Rolls-Royce: A Manufacturer at Your Service Abstract:

The case discusses how, over the years, after-sales service has grown to be an important component of the business portfolio of Rolls-Royce plc (Rolls-Royce), a leading manufacturer of aero engines. It begins with the early history of the company and describes its foray into automobiles and aerospace. The case also discusses the company's bankruptcy in the early 1970s and its subsequent turnaround. It describes the various after-sales services offered by the company, and mentions the benefits and disadvantages of giving so much importance to after-sales service, as a source of revenues as well as a differentiator for its products. The case concludes with a brief discussion on the challenges faced by the company and its future outlook.

Issues:
Understand the importance of after-sales service, both as a source of differentiation, and as a steady source of revenue. Identify the advantages and pitfalls of being heavily dependant on after-sales service to drive sales and earn additional revenues. "The success of Rolls-Royce suggests that the world will not be neatly divided into firms (or countries) that make things and those that sell services. Flying high depends on being able to do both."
"It's long arc income. We realized we had to take back control of after-sales. Much of it had been given over to third parties. But we knew if we were to build a global organization we had to represent ourselves in that area. And, of course, the synergies help with profitability."

Introduction :
In February 2009, UK-based Rolls-Royce plc (Rolls-Royce), the world's second largest aero engine manufacturer, announced its preliminary results for the financial year 2008.

It announced that during the year, it had been able to secure orders for aero engines worth 21.5 billion, increasing its order book by 21% to a record 55.5 billion(See Exhibit I for more information on Rolls-Royce's financial performance over the years). However, it announced that it had made a net loss of 1.34 billion mainly because of the adverse impact of changes in exchange rates. In a statement, Rolls-Royce said, "The pace and extent of currency movements have had a significant effect on the group's financial reporting in 2008, with the sterling exchange rates against the dollar and the euro having the biggest impact."3 Rolls-Royce was started in 1906, and initially manufactured and sold cars. Later, the company started manufacturing aero engines, which were widely used in civil and defense aircraft. By the late 1940s, the company had become a major player in the aero engine business in Europe. However, it remained a relatively small global player and to grow further, the company realized that it needed to have a significant presence in the US aero engine market. In the late 1960s, Rolls-Royce managed to bag a big contract with Lockheed Corp. (Lockheed4) , to supply a new aero engine called the RB211-22. However, the company faced several setbacks, and incurred high costs on developing the engine. In 1971, it declared bankruptcy and was nationalized by the British government. In 1973, its automotive division was spun off from the aero engine business. However, RollsRoyce completed the development of the RB211-22, which later went on to become a highly successful aero engine. By 1987, the company had become financially stable, and it was privatized by the British government. In 1996, John Rose (Rose), a member of the company's Board of Directors who became the CEO, provided a new direction to the company. Rolls-Royce made major inroads into business segments like defense aviation, marine propulsion, and energy, in addition to continuously bringing in innovations to its aero engines. Under Rose's leadership, after-sales service also became a significant source of revenue for the company. Rolls-Royce sold maintenance contracts for its aero engines under the concept of 'Power by the hour'. Under this concept, the customers paid a fixed maintenance fee for each aircraft flight hour (only for the time during which the aero engine was running). The company also offered different service packages for different customers. Through a joint venture with an IT company, Rolls-Royce provided its customers with several tools for engine health management (EHM). It also developed a new system to remotely monitor the working of the engines onboard its customers' aircraft, to detect and rectify engine anomaliesIn addition, it created a global repair and overhaul network. The after-sales services provided by Roll-Royce helped its customers reduce maintenance costs and downtime. The service also enabled the company to improve its aero engine designs and build good relationships with customers. Moreover, the company gained a steady long-term revenue stream from the maintenance contracts. Analysts felt that the service strategy adopted by the company strengthened its position considerably in the highly volatile aerospace industry.

Background Note :
In 1884, Henry Royce (Royce) started an electrical and mechanical business, manufacturing products like domestic electrical fittings, dynamos, and electric cranes. In 1899, Royce registered the business as Royce Limited. In 1904, Royce built a motor car called the Royce 10, which impressed Charles Rolls (Rolls), the owner of C.S.Rolls & Co., one of Britain's first car dealerships... The Bankruptcy and The Turnaround In the late 1960s, Rolls-Royce became the sole engine supplier for the US-based aerospace company Lockheed's passenger jet, the L-1011 TriStar. Rolls-Royce was required to design, manufacture, and deliver about 150 new aero engines, called the RB211-22. The RB211-22 was to be the latest engine to be developed by the company in its highly successful RB211 series turbofan aero engine line. The company planned to develop and use two innovative new technologies in the RB211-22, to make it lighter and more fuel-efficient...

A New Direction :
In 1996, Rose became the CEO of Rolls-Royce. One of his most significant decisions was to continue and increase the company's investment in developing its turbofan engine line - the Trent engine series. The Trent engine series, developed from the Rolls-Royce RB211 series, went on to become highly successful. A Rolls-Royce employee later said, "The irony of the huge success of the Trent engine is that it grew out of the RB211, the engine which led to the 1971 bankruptcy. The Strategy For The Future - Turn Service Into A Growth Engine In the 1990s, competition between GE, P&W, and Rolls-Royce - the three main aero engine manufacturing firms in the world - led to a drop in Rolls-Royce's margins. To counteract this, beginning from the late 1990s, the company decided to focus on increasing revenues from after-sales service...

The Services :
In addition to engine repair and overhaul, Rolls-Royce provided engines on lease and also undertook repair of accessory units... After-Sales Service: The Business Opportunity Analysts believed that the many unique services that Rolls-Royce provided helped the airline operators, while at the same time, enabling the company to improve operations and increase market share. Challenges The main challenge Rolls-Royce faced was in maintaining a technological lead over its rivals. Analysts observed that any technological innovation by one company was matched by its rivals, sometimes, within a period of two years. Outlook In spite of the many challenges it faced, the most important reason for the success of RollsRoyce was its after-sales service. As of 2008, Rolls-Royce's revenue from aftermarket services was about 63% of its total civil

aerospace revenues.