Why Rolls-Royce is one British manufacturer flying high in a downturn
The issue
The name Rolls-Royce has become so synonymous with quality that leaders in their fields are routinely described as the ‘Rolls-Royce’ of that field. It wasn’t always this way. In 1971, the manufacturer went bankrupt and was nationalised.
The car manufacturing operation was sold off two years later. After being privatised in 1987, judicious acquisitions and a reputation for reliability saw the aero-engine division become the world’s second-biggest maker of large jet engines.
Yet as manufacturers from emerging economies moved into the aerospace sector, the company has had to fight fiercely to retain its customers as they are targeted by new, cheaper rivals.
The solution
The genesis of Rolls-Royce’s revitalisation lies in design. After nationalisation, it invested heavily in a new engine prototype that enabled it to overtake rival Pratt & Whitney, which had owned 90% of the large engine market in the 1960s. Crucially, the new design was scalable, so it could be customised easily for every new type of plane.
Staying profitable since then has meant thinking beyond product. All the major aero-engine manufacturers offer after-market service programmes. Rolls-Royce needed something extra. Service was placed at the heart of its offering.
Instead of buying an engine and then a service package, it decided to encourage customers to pay a fee, under a contract, for every hour an engine ran. In return, the company maintained it and replaced it if it broke down.
Rolls-Royce’s TotalCare programme – the fruit of these endeavours – is renowned for its quality, and has effectively ‘locked in’ key clients. As well as offering maximum benefit to the customer, TotalCare also gives Rolls-Royce a competitive advantage. From its operations room in Derby, engineers monitor the performance of 3,500 engines flying at any given moment.
Data beamed from each plane is analysed and used to spot potential issues. This information can be passed to Rolls-Royce engineers around the world who can then focus on a precise problem without having to strip down the engine.
The outcome
Together, these strategies ensure Rolls-Royce keeps its customers’ planes and its own business flying. It has used design to innovate radically, rather than simply to create an incremental advantage rivals could easily copy.
TotalCare has given Rolls-Royce a competitive edge. Around 80% of engines sold include TotalCare: spare parts and long-term servicing operations have overtaken new sales to account for 63% of the engines division’s total revenues.
Although Western airlines aren’t ordering as many new planes as they used to, Rolls-Royce can also look forward to an increase in orders – and TotalCare packages – from Middle Eastern carriers, including Etihad and Qatar Airways. In the meantime, its engines power planes for 45 of the world’s leading 50 airlines.
And the good news for the wider economy is that Rolls-Royce is the country’s second-biggest exporter, earning more than 85% of its revenues from abroad – a prospect that would have seemed laughable just a generation ago.
The Rolls-Royce of…
A random list of 'Rolls-Royces'
Crustaceans: Langoustine
Fashion accessories: Prada
Hotels: Burj Al Arab, Dubai
Security: Biometrics
Stairlifts: Stannah
Decision analysis tools: TEC
Watches: Rolex
Trees: European silver birch
Malaysian paperback publishing: Silverfish Books
Rolls-Royces: Phantom IV HJ Mulliner
Article first published in Design Council Magazine, Issue 6, Summer 2009