Rolls-Royce’s Customer-centric Model
The Economist just published a fantastic profile of Rolls-Royce (who makes aircraft engines, not just luxury cars) that is well worth reading to learn about how different business model elements can be combined to create a successful company. Some key points to look for:
The company made a big bet on a particular underlying technology for jet engines. Their initial attempt failed, requiring a bailout from the British government, but these efforts led to a winning design for a family of engines. Key lessons: Learning from failure is a good thing, but it does required capital to see you through. Whether or not a government bailout is appropriate, there are certain decisions for any company which are “bet the company”. Choose wisely.
Rolls-Royce evolved into a highly customer-centric model that combines manufacturing and services. In many industries, services are separated from the product, often provided by different companies. In aircraft engines, however, the ability to make the product provides key knowledge to service the product. This knowledge is not enough, however, for the model to work. For Rolls-Royce, getting access to customer operational data on engine performance is required to solidify their competitive edge in services and to feed this information back into engine design.
Why does the customer want to provide critical operational data back to a supplier? Many customers would be fearful of this approach. Yet Rolls-Royce has created a win-win contractual structure that aligns incentives. Instead of selling the engine, they sell “power by the hour”. Since the customer only makes money when their engines are running, they only pay Rolls-Royce for that time when the engines are running. For this model to work, Rolls-Royce needs access to the data that lets them continuously monitor performance. Great example of a win-win customer centric business model.
