«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 manu- factured 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 cerlainly does produce aero-engines, as well as power units for use in the marine and energy gener- ation sectors. However, if Rolls-Royce’s business stopped at the point where it delivers an engine fo an aircraft manufacturer (for example, a Trent 1000 delivering over 74,000 Ibs of thrust, for use on the new Boeing 787 Dreamliner) then the company would be much smaller and less profitable than it is. That is because over 50 per cent of Rolls-Royce revenue is generated from after-market services (Figure 1.1). In 2011, Rolls-Royce achieved overall revenue of £11,277 million, 48 per cent of which was from origi- nal equipment sales and 52 per cent from after-market service. In Rolls-Royce’s largest business unit, the civil aerospace sector (selling and maintaining aero-engines for civil airlines) 60 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 resid- ual value of the engine (rather like having your premium-brand car serviced regularly by the main dealer), Case Study Rolls-Royce Group plc 6000 5000 4000 3000 Civil Defence Marine. ~—_ Energy aerospace aerospace After-market services & Original equipment (Continued)(Continved! its core business of selling flights and getting passengers ang ‘and allows the airline to once on ie ee ae dial ee pone f Pte e al description of he eS description of what this can all mean Pethaps this rather technic dese ing bY © de pen fl a lr ote al sengers in practice moa ing, Planes are frequently struck Ma oa ter cat, where ihe aircraft is struck by ligh ik one of the engines loses power png ony does no harm at all, bul on this ee eas ii barby yore byonning nd ine plone hardy notice, bul Rls Reyee or cong, since tng pean the Pacific) start analysing the problem i ithout it anyway. The engineers erfectly well without y engine is running fine again and the plane could land p ane inspection when it touches down simply need 10 work out whether the plane will Pe oe ort automatically sent from the plone in Los Angeles. All of the data the engineers neet iusions are drawn even before the plane has rs in Derby, carefully analysed, and concl ur Reet ooert Frerting is fine, and the plane will not be delayed in its subsequent departure from s Angeles. x . : Although theres ile publicly avilable financial information about the relative profitability of sell ing service contracts on aero-engines compared to the profil margins made on selling the engines themselves, industry analysts believe that Rolls-Royce makes very slim profit margins on engine sales. The real money is made from the long-ferm partnership with the airline that is created through the sole of a service contract. The emphasis on managing long-term relationships with customers at Rolls-Royce is typical of many business-to-business companies: ‘The Group places great importance on working closely in partnership with its customers to understand their operations and align the Group's service capability to meet their needs’ (Rolls-Royce, 2009: 22). So. on what basis has Rolls-Royce built its current success: excellence in engineering and manu- fe sei ee oo Hi aaa in managing customer telationships? Well, the f ition, Rolls-Royce has established a wide geographic base including the Americas, Asia, Australia, Euro} i C i ! , Asia, . Europe, the Middle East and Afri i i ee in 20 countries and customer support facilities in 50 countries: The Gace aa enue 's the USA, but revenues are geographically diversified, This 's a particularly Tneetane Saceeclen hand, the substantial exposure of her regi . the comy R €gions of the world. ond Europes certainly a matter of congem. '0 the sluggish economies of North ARO Rolls-Royce? raion, Who also offer comprehen- an Clurers’ engines, What would Against such competitors? he is : Fconomis, 2009; WWW.rolls-royce, com