Company Overview:
Rolls Royce is the leading world power system business which provides engineered, cost-effective services and products to military and commercial customers. The company develops, markets, manufactures and sells hybrid and electromechanical power systems internationally and the United States. The company offers airplane engines in the corporate jet market, commercial aircraft, defense and military engines and products for airplanes, marine power systems for propulsion, naval propulsion systems, and nuclear systems and civil power generation. The company also provides overhaul, repair, and maintenance and aftermarket services as well. The company provides power utilities with innovative solutions and independent operators for their electrical generation, distribution needs, and transmission requirements for marine, nuclear, and commercial markets. The company was established in 1971 and is headquartered in the United Kingdom (Bloomberg, 2018). The company believes that three key trends would help in defining the future power needs of the world. The growing demand of safer, cleaner and competitive power, electrification, and digitalization would enhance the market opportunities in the future for Rolls Royce (Rolls Royce, 2017).
Customer Analysis:
The company customers are defined as based on the underlying revenue contribution from several customers. The company revenue for 2017 was £ 15,090 of which 53% is accounted for the civil aerospace, 15% for the defense, aerospace, 20% of power systems, 7% of the marine customers and 5% of the nuclear clients.
The company provides leading industrial technology that is used in the propulsion system and power systems that are used in air, on land, and at sea. The customer profile for the Rolls Royce shows these main clienteles.
Civil Aerospace:
Civil aerospace is one of the major manufacturers of aero engines. The several customers within the civil aerospace include the regional jets, the commercial aircraft, and the business aviation markets. Rolls Royce uses in-depth knowledge, its expertise in engineering and its life support for the solutions to its customers. The company generated £8023 million in revenue with £520 million operating profit from civil aerospace.
The revenue mix of civil aerospace shows revenue generated majorly from larger engines, then from business aviation, regional jets and V2500.
Defense Aerospace:
It is another portfolio of clients which generates the highest operating profit for the company. Defense and aerospace are the leaders in the market for defense aero engines. These are used in patrol aircraft and military transport along with other sectors like the training helicopters, training aircraft, combats, etc. The revenue generated by this client profile is around £2275 millions of which £374 million is operating profit.
The revenue mix from this sector shows 53% of the revenue generated from the transport and patrol, 30% of combat and 17% of the other clients in Defense aerospace.
Power Systems:
The power systems are another business portfolio of Rolls Royce which acts as the leading provider for the medium as well as high-speed reciprocating engines, distributed energy solutions, and complete propulsion systems. The company gets business from industrial, marines, power generation, and defense markets for its power systems.
The power systems have generated £2923 million of revenue for Rolls Royce, which is higher than the revenue generated from defense aerospace. However, the operating profit for power systems is lower than the operating profit generated by defense aerospace. The company generated £ 330 million of operating profit from power systems. 30% of the revenue was generated from marine, 33% of power generation, and 25% of Industrial clients.
Marine:
The company has generated £1077 million in revenue from marine manufacturers, handling solutions for the merchant markets, service propulsion, and from naval markets. The company revenue mix comprises 69% of revenue from commercial and 31% of naval clients. The underlying operating profit has been negative of £25 million.
Nuclear:
The company provides management facilities for the nuclear submarine fleet of the Royal UK Navy. Other than this, it also provides supplies and safety-critical systems for half of the world nuclear power plant requirements (Rolls-Royce, 2017).
Competitor Analysis:
Roll-Royce PLC considers General Electric as its main competitor who also supplies engines in the sector of Widebody. The company has shown that the market of wide-body passenger aircraft was distributed in shares of 54% to General Electric, 38% to Rolls-Royce, 6% to Engine Alliance and 2% to Pratt & Whitney. The company considers itself as well positioned on the Airbus airline wide body program and for the Boeing 787 air-family, the company Rolls Royce with General Electric. While Roll Royce is the sole provider for engines of the Airbus A350XWB family where about 810 aircraft engines have been ordered, the General Electric is the sole provider of the engine for the Being 777X aircraft where 306 engines have been ordered to be launched into service in 2020. In the area of large business jets, the company Rolls Royce is facing competition from the Pratt & Whitney, General Electric and Safran. The Rolls Royce powered business jets flying at the time represents about 55% of the market in the large business jet fleet with 3100 of the Rolls Royce jets (Rolls Royce, 2016: 22).
The Business Wire has identified the competitors for Rolls Royce PLC as;
- Caterpillar Inc
- Cummin Ltd
- ABB Ltd
- General Electric
- Honeywell HomeMed LLC
- IHI Corporation
- Textron Inc
- Lockheed Martin Corporation
- AAR Corp
- United Technologies Corporation
- Sequa Corporation (Wood, 2009)
The financial times have also identified the competitors of the company Rolls Royce as United Technologies with their Pratts & Whitney and their engine business, and General Electric as another big competitor for the company. The company is currently facing competition in the engine market and along with this; the company is off to bad luck because of its bad strategic decisions in its markets (Wright, 2015).
Sustainability & CSR:
One of the largest engine makers of the world, Rolls-Royce is planning to increase its engine production output to 600 engines per year by 2020, which would be the fastest engine production in history. The company has also focused on cutting its energy consumption by 30% by 2020 as well. The company works towards its annual dashboard of sustainability goals. The company is committing to invest in less resource intensive facilities and to make the current ones more efficient regarding energy. Other than this, the company Rolls Royce has also aimed for cutting its greenhouse gas emissions by half in the facilities and operations by 2025 and then reducing the waste from landfill by 2020 to zero. Other than this, Rolls Royce is also pursuing the goal of reducing the aircraft carbon emissions by 75% as set by Aeronautics Research on Europe by developing better procedures and technology. Similarly, reducing the noise of aircraft by 65% and nitrous oxides by 90% are the followed targets as well. The company has started sourcing its Singapore Seletar Campus with solar panels installed on the building roof (Koh, 2017).
Other than this, Roll Royce has recently teamed up with Hurtigruten to achieve environmental zf4yaupgrades on cruise ships. It has also provided green technology for the polar cruises. It has also won the Heyerdahl Award in 2014 for contribution to the emissions reduction and energy efficiency (Maritimecsr.Com, 2014).
The company itself is aware of its effect on the environment and society and considers itself responsible for it. It considers itself as responsible for playing an important role in the risks and opportunities linked with the climatic change while their technology is considered to play the main role in enabling the world economies to transition to low carbon economies. The company has 98% of its employees who have completed their ethics training. The company has 683 ethics line contacts. 100% of the Rolls Royce managers are ethics certified while the company has 84 local ethics advisor. The company performance regarding sustainability efforts shows that 100% of its suppliers agree on adherence to the Global Supplier Code of Conduct. The company ensures that their sustainable employee engagement Index is higher or equal to the High-Performance Global Norms. The company has already progressed to 60% of completion from making its all sites to achieve Roll-Royce LiveWell award by 2020. The target for 2020 to reduce energy use in operations and facilities has been achieved by 100% (Rolls-Royce, 2017). Forbes has considered the Rolls Royce as 9th best CSR Company with CSR points of 70.7 points while the first ranked company Lego has a score of 74.4 CSR score (Strauss, 2017).
Strategic Recommendations:
The company had issued the fifth warning for profit in its last 20 months in 2015. The company knew then the reason for this strategic failure. The speed and the wide magnitude of the UK economy have been more prevalent in some parts of the markets. Rolls Royce business has been much affected by these market conditions in the short run. However, these same markets have not been effecting in the same manner on the competitors of the Rolls Royce. General Electric and United Technologies have been witnessing projected growth in their profits on the contrary. Blaming the wider market is not logical for Rolls Royce negative profits. The company Rolls Royce has had bad luck in the business jet markets like the long relationship with Bombardier caused difficulties by cutting their global series production for business jets which affected Rolls Royce. Furthermore, the company also suffered from the reduced demand in G550 and G450 business jets. It also lost their supplying turbines for the new jets for the Pratt. Their competitor United technologies have praised the benefits of operating in the small engine market as compared to passenger jet engines where the turbines do not have to depend on the post-sale maintenance revenue for profit generation. Even though Rolls Royce considers itself the market leader in the long haul and wide-body passenger jets, it feels trapped by some customer as well. The biggest issue is may be that the company focuses on the less attractive segments of the market as compared to its competitors Pratt and General Electric. The Singapore Airlines have also withdrawn their old range long haul 777 aircrafts also affected Rolls Royce. General Electric has been reaping profits in the narrow body short-haul jets while Pratt has also entered into this market with their turbofan engines. These markets are more attractive than the long haul Widebody markets as these require more maintenance than the wider body turbines. The company Rolls Royce had opted out of this market when it sold its share in International Aero Engines to its competitor Pratt. Rolls Royce needs to change its strategy to take account of these difficulties. However, it will take a slow effect as it took a long time to build this strategy in place. The company new strategy emphasizes on electrification and digitization which is the way forward indeed for long-term profits (Wright, 2015).
Blog about the Company:
The latest blog on the company Rolls Royce shows how the company has been dedicated to cost-cutting. The company is about to cut 4600 jobs in coming two years to reduce its costs and decline complexity. The company is aiming it to make the company more profitable and dynamic. The company has been facing some aero-engine problems which have caused the planes to get grounded and has angered its clients. The company strategy for Rolls Royce is based on evolution in which it focuses on customers, innovation and profitable growth. The company places customers at its heart and understands and shapes their needs and is relentless in delivering its promises. The company focuses on value innovation and ensures its competitive technology makes it stay ahead of the product requirements. The company has built a culture which encourages innovation. The Company strives for growth in installed base and market share. The company strategy is based on champion the electrification, reinvest with the digital, build a balanced portfolio, and vitalize the existing capabilities at the same time (Rolls-Royce, 2017). The company is going to remove 10% of its workforce and will target duplication of roles in management, administration and corporate roles to save up to 400 million pounds by the year 2020. The two-thirds of the cutting of jobs will be done in Britain. The company is the biggest employer in the central England city of Derby. The company considers its employee is cutting as important for it to streamline its business by reducing duplicity and removing complexity in its company which often is the reason for making it too expensive and uncompetitive. The unions have warned that the cutting can be too deep and too fast for Rolls Royce which can result in a reduction in its smooth running and loss of experience and vital skills (Young, 2018).
List of References:
Bloomberg (2018) Company Overview of Rolls-Royce plc, [Online] [3 December 2018].
Koh, H. (2017) How 5 firms are pursuing sustainability goals in 2017, 28 February, [Online] [3 December 2018].
Maritimecsr.Com (2014) Rolls-Royce plc, [Online] [3 December 2018].
Rolls Royce (2016) Competition, [Online] [3 December 2018].
Rolls Royce (2017) Rolls Royce 2017 Annual Report, [Online] [3 December 2018].
Rolls-Royce (2017) Strategic Report 2017, [Online] [3 December 2018].
Rolls-Royce (2017) Target progress, [Online] [3 December 2018].
Strauss, K. (2017) The 10 Companies With The Best CSR Reputations In 2017, 13 September, [Online] [3 December 2018].
Wood, L. (2009) Research and Markets: Financial and Strategic Analysis Review of Rolls-Royce plc, [Online] [3 December 2018].
Wright, R. (2015) Rolls-Royce rivals steer clear of market turbulence, 13 November, [Online] [3 December 2018].
Young, S. (2018) Rolls-Royce cuts 4,600 jobs at ‘pivotal moment’ for business, 14 June, [Online],[3 December 2018].
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