Power-by-the-hour: the role of technology in reshaping business strategy at Rolls-Royce

Abstract

There is a recognised trend of manufacturing companies offering not only products, but services and even complete solutions to business problems. Research has highlighted economic, market demand and competitiveness factors as responsible for the re-shaping of business strategies that this has involved. This study analyses the extent to which another factor, technology, has been a significant factor in the switch from product oriented to service oriented strategies. A case study of the aero engine manufacturer Rolls-Royce is used to analyse the impact of technology, which is found to have led manufacturers to re-shape their business strategies. The study finds that developments in one technology in particular, namely digital electronics, have been a powerful enabling factor facilitating the implementation of service strategies. This provided original equipment manufacturers (OEMs) like Rolls-Royce with a competitive advantage relative to conventional service providers, by enabling them to acquire new knowledge management capabilities.

Unlocking value from machines: business models and the industrial internet of things

“…They delegate ownership to airplane manufacturers who offer "power-by-the-hour"-type contracts (Wirtz & Lovelock, 2016, p. 10). Connected IT systems provided the key to this move (Smith, 2013). With sensors connected to engines beaming real-time information to control centers, service providers gained better traction in projecting and handling disruptions, and not least control the costs of service operation that ultimately drives the profit of nonownership providers.…”

“…In particular, business models consider contracts that include leasing, renting, maintenance and repair, predictive modelling, process optimization, licensing, and multi-sided markets where one market stimulates the cash-flow of another side of the market. For example manufacturers of industrial equipment are moving towards selling performance of the machine instead of selling the machine itself (Smith, 2013).…”

A cross-sector analysis of human and organisational factors in the deployment of data-driven predictive maintenance

“…sensors), connectivity is allowing some aspects of that value chain to migrate from products to services, through the remote analysis of data. This might be the OEM monitoring the product on behalf of the asset owner/operator (Smith 2013;Lee et al 2014), or could be third parties who take on responsibility product and customer support (Kajko-Mattsson et al 2010). Suppliers are therefore looking at new e-business models (Petrovic et al 2001) to generate revenue through condition monitoring, but understanding client needs can be a complex process (Jonsson et al 2010).…”

“…Original equipment manufacturers (OEMs) no longer just manufacture equipment-they have an ongoing service relationship with their customer, in part enabled through remote monitoring of asset performance (Lee et al 2014). Hence, predicate maintenance technologies are allowing new forms of e-business to emerge (Smith 2013). Closing the loop, OEMs can use the data generated from assets to design more reliable, higher performing assets in the future (Suh et al 2008).…”

Service Ecosystems Supporting High Reliability Assets

“…In the context of high reliability assets, a longitudinal study of the evolution of Rolls Royce jet engines by Smith [73] noted the interplay between emergent technologies and business models with the dominant logic moving from product centric to customer/service centric over time. Product knowledge had to be supplemented with service delivery knowledge, then, as engine digital health monitoring systems became more sophisticated, with knowledge management capabilities.…”