There are probably still a lot of people around who think that the famous British engineering company Rolls-Royce is a car maker, but that has not been true for many years.

Rolls-Royce cars today are manufactured by a division of BMW. There will certainly be many people who believe that Rolls-Royce makes its money by manufacturing and selling aero-engines, and this is true up to a point. The company certainly does produce aero-engines, as well as power units for use in the marine and energy-generation sectors. However, if Rolls-Royce’s business stopped at the point where it delivers an engine to an aircraft manufacturer (for example, a Trent 1000 delivering over 74,000 lbs of thrust, for use on the Boeing 787 Dreamliner), then the company would be much smaller and less profitable than it is. That is because around 50 per cent of Rolls-Royce revenue is generated from after-market services.

In 2017, Rolls-Royce achieved overall revenue of £15.1 billion, split almost exactly 50:50 between original equipment sales and after-market services. In Rolls-Royce’s largest business unit, the civil aerospace sector (selling and maintaining aero-engines for civil airlines), 52.4 per cent of the revenue was generated by after-market services.

This revenue is created by selling services such as TotalCare® to airlines who specify Rolls-Royce engines on the planes that they buy. The airline pays Rolls-Royce an agreed cost per flying hour, and in return Rolls-Royce delivers a complete engine support service for the lifetime of the engine. As a result, the airline knows exactly how much to budget for engine maintenance, transfers many of the risks associated with operating an aero-engine to Rolls-Royce, improves the residual value of the engine (rather like having your premium-brand car serviced regularly by the main dealer), and allows the airline to concentrate on its core business of selling flights and getting passengers and cargo safely to their destination.

QUESTIONS i. How does the concept of service-dominant logic apply in the case of Rolls-Royce?
ii. Rolls-Royce has to compete against third-party maintenance operators, who also offer comprehensive service packages to airlines on both Rolls-Royce and other manufacturers’ engines. What would you say are Rolls-Royce’s key advantages in winning service contracts against such competitors?

Transcribed Image Text:

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 4158 3775 1264 928 897 1828 Civil Defence Power aerospace aerospace systems Original equipment sales 483 534 Marine 430 377 Nuclear Aftermarket services