADEC system is constantly monitoring a
large number of engine parameters it can make minute adjustments to the engine, thereby ensuring
it is functioning as close to its ideal operating conditions as possible, so as to minimise wear and
tear on components. Finally, a FADEC system provides valuable system protection within the
engine, so as to protect components from damage wherever possible thereby ensuring durability.
The cumulative effect of advances in engine technology meant that by the 1990s when the
first of the current generation of engines like the Rolls-Royce Trent entered service they not
only exhibited a level of performance in terms of thrust and fuel efficiency (Table 1) that was a
very substantial improvement on 30 years earlier, but their durability was also vastly improved
compared to first generation turbofans like the Rolls-Royce RCo42 Conway. The extent of this
improvement was reflected in the demand for spares to replace worn and damaged components.
Even in the early 1980s, a jet engine would consume a quantity of spares equivalent to the original
value of the engine in about eight years (Whitford 2007), but engines like the new Rolls-Royce
Trent that entered service at the end of the 1990s consumed this quantity of spares not in eight
years, but in 25 years. For the engine makers, this represented a very big drop in demand for
spares and therefore their revenues.
4.3. Reshaping business strategy: from product-centric to customer-centric
The dramatically reduced demand for spares brought on by advances in technology presented
a particularly challenging problem for engine manufacturers like Rolls-Royce. With the profit
margin on spares estimated to be seven times higher than that on new engines (The Economist
2009), it was not just a matter of the loss of revenue but the loss of their most profitable revenue.
Faced with this, Rolls-Royce began to revise and reshape its business strategy. Hitherto, Rolls-
Royce’s business strategy, like that of itsAmerican rivals Pratt and Whitney and General Electric,
was a ‘product-centric’ strategy (Davies 2004, 733), that aimed to maximise the breadth of its
product portfolio. By having the widest possible range of engines, it aimed to offer the largest
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The role of technology in reshaping business strategy at Rolls-Royce 997
Figure 4. Annual deliveries of Rolls-Royce civil engines 1995–2010.
Source: Rolls-Royce Annual reports 1998–2010.
number of airframe applications for its engines thereby maximising the number of potential airline
customers who could use its products. Not only that, having developed advanced technologies,
such as its innovative hollow titanium wide-chord fan, Rolls-Royce could then apply them to
different types of engine. As Figure 3 shows the wide chord fan initially developed for the 535E4
variant of the RB211 was also fitted to Rolls-Royce’s 524 engine that powered the Boeing 747,
the V2500 that powered the Airbus A320, A321 and A319 and the Tay engine that powered the
Fokker F70 and the Gulfstream business jet. This ‘dual use’(Robins 2004; Ruffles 1986) approach
to new technologies served to spread R&D costs across different engine programmes leading to
economies of scope (Swann 2009).
Rolls-Royce’s vigorous pursuit of this product-centric business strategy meant that whereas
in 1980 it sold engines for just four civil airframe applications, by 1996 this had risen to 27
(Rolls-Royce 1997, 8) and as Figure 4 shows deliveries of commercial engines which at the start
of the 1990s had been around 400 per year had trebled to more than 1200 per year by the start of
the new millennium. By the early 2000s, the company had even displaced one time market leader
Pratt and Whitney (Bluestone, Jordan, and Sullivan 1981) to take second place in the worldwide
market for aero engines (Lazonick and Prencipe 2005) just behind arch rival General Electric.
However, just at the point when Rolls-Royce’s product-centric business strategy was finally
yielding success, the company like its rivals, General Electric and Pratt and Whitney, began to
feel the impact of the cumulative advances in engine technology, in particular the cumulative
improvements in engine durability. Faced with this, in the 1990s Rolls-Royce, while continuing
to pursue a broad product portfolio, began to reshape its strategy along the lines of what Davies
(2004, 732) terms a ‘customer-centric’ business strategy. This aimed to extract greater value from
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998 D.J. Smith
Figure 5. After-market competitiveness.
Source: Lorrell et al. (2000, 129).
one of the company’s most important assets, namely its installed engine base. This greater value
was to come from offering not merely spare parts, but maintenance services as well, though offered
on a very different basis from conventional maintenance, repair and overhaul (MRO) services with
fixed price contracts linked to guarantees of engine availability.
Historically, Rolls-Royce along with other original equipment manufacturers (OEMs) had
undertaken MRO work on a fairly minor scale. Indeed, one study observed that, ‘until the 1990s,
repair and overhaul of its engines was not viewed as a mainstream activity’ (Pugh 2002, 194).
The OEMs limited their exposure to MRO to warranty work in the early part of an engine’s
life (Figure 5), leaving the market to the in-house engineering divisions of major airlines and
independent MRO providers. The latter had become a more important part of the MRO market as
airlines increasingly outsourced their maintenance work in order to focus on their core business.
When outsourced in this way, MRO work was undertaken on a ‘time and materials’ basis (Ward
and Graves 2007, 467) where the contract price was determined by actual costs in terms of staff
time and spare parts used.
In 1993, Rolls-Royce took its first tentative steps towards a customer-centric strategy with
the setting up of a separate company, Rolls-Royce Aero Engine Services Ltd., designed to pool
together the repair and overhaul facilities that had hitherto operated independently at sites in Derby,
Bristol, Coventry and Scotland in the UK and overseas in Canada and Brazil. The company then
set about putting in place an appropriate infrastructure with which to deliver MRO services on a
global basis. Additional facilities for repair and overhaul work were acquired around the world,
chiefly through a succession of joint ventures with airlines (Table 2). By 2001, this expansion had
grown the company’s repair and overhaul business from a modest $400 million in 1993 with just
six sites of which two were overseas to $1.6 billion (Pugh 2002) with 16 sites around the world
(Wilson 2003). Thus, over an eight-year period Rolls-Royce created the infrastructure to enable
it to offer MRO services on a worldwide basis, with major facilities across the world.
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The role of technology in reshaping business strategy at Rolls-Royce 999
Table 2. Rolls-Royce’s principal MRO-related collaborations.
Year Venture Form Partner Location
1996 Hong Kong Aero Engine Services
1998 Texas Aero Engine Services Ltd
JV American Airlines USA
1998 International Aero Engine
Component Overhaul (IECO) Pte
JV Singapore Int. Airlines Singapore
1998 Data Systems & Solutions JV Science Applications
International Corp.
1999 National Airmotive Acquisition n/a USA
2004 N3 Engine Overhaul Services JV Lufthansa Technik AG Germany
Source: Pugh (2002); Rolls-Royce Annual Reports 1994–2004.
However, reorganisation of its repair and overhaul operations was only a one part of the com-
pany’s new customer-centric strategy. A key part of reshaping the company’s business strategy
was extracting significantly more value from its installed base of engines. To do this, Rolls-Royce
developed a completely different type of service offering. Rather than services provided on a
conventional ‘time and materials’ basis like its competitors, the in-house engineering divisions
of the bigger airlines and the independent MRO providers, Rolls-Royce broke new ground by
offering its customers an ‘integrated solution’ (Wise and Baumgartner 1999, 138) in the form of
fixed price maintenance based on engine availability. This new type of performance-based service
contract was initially marketed as ‘power-by-the-hour’.
4.4. Power-by-the-hour for the US navy
An example of the new style performance-based contracts being offered by Rolls-Royce was
its contract with the US Navy signed in September 2003 (Rolls-Royce 2005a) for the provision
of maintenance and logistical support for the Rolls-Royce Turbomeca F405 Adour engines that
powered the navy’s 200-strong fleet of Boeing/BAE Systems T-45 Goshawk advanced naval jet
trainer aircraft.
Under the terms of the contract, Rolls-Royce was to be the sole provider of logistics support,
receiving a fixed price for each hour the engines were in the air. This meant that Rolls-Royce
providing all the engine maintenance, support, trouble-shooting, parts supply and logistics support
for the aircraft at three naval air stations in Meridian in Mississippi, Kingsville in Texas and
Patuxent River in Maryland. Performance was measured almost exclusively against the fleet metric
of providing a minimum level of ready-for-issue (RFI) engine availability, which previously had
averaged 70%, meaning that aircraft were out of action for nearly one-third of the available time. As
part of the new contract, Rolls-Royce guaranteed an improved RFI engine availability rate of 80%.
For the US Navy, the switch to performance-based maintenance contracts of this type offered
three potential benefits. First, it meant that as the aircraft operator it avoided the uncertainty of
unpredictable breakdowns and repair costs. Instead, maintenance became a known and certain
fixed cost against which it could plan. The second potential benefit was an improved level of
service, manifest in increased RFI engine availability and therefore flying time. Finally, these
services were now provided at a lower cost.
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1000 D.J. Smith
The success of the initial one-year contract led to a significant improvement in maintenance
quality and performance reliability, with all the performance metrics being met.As a result, the US
Navy exercised its option to renew the contract for a further four years.Two years into the contract
in 2005, the programme manager for the US Navy’s Undergraduate Flight Training Systems at
Patuxent River, Maryland, commented that RFI engine availability on the T-45 Goshawk trainers
had risen above the target rate of 80% in the initial year reaching 85%, while the average time
between engine removals had increased from 700 hours to over 900 hours and the expected
engine removal rate had fallen by 15% (Terino 2005). As Captain Daniel Ouimette, Commodore
of Training Air Wing ONE, commented, ‘Before signing the contract with Rolls-Royce we had
aircraft on the ground because of engine availability, but this has never happened under the new
regime’ (Rolls-Royce 2005b, 19).
It was not only in operational terms that Rolls-Royce’s power-by-the-hour contract proved
beneficial to the US Navy, there were financial gains as well. The contract brought significant cost
savings over the previous arrangements. As Figure 6 shows in the contract’s first three years, the
Navy’s savings amounted to $15 million, $18 million and $5 million, respectively (Kratz 2008),
with total savings over the five-year life of the contract projected to total $61 million. In 2008,
upon the conclusion of the fifth year of the contract, a new expanded five-year contract was signed,
worth $90million per year (Rolls-Royce 2009) on similar terms but under the MissionCarelabel,
the new name for Rolls-Royce’s aftermarket services for the Defence sector.
Figure 6. T-45 engine costs: Power-by-the-hour®v. original.
Source: Kratz (2008).
Note: Power-by-the-hour costs for 2006 and 2007 are estimates.
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The role of technology in reshaping business strategy at Rolls-Royce 1001
4.5. The growth of aftermarket services
The contract with the US Navy is typical of the performance-based contracts that Rolls-Royce
now provides as part of its range of enhanced aftermarket services. In the civil aviation sector,
these services are offered as TotalCare®, comprising a range of packages that allow airlines to
select from a menu of aftermarket services on an agreed scale of costs per flight hour. In these
deals Rolls-Royce maintains the airlines’engines on a planned maintenance basis on behalf of the
customer (Rolls-Royce 2003, 13). Similar arrangements are available in the defence and corporate
sectors offered as Mission Care and Corporate Care, respectively. In each instance the services
form a comprehensive set of through life engine maintenance arrangements.
To support these service packages, in March 2004 Rolls-Royce opened an Operations Centre at
its Derby headquarters capable of remotely monitoring an airline customers’ engines on a 24-hour
basis (Rolls-Royce 2005a). It provides an integrated decision support system, coordinating data
from aircraft, engine and overhaul shops with logistics support and engineering knowledge. The
Operations Centre maintains the 3500 engines that Rolls-Royce has under management whether on
the ground or in the air, on a real-time basis via telemetry systems. Thus if an engine’s performance
falters for any reason while it is airborne, this will be picked up by the Operations Centre. Staff at
the Operations Centre can then pull up the engine’s history and mobilise appropriate maintenance
resources on the ground ready to service the aircraft when it lands.
The growth of aftermarket services such as the new style performance-based maintenance
contracts resulted in increased revenue for Rolls-Royce. By delivering integrated solutions, the
company was providing significantly more value. No longer was it just a spare parts supplier, it
was now providing a range of maintenance and repair services as well. The increased revenue that
these services brought in was reflected in a significant increase in the proportion of Rolls-Royce’s
total revenue derived from services.
Twenty years ago in 1991, services represented just 25% of the company’s total revenue (Rolls-
Royce 2002, 17). By 2000, the proportion of revenue derived from services had risen to over a
third (Rolls-Royce 2001, 12), representing 37.5% of its total revenue of £5.56 billion. Although
part of the growth was accounted for by finance and leasing activity, nonetheless a significant
proportion was accounted for by repair and overhaul work. This had doubled in value over the
previous five years (Rolls-Royce 2001, 12). By 2011, revenue from services had continued to
grow reaching £6.02 billion and amounting to more than half (53.4%) of Rolls-Royce’s total
revenue (Rolls-Royce 2012, 13) of £11.28 billion (Figure 7).
4.6. Changing competitive positions in the market for aftermarket services
Aftermarket services in the form of MRO had traditionally been provided by the airlines them-
selves, by independent firms or by the OEMs. MRO was something that historically all three
engine manufacturers had collectively neglected over the years. Indeed, the traditional view in
the sector had been, ‘...if you have a Chevrolet, you don’t take it back to Detroit to fix it’ (Lewis
1999, 54), but by the 1990s all three manufacturers were starting to ‘recognise lifecycle opportu-
nities’. With the OEMs keen and able to increase their share of this market through the provision,
as the US Navy example illustrates, of better and more effective maintenance, changes in the
competitive positions of the service providers resulted. Hence by 2003 it was being reported that,
‘the trend has been for airlines to increase outsourcing, OEMs to increase their share of MRO
work, and independents to increasingly disappear’ (Wilson 2003, 4).
In reality, the picture was a little more complex. Not all airlines chose to outsource their MRO
work to OEMs. Doganis (2006, 285) notes that some of the larger international carriers saw in
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1002 D.J. Smith
Figure 7. Rolls-Royce’s total/service revenue 2000–2010 (£m).
Source: Rolls-Royce annual reports.
MRO, ‘the potential value of these activities as profit generators in their own right’. As a result,
carriers like Lufthansa in Europe and Singapore Airlines inAsia, ‘set about transforming what were
previously internal departments into specialist companies’. However, such instances tended to be
the exception rather than the rule. Most of the small- and medium-sized airlines were too small to
provide all the MRO services economically, especially as the greater technological sophistication
of modern jet engines required them to invest in increasingly sophisticated maintenance equipment
and more highly trained staff. For such carriers outsourcing MRO made economic sense. It also
allowed them to focus on their core activities, something that military customers like the US Navy
also preferred to do.
It was a similar story with the new and rapidly expanding low-cost carriers (LCCs) such as
Ryanair (Barratt 2004) and easyJet (Jones 2005). Given their business model, which relied on
keeping processes simple and costs low (Holloway 2008), LCCs were keen to lower their direct
operating costs, with the result that they sought to outsource as many activities as possible and
maintenance was an obvious choice. By so doing, they could avoid ‘top-heavy maintenance
administration, or costly hangars and maintenance facilities of their own’ (Doganis 2010, 142),
and the OEMs were well placed to take on the MRO work being outsourced in this way. The
Irish LCC Ryanair was typical. In 2004, it announced that it was outsourcing the maintenance
and overhaul of all the CFM56-7 series engines powering its fleet of Boeing 737–800 aircraft to
GE Engine Services as part of a 10-year contract involving a maintenance-cost-per-hour system
(Professional Engineering 2004, 12).
Independent MRO firms found themselves increasingly squeezed. The introduction of a new
generation of technologically more sophisticated and reliable engine in the early 2000s provided
what Wilson (2003, 4) described as, ‘a double hit on independent shops – higher investment and
lower demand’. Higher investment was required because of the new technologies being used, such
as FADECs, while the decline in demand was the product of airlines switching to OEMs. As the
general manager of one independent noted, ‘the OEMs are trying to gain a larger share of the market
by buying or co-venturing with independents or putting them out of business’ (Wilson 2003, 5).
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The role of technology in reshaping business strategy at Rolls-Royce 1003
Hence in the last 10 years, we have seen that the OEMs gain market share at the expense of
the airlines and the independents especially. These changes in competitive position were largely
attributable to advances in technology. New technologies made it possible for OEMs, by virtue
of the data they were now able to collect and analyse regarding their engines, to offer a better and
more effective service, while at the same time making it harder for small and medium airlines and
independents to compete on the same terms, a situation compounded by the introduction of new
business models by the LCCs.
5. Analysis
Rolls-Royce was not alone in feeling the impact of a significant drop in the demand for spares.
The two other engine manufacturers with the capacity to produce a full range of civil and military
engines, Rolls-Royce’sAmerican rivals, General Electric and Pratt and Whitney, were faced with
very similar issues in terms of the decline in the demand for engine spares.
As the case study shows, General Electric and Pratt and Whitney had also contributed significant
advances in engine technology, both in terms of new manufacturing processes and component
improvements. Consequently, by the 1990s they too were feeling the impact of the steady and
continuous improvements in engine performance both in terms of efficiency and durability. As
one commentator explained, ‘by designing and producing ever more reliable and competitive
powerplants, engine manufacturers have fallen victim to their own success’ (Lewis 1999, 54).
A similar theme was echoed at General Electric. Brian Rowe, former head of GEAircraft Engines
speaking of the new ultra high-thrust GE90 engine that came into service in the late 1990s
commented, ‘...the engines just seem to run forever’ (Rowe 2005, 144). It was a similar story at
Pratt and Whitney where Jim Keenan, senior vice president of commercial engines noted in 2003
that, ‘today’s generation of engine enters the shop nominally about one third as often as a typical
engine 25 years ago’ (Wilson 2003, 5).
Rolls-Royce was perhaps the first to feel the impact of the improvements in engine durability,
because having only recently increased its share of the world market for commercial engines from
10% in the mid-1980s to 30% in the late 1990s (Pugh 2002, 306), its installed engine base was
relatively ‘youthful’. As such its installed engine base included a higher proportion of newer and
therefore more durable engines with a much lower spares requirement.
Nonetheless, by the late 1990s, all three manufacturers had launched new large diameter, wide-
chord fan engines for the new generation of large twin jet airliners being introduced by Boeing
and Airbus. These engines all incorporated the latest technology including FADEC electronic
control systems, with the result that all three saw a decline in their most profitable revenue stream
– replacement parts. This led all three to take a new perspective on MRO work.
However, as one commentator noted at the time, ‘General Electric, Rolls-Royce and Pratt
and Whitney have taken slightly different approaches to the changing MRO market, although
all three are seeking a greater share of the pie’ (Wilson 2003, 6). While Rolls-Royce relied on
joint ventures with international airlines particularly ones from Asia, General Electric, having
first consolidated its Engine Services department and its Commercial Spare Parts operation into
a single organisation, General Electric Aircraft Engine Services (GEAES), utilised a series of
take-overs designed to complement its existing facilities in California and Kansas in the USA and
create a worldwide engine service network. It purchased British Airways engine overhaul facility
at Cardiff in Wales (Pugh 2002; Rowe 2005), followed by the purchase of Greenwich Air Services
in the USA, a 70% stake in Malaysia Airlines’Aero Engines Repair and Overhaul, a 20% stake in
EVA Airways’ Evergreen Aviation Technologies in Taiwan and a 95% stake in the engine service
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1004 D.J. Smith
arm of the Brazilian airline Varig (Lewis 1999, 55). Pratt and Whitney on the other hand took
a different approach again. As the former market leader with 90% market share in the 1960s, it
already had an established worldwide network of some two dozen existing MRO facilities around
the world and it used these facilities to create five specialist engine overhaul and repair centres
(Wilson 2003, 6).
It was not merely a case of the engine manufacturers doing more MRO work. A report at the
end of the 1990s noted that, ‘manufacturers are not looking simply to develop and extend their
geographical coverage, but also the commercial scope of their aftersales activity’ (Lewis 1999,
54). Bill Vareschi, president of GE Engine Services described the new services as, ‘We’re bringing
airlines new procedures and processes that optimise workscope, lower the cost of operations and
reduce the time taken for engine repair and overhauls’ (Lewis 1999, 54). Extending the scope of
their aftermarket activities meant General Electric followed Rolls-Royce in offering services like
on-wing support, maintenance hour’s agreements and total care packages alongside conventional
repair and overhaul services. Pratt and Whitney followed too, leading one independent MRO
provider to note, ‘the OEMs are selling total repair, power-by-the-hour packages; that’s the strategy
on all new engines coming out of the OEMs’ (Wilson 2003, 6).
Hence, the reshaped business strategy developed by Rolls-Royce and described in the case
study had by the decade of the 2000s, been adopted by all three of the main engine manufacturers
that dominate the aero engine sector, and in each instance technology was a powerful influence
in the reshaping of business strategy.
Signs of a similar trend in other sectors are limited. Technologies very similar to those employed
in the aero sector, involving remote monitoring, have been introduced in Formula 1 motor racing.
Groups of technicians located at a team’s headquarters often on the other side of the world closely
monitor each racing car’s systems during races to ensure optimum performance and maximise
the chances of winning. But this remains a very limited and highly specialised application. Such
technologies have yet to be used more generally in the automotive industry, where institutional
factors mean that maintenance and repair services remain the province of the dealer network
(Maxton and Wormald 2004). Servitisation is, however, found in sectors producing high value,
long-lived capital goods. Examples include manufacturers of trains, mobile communication sys-
tems and flight simulators. But in these instances, a study by Davies (2004) suggests that changes
of strategy are the product not of advances in technology but changing customer demands.
6. Conclusions
While much has been written about the movement of manufacturers into services, this study breaks
new ground by considering the contribution of technology to this process. At the outset a single
question was posed. What role did technology play in inducing the aero engine manufacturer
Rolls-Royce to reshape its business strategy? The principal finding is that in Rolls-Royce’s case
advances in technology played a very important part in the company’s decision to reshape its
business strategy utilising servitisation.
The advances in technology were not major technological discontinuities (Tushman and
Anderson 1986) or radical in character, resulting in what Christensen (1997, xiii) terms
‘disruptive innovation’. Rather the advances in technology were the product of cumulative
incremental innovations in materials, design and manufacturing that formed ‘sustaining technolo-
gies’ (Christensen 1997, xv) that helped to foster improved performance in established products
along lines valued by mainstream customers.
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The role of technology in reshaping business strategy at Rolls-Royce 1005
The improved performance focused on greater durability and reliability, and reduced the demand
for spares, which had long been the company’s most profitable revenue stream. This led Rolls-
Royce to look to servitisation to make up for this loss and the case study shows that technology
was a powerful enabling factor facilitating the move to servitisation in this sector. Technology,
particularly developments in digital electronics in the form of FADEC systems, transformed
the scope of the maintenance services provided by the engine manufacturers. The engine health
monitoring capabilities made possible by the introduction of electronic FADEC systems facilitated
the introduction of service innovations such as fixed price per hour maintenance contracts.
While the study suffers from the limitation that one cannot generalise from a single case,
nonetheless it is evident from the analysis section of this study that as far as the aero engine sector
is concerned Rolls-Royce was not an isolated case. Not unsurprisingly in this highly oligopolistic
sector, Rolls-Royce’s rivals, General Electric and Pratt and Whitney were similarly affected and
followed broadly similar strategies, though it was generally Rolls-Royce that led the way certainly
in terms of some of the service innovations that resulted from greater knowledge of engine
performance data.
What the case study lacks in terms of scope for generalisation, like many cases studies (Stake
1995), it makes up for in the value of the insights it provides. In particular, there are a number
of important implications that follow from this study. The first is in terms of the provision of a
better quality service. In the past where MRO was concerned there was a misalignment between
the interests of OEMs and users of their products. For the former, MRO was an important source
of profit because of the high prices charged for replacement parts, while for the latter MRO was
a cost that ate into profit. Now, as providers of fixed price maintenance services it is very much
in the OEMs’ interest to take every opportunity to learn where and how things go wrong and
revise and improve their products, so as to reduce the cost of providing repairs and maintenance,
something that is similarly in the interests of users.
Second, the enormous amount of data on engine performance that is now available in real time
thanks to FADEC systems presents new opportunities when it comes to the development of new
services. The challenge is to develop appropriate knowledge management techniques to utilise
this data. This will require OEMs to develop new areas of expertise, and it is interesting to note
that Rolls-Royce has set up a joint venture with Data Systems and Solutions, a subsidiary of
US-based Science Applications International Corporation (Hutchinson 2003) in order to expand
its expertise in the area of aftermarket information systems.
Notes on contributor
David J. Smith is a professor of Innovation Management at Nottingham Business School at Nottingham Trent University,
where he is a member of the Entrepreneurship and Innovation research group. He receiveda BA Economics from Lancaster
University and a PhD from Nottingham University. He is a visiting professor at the University of Southern Denmark
in Odense and Universiti Teknologi Malaysia in Johor Bahru. His research interests include technological innovation,
technical entrepreneurship and global production networks.
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... Application of sprays, jets, liquid sheets in different domains of day to day life, Images courtesy :(a) Cough droplet dispersion [1], (b) Liquid sheet [2]),(c) Diesel jet [3],(d) Agriculture sprays [4],(e) Flat liquid sheet [5],(f) Impinging jets in F1 jet engines [6],(g) Ocean waves [7], (h) Hollow cone liquid sheets [8], (f) Rolls-Royce engine [9] . Flapping regime for larger Weber number (We c higher than 1000). ...
... Reactive flows Figure 1: Application of sprays, jets, liquid sheets in different domains of day to day life, Images courtesy :(a) Cough droplet dispersion [1], (b) Liquid sheet [2]),(c) Diesel jet [3],(d) Agriculture sprays [4],(e) Flat liquid sheet [5],(f) Impinging jets in F1 jet engines [6],(g) Ocean waves [7], (h) Hollow cone liquid sheets [8], (f) Rolls-Royce engine [9] fossil fuels (such as coal, oil and natural gas) has been firmly solidified, emissions of these We artificially move carbon from solid+liquid storage to its gaseous state thereby increasing atmospheric concentrations. The fossil fuels have unequaled physical properties which explains why they are largely used in all modern human activities, directly or indirectly. ...
Inferring the liquid sheet thickness is primordial for understanding the complex physics of the liquid-sheet disintegration and droplet formation. In particular, perforation holes appear on the sheet and extend up to the disintegration of the whole sheet to form ligaments and droplets. The expansion velocity of holes has strong dependence on local liquid sheet thickness and thermo-physical properties of test fluid. This example reveals the necessity of a systematic study of the problem. Consequently, for the engineering system design, there exists significant need to have a knowledge of liquid sheet thickness and of the stable and unstable regions in the liquid sheet.The present work focuses on the development and application of a non-invasive technique for measuring the thickness of a flat liquid sheet. The technique consists in separating a 100 femtosecond (fs) laser pulse into an imaging pulse which passes through the liquid sheet and a gating pulse, that travels only in air and whose path length can be adjusted using a delay line. The time delay Δτ between the imaging and gating pulse is directly proportional to the liquid sheet thickness h and can be measured using Second Harmonic Generation (SHG) based time gate (here a Beta Barium Borate crystal is used for SHG). In order to enhance the thickness measurement resolution, an original two-pass inline configuration was designed where the imaging pulse is passing twice through the medium which increases the time delay between imaging and gating pulse. As a first step, we have checked the reliability of this technique by conducting measurements for a glass plate of known thickness (h=140 μm). The measured thickness value (h=141±1 μm) is in close agreement with the expected value.Then, attention has been paid on flat liquid sheets produced by single-hole fan spray nozzles with various water-glycerol solutions. The streamwise evolution of the measured thickness of the sheet exhibits good agreement with the theoretical model of Dombrowski et al. up to certain downstream distance from nozzle exit. Further downstream, there exists a position where the evolution liquid sheet thickness suddenly departs from Dombrowski expression. Using visualizations of the flow, we have identified that this position corresponds to the onset of instabilities that destabilize the rim and the entire liquid sheet. Next, High-speed back-light illumination experiments were performed with the goal of capturing the expansion of puncture at the same flow conditions. An explicit relationship between the expansion velocity of perforation ⟨up ⟩ and geometrical parameter of holes (area, perimeter) was derived and used to characterize the kinematics of perforations and its relation to the local liquid-sheet thickness. In addition, each perforation test case has been analyzed meticulously, by computing area evolution, convection velocity, circularity of hole and fluctuations in thickness which proposes scenario to explain underlying phenomena of expansion of perforation.
... This extension process is called servitization and has been present in manufacturing industries for several decades (Kowalkowski, Gebauer, & Oliva, 2017;Oliva & Kallenberg, 2003). Successful examples of servitization in manufacturing industries are Rolls-Royce engines (Smith, 2013) and Philips lamps (Salwin, Gladysz, & Santarek, 2018). The idea of servitization is to create suitable new value propositions by integrating tangible products with services to enable value co-creation with customers with an eye to complete solutions (Lee, Chen, & Trappey, 2019). ...
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Industry 4.0 provides increasing opportunities for manufacturing companies in servitization, which has led to the emergence of digital servitization. Several single case studies have suggested service design as a means to advanced services value proposition design in digital servitization. However, these case studies are context-constrained, while multicase studies investigating the impact of service design on digital servitization remain sparse. In the present study, we examined, over two and a half years, the application of service design for advanced services value proposition design in a multicase study of 10 manufacturers engaged in digital servi-tization. By applying a research through design method, we studied the impact of service design on the digital servitization process and identified the types of events that shape the advanced services value proposition design. As a result, this research provides further insights into the impact of service design on digital servitization in the manufacturing context and offers new avenues for further research in the field.
... Research Background where the consumers pay for the asset usages rather than asset ownerships [60]. Servitisation was conceptualised in 1988, but the early offerings of servitisation were only seen in 2013 by Rolls Royce [182,166,103,61]. A large number of firms today rely on substitution "pay-peruse" services that replace the purchase of the product with purchase of the service [16,119]. ...
Recent advancements in computing, telecommunications, and metrology have propelled data-driven decision making across the industries. Industrial health management in particular has been increasingly reliant on Machine Learning techniques for data-driven prognosis as modern assets are exhaustively monitored by their embedded sensors. Data-driven prognosis constitute the bedrock for the emerging highly-flexible predictive maintenance policies. The original equipment owners and customers also mutually enjoy its cost benefits via servitisation for example, where the customers pay for asset uptimes rather than ownerships. Such business offerings are possible only due to the recent advent of distributed control systems and real-time prognosis. However, the diversity in asset operating conditions results in non-ergodicity which is often a challenge while modelling the asset fleet data. A fleet-wide model trained by pooling the data from all the assets is associated with a high bias, whereas the independent assets- specific models are associated with high variance for the assets with sparse data. Thankfully there exist similarities due to age, upkeep, manufacturing processes, etc. across the assets that enable learning possibilities within the asset fleet, via collaborative prognosis. This thesis proposes, and demonstrates, that statistical hierarchical modelling is a sys- tematic technique for collaborative prognosis and also for anomaly detection in the asset condition data. Hierarchical models presented herewith extend the independent models by formulating distributions at multiple levels, such that the parameters of the lower level assets- specific models are commonly sampled from the corresponding higher level distributions. This encourages learning for the assets with sparse data as they inherit prior information about the operations from the other similar assets comprising the fleet. It is concluded that, for prognosis and anomaly detection, the hierarchical models out- perform the independent and the fleet-wide models in terms of accuracy and variance for the assets with sparse data. Hierarchical models model the asset fleets in their natural order and also enable manual intervention for modelling the asset similarities via the higher level distributions. As data is accumulated along the asset operations, both hierarchical and in- dependent models converge similarly. The conclusions are also supported by a case study presented for an industrial fleet of long-haulage trucks.
... Rolls-Royce, a major player in the aerospace sector, is a well-known example of a manufacturer who has transitioned to a PSS-based business model (Rolls-Royce, 2012). In the past, technological advancements at Rolls-Royce had contributed to significant enhancement of their product durability and reliability, which in turn, had led to a substantially reduced demand for their spare parts (Smith, 2013). Since spare part supply was one of their most profitable revenue streams, they adopted PSS-based business models and offered systemic solutions in order to overcome the resulting significant losses in revenue (ibid). ...
... Servitization transformation is a reliable way for manufacturing firms to gain a competitive advantage in a stable market environment (Zhang et al., 2019). In a stable market environment, it is not easy to gain a significant competitive advantage for manufacturing firms by focusing only on a product-focused cost leadership strategy (Smith, 2013). But servitization can help manufacturers satisfy customers' customized demands while enhancing the added value of products and customer satisfaction (Buganza et al., 2020). ...
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Servitization innovation is critical for manufacturing firms to strengthen their sustainable competitive advantage in a dynamic business environment. Current research on the relationship between servitization and firm performance has matured, but many conclusion remain divergent. That cannot only hinder the development of servitization theory, but also make manufacturers lack a scientific basis for deciding whether to develop servitization. Thus, this study aims to systematically analyze the quantitative research results in this field through Meta-analysis methods to reveal the reasons for the disagreement. After collecting 59 independent articles on servitization and firm performance, this study performed statistical analysis using Meta-analysis. Then, the relationship between servitization and firm performance was explored, as well as the effects of different potential moderating variables. The moderate positive relationship between servitization strategies and their different orientations and firm performance is found. For the moderating variables, the servitization strategy has a more significant effect on non-financial performance. And they are more correlated when there are mediator variables. The impact of firm servitization transformation in developing regions is better than in developed areas. A stable market environment is more beneficial to the servitization transformation. The transformation effect of high-tech manufacturing is better than that of traditional manufacturing. And the transformation effect of large companies is better than that of small and medium-sized companies.
The Internet of Things (IoT) is increasingly becoming a key technology for service transformation, that is, the transition from pure product sales to so-called “bundles” of customer-focused combinations of products and services. These combinations are termed product-service systems. They aim to add value for the customer. However, the role of IoT in this context is not quite clear. In this contribution, therefore, we examine the role of IoT in the context of service transformation. Our structured analysis of transformation processes reveals IoT as essential enabler of digital service transformation. We explain IoT-relevance on a strategic and operational level of IoT-capable business models. IoT not only can supplement a portfolio of products on a strategic level, but also completely replace a product. At the operational level, capabilities such as remote monitoring or remote control play a crucial role. IoT also plays a crucial enabling role when the convergence between service transformation and Industry 4.0 is targeted. However, when realizing service transformation, the various IoT capabilities are mutually dependent. Hence, implementation follows in some way a waterfall-like process in which certain results are required to trigger the next development step. We describe these dependencies, and thus facilitate decision making when IoT is used for service transformation processes. Organizations can then take appropriate development actions.
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Maintenance and diagnostics play a vital role in the aviation sector. This is especially true for the engines, being one of the most vital components. Lack of maintenance, or poor knowledge of the current health status of the engines, may lead to unforeseen disruptions and possibly catastrophic effects. To keep track of the health status, and thereby support maintenance planning, model-based diagnostics is a key factor. In the work going into this thesis, various aspects of model-based gas turbine diagnostics, focused on aero engines, are covered. First, the importance of knowing what health parameters may be derived from a set of measurements is addressed. The selected combination is herein denoted as a matching scheme. A framework is proposed where the most suitable matching scheme is selected for a numerically robust diagnostic system. If a sensor malfunction is detected, the system automatically adapts. The second subject is a system for detecting a burn-through of an afterburner inner liner. This kind of burn-through event has a very small impact on available on-board measurements, making it difficult to detect numerically. A method is proposed of performing back-to-back testing after each engine start. The method has shown potential to detect major burn-through events for the examined data collection time and frequency. Increasing these will allow for more accurate estimations. The third subject covers the importance of knowing the airplane installation effects. These are generally the intake pressure recovery, bleed and shaft power extraction. Just like inaccurate measurements affect diagnostic results, so do erroneous installation effects. A method for estimating said effects in the presence of gradual degradation has been proposed by using neural networks. By retraining the networks throughout the degradation process, the estimation errors are reduced, ensuring relevant estimations even at severe degradations. Finally, an issue related to the general lack of on-board measurements for diagnostics is addressed. Due to lack of measurements, the diagnostic models tend to be underdetermined. A least square solver working without a priori information was implemented and evaluated. Results from the solver are very much dependent on available instrumentation. In well instrumented components, such as the compressors, good diagnostic accuracy was achieved while the turbine health estimations suffer from smeared out results due to poor instrumentation.
More and more firms use connected technologies to reshape fundamentally the way in which they interact with their customers. Rather than having few episodic interactions, companies are trying to create a continuous relationship with their customers that reduces friction and allows companies to anticipate the needs of their customers. In this chapter, we discuss new business models enabled by this development. We do so by reviewing some of the literature on after-sales services in general and some of Morris Cohen’s pioneering research in particular. We then extend this prior work by articulating a framework of “Connected Strategy” in the form of a taxonomy of four connected customer experiences. Finally, we apply our Connected Strategy framework to the domain of healthcare delivery.KeywordsConnected strategyBusiness model innovationHealthcare deliveryDigital customer experienceService design
Lean, agile, and service-oriented templates of organizing constitute manufacturing companies’ most popular organizational forms. Despite their prevalence, these organizational forms are rarely analyzed in relation to each other. Even more, few have aimed to determine whether organizations adhering to these templates occur with any degree of regularity among the manufacturing firms. In this chapter, we conceptually compare lean, agile, and service-oriented templates to assess their compatibility. Further, we use a representative sample of 500 manufacturing companies to empirically identify companies adhering to the templates in relation to each other. The systematic review reveals the low compatibility of templates. Despite some overlap among practices, the templates are characterized by unique goals, the rationale of capturing the value, and resulting performance capabilities. The cluster analysis allows for identifying lean, agile, and service-oriented performers in relation to each other according to their performance dimensions. The results imply that it is easier to switch from the lean to the agile template and from the agile to the service-oriented template than from the lean to the service-oriented template. However, the study discourages the sequential approach toward the lean, agile, and service-oriented templates and treats these organizational forms as paradigmatically different.KeywordsTemplates of organizingLean organizationsAgile organizationsService-oriented organizationsCompatibilityNeo-institutionalismThis chapter draws from Vilkas, Rauleckas, Šeinauskienė, and Rūtelionė (2021).
In this last chapter, we summarize the findings and highlight the contribution of the research reported in this book. After characterizing the emerging service-oriented organizing template in relation to already established lean and agile templates, we suggest that the templates are characterized by a low degree of compatibility. The templates are constituted by contrasting goals, a partial overlap of practices and their adoption leads to unique competencies and performance capabilities. Further, our empirical research shows that lean template-related competitive priorities, practices and performance capabilities are diffused more extensively compared to agile and service-related ones. Finally, we reveal that lean, agile, and service-oriented practices and performance capabilities contribute to manufacturing firms’ operational and financial performance. We provide empirical evidence revealing that quality and innovation performance capabilities positively influence revenue growth while digitalization capability positively relates to the productivity of industrial organizations. The findings contribute to the lean, agile, and servitization literature and longstanding debate on the compatibility and effects of popular organizational forms.KeywordsLean organizationsAgile organizationsService-oriented organizationsTemplates of organizingCompatibilityNeo-institutionalism
The author examines the reliability and validity of measures of organizational characteristics used in previous marketing studies in the areas of strategic planning and distribution channels. Key informants in 506 wholesale-distribution companies provided reports on (1) characteristics of the firm's product portfolio and (2) characteristics of the firm's power-dependence relations with its major suppliers and customers. In contrast to previous investigations, which sampled only a single informant per unit of analysis, data were collected from multiple informants in each firm. Results showed that informant reports often achieved convergent and discriminant validity when variance due to methods factors was explicitly modeled. However, partitioning of variance according to trait, method, and random error components showed that informant reports often exhibited less than 50% variance attributable to the trait factor under investigation. Implications of the findings are discussed for those marketing studies which focus on organizations or organizational subunits as the unit of analysis.
- This paper describes the process of inducting theory using case studies from specifying the research questions to reaching closure. Some features of the process, such as problem definition and construct validation, are similar to hypothesis-testing research. Others, such as within-case analysis and replication logic, are unique to the inductive, case-oriented process. Overall, the process described here is highly iterative and tightly linked to data. This research approach is especially appropriate in new topic areas. The resultant theory is often novel, testable, and empirically valid. Finally, framebreaking insights, the tests of good theory (e.g., parsimony, logical coherence), and convincing grounding in the evidence are the key criteria for evaluating this type of research.
The companies that benefits from the `go downstream' theory are presented. Managing downstream businesses requires looking at new variables such as profit per installed unit, share of customer's total downstream-activity spending and total customer return over the product life cycle. Manufacturer's cannot afford to ignore the opportunities that lie downstream, if they do, the next decade will decade will be even bleaker than the last.
The automotive industry ranks among the most significant business phenomena of the 20th century and remains vitally important today, accounting for almost 11% of the GDP of North America, Europe and Japan and one in nine jobs. Although its products have had a fundamental impact on modern society in economic and social terms, the industry has found it hard to adjust to contemporary conditions and is thus no longer esteemed in capital markets. Riven with internal contradictions that inhibit reform, it now faces a stark choice between years of strife or radical change. Highlighting the challenges and opportunities that exist for managers, legislators, financial institutions and potential industry entrants, this book is a wake-up call for those who work in the automotive industry. Most of all, it gives us all cause to reflect on the value of mobility, today and tomorrow. Graeme Maxton is director of AutoPolis, a firm that specializes in the structures and dynamics of the world automotive industry and helps clients position themselves for profitable growth. He is responsible for its activities in Asia and since 1992, has been closely affiliated with the Economist Newspaper Group and chairs all of The Economist's automotive industry conferences throughout the world. He writes for Business China, Business Asia, and various other Group publications, as well as for numerous newspapers throughout Europe and Asia. He is also a television, radio, and press commentator on the industry. Maxton and Wormald were co-authors of Driving Over a Cliff? Business Lessons from the World's Car Industry (Addison Wesley, 1994), which was nominated for the Financial Times Best Book about Business Award. John Wormald is a director and co-founder of Autopolis. He has worked in and for the automotive industry for over 25 years. He advises vehicle manufacturers, component suppliers, distribution and service companies, and financial and government institutions, with a particular emphasis on the downstream distribution and service sectors of the industry. He regularly lectures about the industry, speaks at industry conferences, writes for automotive and general publications, and is quoted and interviewed in the media. He is a co-author of Driving Over a Cliff? © Graeme P. Maxton, John Wormald 2004 and Cambridge University Press, 2009.
This third edition of Straight and Level thoroughly updates the previous edition with extensive comments on recent industry developments and emerging business models. The discussion is illustrated by current examples drawn from all sectors of the industry and every region of the world. The fundamental structure of earlier editions, now widely used as a framework for air transport management courses, nonetheless remains unchanged. Part 1 of the book provides a strategic context within which to consider the industry's economics. Part 2 is built around a simple yet powerful model that relates operating revenue to operating cost; it examines the most important elements in demand and traffic, price and yield, output and unit cost. Part 3 probes more deeply into three critical aspects of capacity management: network management; fleet management; and revenue management. Part 4 concludes the book by exploring relationships between unit revenue, unit cost, yield, and load factor. Straight and Level has been written primarily for masters-level students on aviation management courses. The book should also be useful to final year undergraduates wanting to prepare for more advanced study. Amongst practitioners, it will appeal to established managers moving from functional posts into general management. More broadly, anyone with knowledge of the airline industry who wants to gain a deeper understanding of its economics at a practical level and an insight into the reasons for its financial volatility should find the book of interest.
This paper provides a concise overview of the aeroengine industry serving the large civil aircraft market together with a discussion of the key market drivers and the strategic issues within this industry. With the airlines feeling increased pressure to improve their market performance and their associated strategies for focusing more on their core businesses, the outsourcing of aeroengine overhaul and maintenance has thus provided the original equipment manufacturers (OEMs) with the opportunity to strategically align with their customers. As the OEMs therefore become service providers, effectively providing thrust for 20 years, the new core competences that must be attained are discussed. They must extend their deep product knowledge in design and manufacture to those of negotiation of the long-term service agreements for their tailored service offerings and in the lifecycle engineering of their products to ensure successful fulfilment of these contracts. In the eyes of their customers the aeroengine OEMs will be seen as risk mitigators and critical to their success will the development and utilisation of knowledge-based tools for the provision of informed decision-making. The future need for such tools and the challenges are identified within this paper so that both the airlines and OEMs can minimise their risks and cost base.
Key informant reports from both sides of a set of wholesaler-retailer dyads are analyzed to investigate the convergent and discriminant validity of the measures. These measures, derived from a political economy model, describe the structural form and collective sentiments within the dyadic interaction. The results indicate that the structural form measures have convergent and discriminant validity. However, the sentiments variables fail to show adequate validity. The methodological and theoretical implications of the results are assessed.