Rolls Royces Strategic And Business Management Management Essay
Rolls-Royce is founded in 1906 by Frederick Henry Royce and Charles Stewart Rolls (Pugh, Peter, 2001).Headquartered in London. As a diversified company, Rolls-Royce operates in four global markets namely civil aerospace, defense aerospace, marine and energy-in each of which it is among the world’s top three competitors. The company has manufacturing sites or service centers located in 50 countries around the world.
Rolls-Royce produces both commercial and military engines civil and defense aerospace business for a broad customer base, including more than 650 airlines, 4,000 corporate and utility aircraft and helicopter operators, and 160 armed forces around the world. Rolls-Royce also supplies power generation systems to the oil and gas industry and is one of the world’s largest makers of marine propulsion systems. It maintains key operations in North America, Europe, and Asia, with emerging presence in the Middle East (Nancy Daniels, 2001).
Rolls-Royce’s revenue for the year 2009 was ¿¡10,414 million, definitely higher than the figure for 2008, which is ¿¡9,082 million. In 2009, 44% of Rolls-Royce’s revenue came from civil aerospace, while defense aerospace, marine and energy each accounted for 20%, 26%, 10% (Rolls-Royce, 2009).
2. Analysis of the Current Business Environment Affecting the Industry
2.1 Macro-Environmental Analysis
The PESTLE analysis (appendix A) details the main macro-environmental trends affecting the aviation industry. Of these, the economic crisis is the most pressing current issue but in the longer term, technological advancements remain central to the industry’s progression. More international cultural exchange will accelerate the development of aviation industry, and the growth in developing countries needs more energy and a range of products serviced by Rolls-Royce.
2.2 Micro-Environmental Analysis
Porter’s Five Forces analysis (appendix B) indicates that the threat of substitution in the aviation industry is fairly low. Limited to the technologies and standards, the airline company can only get the suitable parts from the original corporation which supplied the products. Threat of entry is quite low because the aviation industry needs the latest scientific and technological achievements and long-term technology accumulation as well as a lot of money and human resources, so the potential competitors are hard to entry.
Suppliers are hard to influence the aviation industry, for the reason that big corporations such as General Electric (GE) and Rolls-Royce possess the key technologies, while the suppliers are so many that can be easily replaced.
The power of buyers has increased somewhat due to ease of switching, transparency of costs. But they don’t have many choices but only three.
Overall, competitive rivalry within the aviation industry is very high due to the presence of General Electric (GE) and Pratt & Whitney (PW), rapid technological change and intense products and services competition.
2.3 Main Opportunities and Threats
The main opportunity is the increasing business in the jet aircraft market and growing aerospace and defense market as well as Rolls-Royce’s Strategic alliances and investments.
The most prominent threat currently faced by the industry is the economic crisis. Based on a survey of randomly selected flight departments about their expected use and purchase plans over the next five years, market forecasters believe Europe will remain a major source of demand for business aircraft, and orders will reach record levels in the next five years. While most of Europe entered recession about a year later than the America, European orders are expected to recover once economic growth resumes (Ian Goold, 2010).
The challenge of climate change will present a range of exciting opportunities for Rolls-Royce. Many customers will potentially consider investing in new technology earlier in order to minimize emissions. Equally there is likely to be a lot of interest in future low carbon technologies as well as alternative energy sources (Rolls-Royce, 2009). And as manufacturing employment has declined in Britain, there has been less reason for the best and brightest to study the subjects that manufacturing demands. Rolls-Royce executives say that the pool of experienced engineers, process managers and skilled workers from which the company can recruit is shrinking (The Economist, 2009). Any company engaged in global business should be aware of the risks of currency fluctuations. In such an economic environment, the exchange rate fluctuations can affect Rolls-Royce’s earnings and value. They are fully exposed to what is known as an exchange risk.
3. Analysis of Rolls-Royce’s Strategic Capabilities
3.1 How the various market trends have affected Rolls-Royce plc
And after 1987 the various market trends are as following:
Rolls-Royce was rescued by being nationalised by a Conservative government when the firm reached its nadir in 1971. Margaret Thatcher privatised it in 1987, when Rolls-Royce’s engines were then used by only a handful of airlines. There was a trend that the engine market would be dominated by GE and Pratt & Whitney. After that, the core of the firm’s strategy had been to increase the number of its engines powering the world’s civil jets.
There was a trend that defence spending would be reduced after 1987, which was the edge of the end of cold war. Growth in civil business was doubly important because Rolls-Royce was badly hit by the fall of the Soviet Union-at which time defence accounted for 60% of its revenues (The Economist, 2005). Government began to reduce defence spending, thus Rolls-Royce got less orders from the military. Worse for the firm, British Airways, which was Rolls-Royce’s old customer, equipped its new Boeing 777 wide-body planes with GE engines (The Economist, 2005). From then on, Rolls-Royce tried its best to get its engines on the wings of big airlines around the world.
The British government used to be Rolls-Royce’s biggest customer, buying its jet engines for Royal Air Force planes and its nuclear power plants for Royal Navy submarines. But nowadays America (the biggest defense market by far) is its biggest defense customer, using its jet engines on today’s jump-jet aircraft and planning to do so on the Lockheed Martin F-35 fighter, which promises to be the subject of the biggest contract in military history (The Economist, 2005). Nowadays America and British are facing the threat of international terrorist organizations, so the market is still promising.
With the development of the world’s emerging economies, the world needs ever more tankers to transport oil and gas over long distances, and demand is growing for economical but high-power marine gas turbines to drive them, in place of the diesel-electric hybrid motors that have dominated until now.
3.2 Rolls-Royce’s development strategies
According to these various market trends, Rolls-Royce increased the number of its engines to civil jet, and bought copper in order to push oil and gas along pipelines. In order to expand American market share, Rolls-Royce bought Allison. With over 80 per cent of global commercial shipbuilding taking place in Asia, Rolls-Royce recently relocated its global headquarters for the Marine business to Singapore, bringing the Group closer to the customer base. The company had already placed its Global Headquarters for Marine Services and the regional headquarters for the Commercial Marine business – covering Asia, the Middle East, India and Australia – in Singapore. The operations also house one of Rolls-Royce’s global repairs and overhaul service centers. Rolls-Royce stands out as well for being the only company to offer an expanded OEM warranty (Rolls-Royce, 2009).
As the expansion of the new markets and the use of new engine, Rolls-Royce has sold more services together with their products.
Ansoff: product/ market matrix
Current penetration product development
New market development diversification
The theory of the Ansoff’s:
Product penetration refers to current product for current market.
Automation and control equipment
Diesel and gas turbine engines
Electric propulsion systems
Engine support services
Offshore drilling equipment
Overhaul and repair services
(Hoover’s, Inc., 2009)
Product development —-it means new product for current market.
Diesel and gas turbine engines; providing a better service
Market development —–it means current product for new market.
Marine motors¼ŒFuel cells¼ŒEngine support services; Expanding American market share
Diversification—-It means new products for new market.
Such as jet engines
3.3 How the main competitive advantage have been built up
Competitive advantage refers to condition which enables a company to operate in a more efficient or otherwise higher-quality manner than the companies it competes with, and which results in benefits accruing to that company.
After 1987 Rolls-Royce focused on four sectors which are civil, military, and marine as well as energy, and the firm continued its expenditure on investment and R&D, it provides new products and new technologies.
Rolls-Royce’s competitive advantage mainly focuses on core markets and core technology. We can see that, for the past decades years, the core strategy of the company has been to focuses on the four chosen markets namely civil aerospace, defense aerospace, marine and energy, now each of them are the top three in the world. Meanwhile, Rolls-Royce has increased the number of its engines powering the world’s civil jets, and the whole firm mainly makes all kind of engines, which accounts the majority of their revenue.
3.4 Evaluate the company’s use of acquisitions
Acquisitions means acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly, also called takeover.
After 1987 Rolls-Royce had several acquisitions as a method of strategic growth as following:
(1) In 1996 Rolls-Royce bought Allison, it’s an American maker of small jet engines, mostly for corporate jets. This gave Rolls-Royce a significant presence in America-essential for any firm seeking to increase sales to the Pentagon (The Economist, 2005). From then on, American gradually replaced Britain as Rolls-Royce’s largest market.
(2) In 1999 the company bought Vickers, a struggling arms-and-marine business. This acquisition took Rolls-Royce into the business of marine propulsion systems for warships.
(3)In the same year Rolls-Royce bought Coopers, another specialist company, as the short cut in compressors with gas turbines in order to push oil and gas, which was very good for Rolls-Royce’s energy business.
3.5 Main Strengths and Weaknesses
Rolls-Royce’s main weakness is they have to employ a lot of employee, which is very common in the manufacturing industry. It means Rolls-Royce has to pay a lot benefit for the retail employee. And sometimes, the orders may not be implemented well in such a big group corporation. There is another issue that Rolls-Royce has to focus on, that is, the increasing inventory which is caused by the unexpected order or demand. This will increase the company’s operating costs.
Rolls-Royce’s main strength is they are a leading integrated power systems company operating in the civil and defense aerospace, marine and energy markets. They have built their golden quality of their band, and they have regular partners and customers, for whom they will provide sustainable products and services. Furthermore, Rolls-Royce is a global corporation, so their business has a diversified geographic spread, which can be a source of guaranteed profit. Also they have a strong and trustful leadership to guarantee the right direction the corporation goes.
Evaluation of Rolls-Royce’s Recent Strategies
Rolls-Royce’s recent strategy is based on five key elements:
4.1 Address four global markets
Rolls-Royce should focuses on the four core businesses, civil aerospace, defense aerospace, marine and energy, which are the most four profitable markets to the corporation. And there are still a lot to be done in order to develop the international market. As we know, Europe and the American market accounted for the majority of revenue, thus Asia and African are two emerging markets to emphasize. In some developing countries, Rolls-Royce will benefit from the preferential policies and cheap labor force.
4.2 Invest in technology, infrastructure and capability
Rolls-Royce needs to invest more in R&D to develop more innovative, environment-friendly products in order for it to keep the possession of advanced technologies and to offer better services. Meanwhile, with the development of the global market, it is necessary to invest more on the infrastructure to offer better services and attract more customers.
4.3 Develop a competitive portfolio of products and services
As mentioned above, a competitive portfolio of products and services can consolidate existing markets and explore new markets.
4.4 Grow market share and installed product base
Across the group, the installed base of engines in service is expected to generate attractive returns over many years (Rolls-Royce, 2009).
4.5 Add value for the customers through the provision of product-related services.
Rolls-Royce should seek to add value for their customers with aftermarket services that will enhance the performance and reliability of their products (Rolls-Royce, 2009).
Manufacturing industry need a lot employee to make products, so Rolls-Royce could move the manufacturing centers to countries with low labor costs, which can greatly cut the cost.
4.7 Key Competitors
GE Aviation and Pratt & Whitney are Rolls-Royce’s top competitors. General Electric (GE) enjoys a very strong position in the wide body market, with the CF6 and GE90 engines powering about 40% of aircraft in the class. Pratt & Whitney (PW) and Rolls-Royce each have about a 30% market share with the JT9D/PW4000 and the RB211/Trent series, respectively (Aircraft Economics, 2004/2005). To date, the most fuel efficient single-aisle jet engine belongs to Pratt & Whitney, a considerably smaller player. The company unveiled its PW1000G geared turbofan in 2008 after a decade of development and promised it would reduce fuel burn by some 12% to 15% compared to today’s engines (WSN Staff, 2010).
In other business areas, there are some Rolls-Royce’s competitors not as big as GE and Pratt & Whitney, such as SAFRAN, Emerson Electric, GE Honda Aero Engines, Honeywell Aerospace, IHI Corp, Kawasaki Heavy Industries, McDermott, Siemens AG, and Volvo.
5. Evaluation of Rolls-Royce’s leadership
Sir John Rose took over as CEO in 1996. Rolls-Royce’s CEOs used to have an engineering background until Sir John Rose. He likes the intensely challenging job in Rolls-Royce which has something to do with His adventurous lifestyle, I guess. His leadership is critical to Rolls-Royce’s success. Rose insisted on continuing to invest substantially in the Trent engine series and it proved to be very important. Under Rose’s direction, the second largest business of Rolls-Royce, marine propulsion also has fared very well over the past years (Heller, Richard, 2005). Sir John Rose attaches importance to the after-sales business. And it makes sense, because engine services and sales of spare parts to replace worn components make up more than 50 percent of turnover. All in all, Rolls Royce’s leadership is smart, mature¼Œdynamic, aggressive and trustworthy.
Rolls-Royce, the global leader in power systems and services for air, land and sea, will focus on both the importance of services for its civil and defense aerospace markets and its newest programs for these markets, mainly on the global market. In civil and military business, they can also through acquisition of developing country’s jet industry to expand market segment. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India. After setbacks in the exploration, the corporation has achieved a positive development under the leadership of Sir John Rose.