Rolls-Royce Jet Engines
The report is about the Rolls-Royce jet engines. It begins with a history of when the company was formed and the first jet engines that were manufactured during World War 1. Initially, Rolls-Royce was an automobile company but upon the onset of the war, the company diversified into aero engines. It was, however, not until the 1970s that the company split into two, with the aero engine division becoming a separate entity.
The report then delves into the vision and mission statements of Rolls-Royce. The company has the vision to provide the most technologically advanced and finest power systems depending on user specifications and mission to provide mobility with comfort and speed anywhere in the world. The next chapter discusses the company’s corporate governance mechanisms. The company is managed by a board of directors who in turn delegate the daily operations to the chief operating officer who also acts as the chairperson of the board.
Next, the paper goes into the analysis of the external and internal environment facing the firm. The external environment includes the opportunities and threats facing the firm while the internal environment comprises the strengths and weaknesses. The paper offers illustrations of these environmental factors and analyzes the procedures and mechanisms instituted by the firm to address these environmental issues. These strategic factors are then analyzed in a SWOT matrix that pairs them together and assesses their overall effect and significance on the firm.
A strategic alternatives analysis is then done and recommended strategies posited. The best course of action for the firm is to infiltrate the new emerging markets and use its market position to gain a sustained competitive advantage over its rivals. The paper ends by analyzing why the recommended strategy is the best course of action for Rolls-Royce.
History of Rolls-Royce
As a manufacturer of jet engines, Rolls-Royce has had a troubled history, but the company has withstood all that to become the leading manufacturer of jet engines. The company was founded by Henry Royce and Charles Rolls in 1906, but it was not until 1914 that the company produced its first aircraft engine (Rolls-Royce). Initially, the company had purposed not to build aero engines but with the onset of the world war, the company was convinced to tender to build some aero engines. The company started with Renault engines to power the British B.E.2 light bombers. These engines were air cooled, but Royce was of the opinion that water-cooled engines would yield better performance, and so within one month a 200hp Aero was developed. The engine bettered those of rivals, beginning an era of sustained competitive advantage for the firm.
Later engines of the world war gained the names of birds of prey; the eagle, the hawk, and the falcon. The eagle gained the confidence of the UK military for its high performance, and Royce began a series of a rapid bench- and flight testing coupled with a key focus on improving reliability and performance, initiatives that would become the benchmarks of Rolls Royce Jet engines.
The war ensured that aero engines were the main business of Rolls-Royce. Before his death, Royce was involved in the design of the new decade, the Merlin (Rolls-Royce). This engine powered most of the World War 2 aircraft, with over 160,000 engines being produced in the period. In the post-war period, the company started producing gas turbine engines and also merged with Barnoldswick, and ex- Rover plant. The company would continue its success story until it was encountered by developmental problems in the production of the RB211 engine for the Lockheed L-1011 that would force the company to be nationalized in 1971. The company was then split into two, with the aero engine division becoming Rolls Royce Limited. In 1987, Rolls-Royce Limited was privatized as Rolls Royce Plc. The company was now out of the financial quagmire of 1971. It sought to expand, and thus acquired Northern Engineering Industries in 1988, and the Allison Engine Company in 1994.
Mission and Vision Statement Analyses
Rolls Royce is among the top engine and power plant manufacturers in the world due to its technological advancements, applications, and expertise. It started with car manufacturing and later moved to aerospace engine manufacturing that has dominated the current market segment. In fact, their engines are high powered and responsible for efficient performance in their respective industrial applications. This has been facilitated by the existence of well-articulated mission and vision statements that guide strategy formulation, market research, and innovative developments that have constantly outperformed their expectations. Therefore, it is justifiable to state that Rolls Royce has effective mission and vision statements that have guided its existence to date.
The vision is to provide the most technologically advanced and finest power systems depending on user specifications, as well as market factors that influence various design aspects. Whether the products are used on land, air, or sea, the vision is to continually redefine existing technologies, and innovate new ones in case the old advancements cannot match design specifications. Over the years, these factors have guided the organization in development of its products thus the current success levels. In addition, this statement has redefined relations with strategic partners and stakeholders in accordance with long and short term objectives in the industry (Eves, 2014).
It is through the clear vision that the company has succeeded in the past two decades in spite of the complex relations among industry variables, customer specifications, and market dynamics. Effectiveness of the vision statement is justified by consistent growth patterns in four major market segments: energy, civil, defense, and marine. Opportunities have been identified, the right expertise has been hired, and latest research has been applied thanks to the definitive vision statement. With time, it has made the company understand their customers better than immediate competitors hence the fine technologies that effect manufacturing processes.
On the other hand, the mission statement focuses on “providing mobility with comfort, speed and style anywhere be it on air, land, or water” (Rolls Royce, 2015). In addition, it outlines the intention to delight customers through the provision of after sales services including excellent sales in various core markets. Rolls Royce has been able to expand its market segments for every product since it has won admiration from most corporations, major customers, and principles. Without the definitive mission, it has been possible to identify industry requirements and apply management techniques to command individual core market shares.
Being effective means that the company has the capacity to incorporate market segments through incremented financial competitiveness, sustenance of excellent quality and continuous service delivery. As the current leader in technological innovations, it is believed that advanced engineering has played a critical role in achieving sustained progression and provision of efficient power systems throughout the world. In addition, the statement has helped in enhancing product environmental performance via investment in people and customers (James, 2012).
The ultimate reason why Rolls Royce has dominated the core markets is by enabling customers to perform more activities using lesser resources. However, this could not have happened if the provision of excellent services with comfort and speed was not defined in the mission, vision, and strategy statements. The combination of both mission and vision statements has offered viable platforms for relentless pursuit of excellence in terms of corporate growth, product development and consistent search for business opportunities that have conquered markets worth over three trillion dollars.
Board of Directors
Corporate governance requires that company business is managed by Board of Directors. This board delegates the daily operations of the company to the Chief Executive Officer and the delegation process continues to other senior managers and departmental supervisors (Hahn, Figge,Pinkse, &Preuss, 2010). Some of the core responsibilities of the board include: identify people for board membership and assess the board’s performance, individual directors and board committees; identifying, evaluate and appraise the company senior management; ensure there is adequate management succession planning; reassess and endorse critical corporate actions; assess and evaluate how the management’s strategic plans are being implemented; and supervise how the company is managing enterprise risk. The current board of directors were elected to the board on January 2015 and have tenure of five years. Moreover, all member directors is considered internal and therefore do not represent other organizations.
The board is made up of chairman of the board, the CEO, lead director and committees of the board. The positions of the Chief Executive Officer and chairman of the board are held by the same individual. However, special circumstances such as during the transitioning of the CEO require that the positions are held by two individuals. This approach has proven effective for the company. The board holds the view that the underpinning corporate governance principles for the company, stature, quality and substantive business knowledge of the board members together with the culture of open communication with the chief executive officer and top level management are essential for board effectiveness.
The lead director is appointed on a five year term and is chosen from the company’s independent directors. The committees’ board include: compensation, audit, finance, corporate governance and nominating. Each committee has a written and board approved charter that details its specific roles and responsibilities including the extent to which power has been delegated by the board.
Currently, Ken Price serves as the CEO and chairman of the board of directors. He holds invaluable experience and expertise in management. He was appointed on January 2015 and is therefore serving a five year term as the board’s chairman. His performance as the company’s CEO is evaluated on an annual basis. At the beginning of each year, the CEO presents his performance objectives for the year to the board for their approval. At the year end, the board in absence of the CEO discuss his performance against the performance objectives.
Mark Jones, Philip Kent, David Keter, and Phyllis Aurello serve as the heads for the compensation, audit, finance, corporate governance and nominating committees respectively. Each committee is scheduled to meet at least nine times in a year. However, each committee holds the power to convene additional meetings as required. The committee leaders serve on the board of directors as member directors and present reports pertaining to their respective committees for deliberation purposes.
One measure of effective governance is the ability of the chief executive officer to optimize the company performance (Miller, Merrilees, &Yakimova, 2014). While a section of the board’s governance function is to identify the company’s CEO, another function is to endorse the CEO’s strategy. For instance, the board can either approve the CEO’s strategy by endorsing his proposed acquisitions. The board at the end of the year then conducts the CEO’s performance evaluation. For this reason, the board is considering having the positions of CEO and chairman of the board to have two different persons in order to deal with the conflict of interests the normally exists.
EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS)
|O1||Emerging markets||.15||4.2||.63||There has been an upsurge in the global demand for air travel and with it that for jet engines especially in the Asia-Pacific and developing markets. Rolls-Royce has reacted to this growth by striking deals with these airlines, case in point the recent $6.1 billion deal with Emirates Airline.|
|O2||Increased demand for turbine helicopters||.15||4.0||.60||The new engine segment could grow Rolls-Royce business. The company offers a broad range of helicopter turboshaft engines hence it is well situated to capitalize on this increase in demand.|
|O3||Increased demand for commercial airplane engines||.10||3.5||.35||The company is well situated both geographically and technologically to cope with the anticipated future demand for commercial engines.|
|O4||New planned acquisitions||.10||4.0||.40||Strategic acquisitions raise the demand for both sales and earnings growth. The company has engaged in numerous acquisitions that develop its product base and penetrates new markets e.g. the 100% acquisition of European MicrofusioniAerospaziali in 2010.|
|O5||New Technologies||.05||3.0||.15||Novel technologies enable companies to create competitive products. Rolls-Royce has invested in new technologies that will enable it to create better products at lower costs.|
|T1||Competitive Rivalry||.15||4.0||.60||There is a lot of intense competition in the industry. Rolls-Royce is better positioned competitively through diversification of its power field. Few firms have better marketing, engineering, and production capabilities than Rolls-Royce.|
|T2||Major risk for supply chain||.10||3.0||.30||Rolls Royce only produces 30% of its value, with the other being managed by external suppliers. This imposes the risk of disruptions to the supply chain that the company has not curbed effectively.|
|T3||Wavering economic cycles||.10||3.5||.35||This leads to unpredictable demand, excessive supply, and over-capacity. Rolls-Royce has reacted to this by diversifying into numerous sectors i.e. commercial, defense, marine, and energy.|
|T4||Government policy compabilities||.05||4.0||.20||Adhering to laws and terms and conditions can be pressurizing in terms of costs and the budgeting structure. Rolls-Royce beats this by forming alliances with governments e.g. the UK and US governments.|
|T5||Lack of a single aisle product||0.5||3.0||.15||This causes positioning challenges in the short-term. Rolls-Royce has managed to overcome this by strengthening its brand and creating superior products that ensure customer loyalty.|
INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)
|S1||Major player in jet engine manufacturing||.15||4.5||.675||The company operates in an oligopolistic market where the other players are GE and. It is one of the top jet engine manufacturers with service to a range of more than 30 different aircraft kinds and with over 16,000 engines under service.|
|S2||Brand Image of Rolls-Royce in Power Systems||.15||4.0||.60||The company has a worldwide reputation for delivering high-quality items. This image has enabled it maintain strong relationships with its clientele and build an unrivaled customer loyalty. Major airlines, for example, have chosen it as the sole supplier and service partner.|
|S3||Worldwide reach||.10||4.0||.40||The company works around the six continents in over 130 different nations. Its offices can be found in over 60 different countries. This wide reach ensures constant revenues as the volatility associated with a single market is eliminated.|
|S4||High capacity for research and development
|.10||3.5||.35||The company has developed an innovative culture and a great platform for R&D over time. It emphasizes heavily on the advancement of technology and has over the last ten years invested £7 billion in research technologies. The R&D advantage has allowed it to maintain a sustainable competitive edge regarding its product line.|
|.05||4.0||.20||The company has strategic alliances with influential firms and governments that enable it to mitigate its legal and regulatory issues. It, for example, enjoys the support of the UK government, receives subsidies from EU governments, and enjoys tax breaks from the US government.|
|W1||Legal issues||.15||3.0||.45||The company has been dealing with legal issues inadequately. These claims are substantial and the results hard to forecast, and may elicit costs in damages, legal fees, fines, and other remedies. These claims, including the recent multi-billion dollar Petrobras bribery scandal, damage the reputation of the company and decrease its share price.|
|W2||Decreased operational budget||.15||3.0||.45||The company has been encountering a decrease in the revenues allocated for operations. If the trend continues, the company will neglect some of the essential activities or underfund them such as marketing, which will in turn reduce the prospects for future growth.|
|W3||High Debt Burden Could Harm Rolls Royce||.05||3.0||.15||The company has had to borrow heavily in recent years to meet its obligations, a trend that affects its liquidity and ultimately its ability to meet its obligations in the long run.|
|W4||Cost reduction exercises have failed to maintain pace with competition||.05||3.5||.175||Due to poor financial planning and decision-making by management, the company has been cost ineffective. This means that it spends more than its competitors, and this ultimately affects its profit margins and productivity.|
|W5||Weak US R&D at Rolls Royce Could Hurt Them Long Term||.05||3.0||.15||The company has invested heavily in R&D, but the outcomes have been weak, implying that in the long-term, competitors may have more innovative products than Rolls-Royce.|
STRATEGIC FACTOR ANALYSIS SUMMARY (SFAS)
|S1||Major player in jet engine manufacturing||1.5||4.5||0.60||Rolls-Royce operates in an oligopolistic market where it is one of the top market leaders.|
|S2||Brand Image||1.0||4.0||0.40||The company has a worldwide reputation for delivering high-quality products but this image may be tainted by the legal scandals encountering it.|
|S3||High capacity for research and development||0.5||3.5||.175||Rolls-Royce has a well-developed and advanced innovative culture that gives it a sustainable competitive edge over rivals. This may, however, be jeopardized by cuts in budgetary allocations.|
|W1||Legal issues||1.5||3.0||.45||Rolls-Royce is unable to handle its legal issues adequately. It is faced by numerous scandals including bribery that may occasion high costs of damages, fees, and fines. Moreover, the cases have an adverse effect on the share price and brand image.|
|W2||High Debt Burden||1.0||3.0||.30||The liquidity ratio is low implying that in the long-term the company may face financial challenges as it is unable to pay off its obligations.|
|T1||Competitive Rivalry||1.5||4.0||.60||Rolls-Royce faces stiff competition from its major rivals. Its strategic advantage may, however, soon end especially since the rivals are more cost effective in their operations.|
|T2||Major risk for supply chain||0.5||3.0||.15||The company has no well-established way for dealing with the risk of disruptions to the supply chain, and this may prove detrimental in the long run.|
|O1||Emerging markets||1.0||4.2||.42||The upsurge in the global demand for air travel presents a new opportunity for growth, but the stiff competition makes this growth uncertain.|
|02||Increased demand for turbine helicopters||1.0||4.0||.40||Rolls-Royce has a broad range of helicopter turboshaft engines to service the increasing demand in the new engine segment.|
|O3||New planned acquisitions||0.5||4.0||.20||The company’s new planned acquisitions would boost sales and earnings and allow Rolls-Royce to penetrate new markets.|
|Rolls Royce TOWS ANALYSIS
| Internal Factors
S1: Major Player
S2: Brand Image
W1: Legal Issues
W2: High Debt Burden
O1: Emerging markets
O2: Increased demand for turbine helicopters
S1/O1- Rolls Royce should use its position as a major player to infiltrate the new markets and create a strategic advantage in the new markets. Since there are numerous barriers to entry that the firm does not face, it will be able to use its position and capabilities to expand into the new markets using both the existing technologies and the new ones.
Rolls-Royce can minimize its high debt burden by increasing the amount of sales in the emerging markets. These revenues will be used to offset the debts and be used to grow the other sectors that have been neglected as a result of lack of finances. However, the company might be necessitated to increase the debt burden to finance the expansion into the emerging markets, but this debt will ultimately be paid off with the revenues derived from these markets.
T1: Competitive Rivalry
T2: Major Risk for supply chain
S2/T2- Despite its brand image, there is little that Rolls-Royce can do about the inherent risk of suppliers failing to meet their obligations. However, the company can institute contractual governance mechanisms to ensure that the suppliers meet their obligations. These mechanisms, however, do not assure that Rolls-Royce will be shielded from any unexpected shocks to the suppliers.
W1/T2- The legal issues facing the firm may strain relationships with suppliers leading to more risk for the supply chain. To deal with this, Rolls-Royce should strengthen relational ties with suppliers and ensure that it avoids any instances that would lead to legal disputes with these suppliers.
Implementation and Recommendation
After analyzing the threats, opportunities, weaknesses, and strengths facing Rolls-Royce, it is my belief that the best strategy for the company would be to infiltrate the new emerging markets using its competitive edge and market position. Firstly, due to its position, the company has the requisite resources to succeed in the new market. The company is operational in the six continents and in over 130 countries, which means that it has experience working in new emerging markets. Moreover, since it has offices in more than 60 countries, Rolls-Royce will not be leaving its comfort zone or necessitate a shift in its operations to enter the emerging markets successfully. Secondly, the company can produce for the emerging markets. Rolls-Royce has invested heavily in R&D, and it is unrivaled in its marketing, production, and innovation. As such, it is better positioned than rivals to satisfy the new markets.
Secondly, the emerging markets are fueled by an upsurge in the demand for commercial airplanes. There is a high growth of the Asia-pacific market and the developing nations markets projected at 4.9% over the next 20 years. The Asia-pacific market, in particular, is expected to grow to a value of $1.13 trillion. Not tapping into such a market would be unwise as other low-level competitors would scramble into it in a bid to satisfy it, and in the long-run they may bypass Rolls-Royce. Also, the emerging markets present a good chance for increasing revenues and eliminating the high debt burden that the company currently faces. Lastly Rolls-Royce should enter the emerging markets to maintain its brand image and fulfill its mission statement of providing mobility with comfort, speed and style anywhere be it on air, land, or water.
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