Tag Archives: Case Study

Popsicle: a chance discovery

At the age of eleven on a winter’s afternoon in 1905, Frank Epperson left his drink on the back porch overnight. It was a fruit flavoured concoction popular at the time, made from soda water powder and water. Next morning, Frank found his drink frozen solid, with the stirring stick poking out of it.

18 years later, Epperson decided to apply for a patent on his “frozen ice on a stick.” He called the novelty the “Eppsicle” ice pop and began producing Eppsicles in several different flavours. A father by then, his children had begun referring to the Eppsicle as the Popsicle. Later he officially changed the name.

A nice demonstration of the first, and most valuable, of Peter Drucker’s seven sources of innovation.

The unexpected. The unexpected success, failure or outside event.

Vacuum flasks: fulfilling a need

As seen on a plaque at Scienceworks in the House Secrets exhibit.

James Dewar invented the vacuum flask in 1892 to keep laboratory gases cold. Twelve years later, Reinhold Burger manufactured the Thermos to keep our picnic drinks hot.

A nice demonstration of the third of Peter Drucker’s seven sources of innovation.

Innovation based on process need.

Or, put another way, James Dewar scratched an itch; though he did play Edison to Reinhold Burger’s Sameul Insull.

Posted via web from PEG @ Posterous

What I like about jet engines

Rolls-Royce{{1}} (the engineering company, not the car manufacturer) is an interesting firm. From near disaster in the 70s, when the company was on the brink of failure, Rolls-Royce has spent the last 40 years reinventing itself. Where it used to sell jet engines, now the company sells hot air out the back of the engines, with clients paying only for the hours an engine is in service. Rolls-Royce is probably the one of the cleanest examples of business-technology{{2}} that I’ve come across; with the company picking out the synergies between business and technology to solve customer problems, rather than focusing on trying to align technology delivery with a previously imagined production process to push products at unsuspecting consumers. I like this for a few reasons. Firstly, because it wasn’t a green fields development (like Craig’s List{{3}} et al), and so provides hope for all companies with more than a few years under their belt. And secondly, as the transformation seems to have be the result of many incremental steps as the company felt its way into the future, rather than as the result of some grand, strategic plan.

[[1]]Rolls Royce[[1]]
[[2]]Business-Technology defined @ Forrester[[2]]
[[3]]Craig’s list[[3]]

A Rolls-Royce jet engine

I’ve been digging around for a while (years, not months), looking for good business-technology case studies. Examples of organisations which leverage the synergies between business and technology to create new business models which weren’t possible before, rather than simply deploying applications to accelerate some pre-imagined human process. What I’m after is a story that I can use in presentations and the like, and which shows not just what business-technology is, but also contrasts business-technology with the old business and technology alignment game while providing some practical insight into how the new model was created.

For a while I’ve been mulling over the obvious companies in this space, such as Craig’s List or Zappos{{4}}. While interesting, their stories don’t have the impact that they could as they were green fields developments. What I wanted was a company with some heritage, a history, to provide the longitudinal view this needs.

[[4]]Zappos[[4]]

The company I keep coming back to is Rolls-Royce. (The engineering firm, not the car manufacturer). I bumped into a story in The Economist{{5}}, Britain’s lone high-flier{{6}}, which talks about the challenge of manufacturing in Britain. (Which is, unfortunately, behind the pay wall now.) As The Economist pointed out:

A resurgent Rolls-Royce has become the most powerful symbol of British manufacturing. Its success may be hard to replicate, especially in difficult times.

[[5]]The Economist[[5]]
[[6]]Britain’s lone high-flier @ The Economist[[6]]

With its high costs and (relatively) inflexible workforce, running an manufacturing business out of Britain can be something of a challenge, especially with China breathing down your neck. Rolls-Royce’s solution was not to sell engines, but to sell engine hours.

This simple thought (which is strikingly similar to the tail of the story in Mesh Collaboration{{7}}) has huge ramifications, pushing the company into new areas of the aviation business. It also created a company heavily dependent on technology, from running realtime telemetry around the globe through to knowledge management. The business model — selling hot air out the back of an engine — doesn’t just use technology to achieve scale, but has technology woven into its very fabric. And, most interestingly, it is the result of tinkering, small incremental changes rather than being driven by some brilliant transformative idea.

[[7]]Mash-Up Corporations[[7]]

As with all these long term case studies, the Rolls-Royce story does suffer from applying new ideas to something that occurred yesterday. I’m sure that no one in Rolls-Royce was thinking “business-technology” when the company started the journey. Nor would they have even thought of the term until recently. However, the story still works for me as, for all it’s faults, I think there’s still a lot we can learn from it.

The burning platform was in the late 60s, early 70s. Rolls-Royce was in trouble. The company had 10% market share, rising labour costs, and was facing fierce competition from companies in the U.S. Even worse, these competitors did not have to worry about patents (a hangover from the second world war), they also had a large domestic market and a pipeline of military contracts which put them in a much stronger financial position. Rolls-Royce had to do something radical, or facing being worn down by aggressive competitors who had more resources behind them.

Interestingly, Roll-Royce chose to try and be smarter than the competition. Rather than focus on incremental development, the company decided to designed a completely new engine. Using carbon composite blades and a radical new engine architecture (three shafts rather than two, for those aeronautical engineers out there) their engine was going to be a lot more complex to design, build and maintain. It would also be a lot more fuel efficient and suffer less wear and tear. And it would be more scalable to different aircraft sizes. This approach allows Rolls-Royce to step out of the race for incremental improvements in existing designs (designing a slightly better fan blade) and create a significant advantage, one which would take the company’s competitors more than the usual development cycle or two to erase.

Most of the margin for jet engines, however, is in maintenance. Some pundits even estimate that engines are sold at a loss (though the manufactures claim to make modest margins on all the engines they sell), while maintenance can enjoy a healthy 35%. It’s another case of give them the razor but sell them the razor blades. But if you give away the razors, there’s always the danger that someone else may make blades to fit your razor. Fat margins and commoditized technology resulted in a thriving service market, with the major engine makers chasing each other’s business, along with a horde of independent servicing firms.

Rolls-Royce’s interesting solution was to integrate the expertise from the two businesses: engine development and servicing. Rather than run them as separate businesses, the company convinced customers to pay a fee for every hour an engine was operational. Rather than selling engines, the company sells hot air out the back of an engine. This provides a better deal for the customers (pay for what you use, rather than face a major capital expense), while providing Rolls-Royce with a stronger hold on its customer base.

Integrating the two business also enabled Rolls-Royce to become better at both. Maintenance data helps the company identify and fix design flaws, driving incremental improvements in fuel efficiency while extending the operating life (and time between major services) tenfold over the last thirty years. It also helps the company predict engine failures, allowing maintenance to be scheduled at the most opportune time for Rolls-Royce, and their customers.

Rolls-Royce leveraged this advantage to become the only one of the three main engine-makers with designs to fit the three newest airliners in the market: the Boeing 787 Dreamliner, the Airbus A380 and the new wide-bodied version of the Airbus A350. Of the world’s 50 leading airlines, 45 use its engines.

Today, an operations centre in Derby assess, in real time, the performance of 3,500 jet engines enabling to Rolls-Royce to spot issues before they become problems and schedule just-in-time maintenance. This means less maintenance and more operating hours, fewer breakdowns (and, I expect, happier customers), and the operational data generated is fed back into the design process to help optimise the next generation of engines.

This photograph is reproduced with the permission of Rolls-Royce plc, copyright © Rolls-Royce plc 2010
Rolls-Royce civil aviation operations in Derby

This service-based model creates a significant barrier to competitors for anyone who wants to steal Rolls-Royce’s business. Even if you could clone Rolls-Royce’s technology infrastructure (hard, but not impossible), you would still need to recreate all the tacit operational knowledge the company has captured over the years. The only real option is to recreate the knowledge yourself, which will take you a similar amount of time as it did Rolls-Royce, while Rolls-Royce continues to forge ahead. Even poaching key personnel from Rolls-Royce would only provide a modest boost to your efforts. As I’ve mentioned before{{8}}, this approach has the potential to create a sustainable competitive advantage.

[[8]]One of the only two sources of sustainable competitive advantage available to us today @ PEG[[8]]

While other companies have adopted some aspects of Rolls-Royce’s model (including the Joint Strike Fighter{{9}}, which is being procured under a similar model), Rolls-Royce continues to lead the pack. More than half of its existing engines in service are covered by such contracts, as are roughly 80% of those it is now selling.

[[9]]The Joint Strike Fighter[[9]]

I think that this makes Rolls-Royce a brilliant example of business-technology in action. Rolls-Royce found, by trial and error, a new model that wove technology and business together in a way that created an “outside in” business model, focused on what customers what to buy, rather than on a more traditional “inside out” model based on pushing products out into the market that the company wants to sell. You could even say that it’s an “in the market” model rather than a “go to market” model. And they did this with a significant legacy, rather than as a green fields effort.

In some industries and companies this type of “outside in” approach was possible before advent of the latest generation of web technology, particularly if it was high value and the company already had a network in place (such as Rolls-Royce success). For most companies it is only now becoming possible with business-technology along with some of the current trends, such as cloud computing, which erase many of the technology barriers.

The challenge is to figure out the “in the market” model you need, and then shift management attitude. Given constant change in the market, this means an evolutionary approach, rather than a revolutionary (transformative) one.

Tea bags: the unexpected

As seen on a plaque at Scienceworks in the House Secrets exhibit.

A thrifty tea merchant from New York named Thomas Sullivan is credited with inventing the first tea bag in 1908. Looking to save money, Sullivan reportedly distributed small samples of tea in silk bags instead of little metal tins. It wasn’t until after he saw restaurant and coffee shop owners brewing the entire bag of tea leaves that he realized the potential of his actions.

A nice demonstration of the first, and most valuable, of Peter Drucker’s seven sources of innovation.

The unexpected. The unexpected success, failure or outside event.

Posted via web from PEG @ Posterous

Penicillin: the unexpected

As seen on a plaque at Scienceworks.

The penicillin mold was a pest, not a resource. Backteriologists went to great lengths to protect their bacterial cultures against contamination by it. Then in the 1920s, a London doctor, Alexander Fleming, realized that this “pest” was exactly the bacterial killer bacteriologists had been looking for – and the penicillin mold became a valuable resource.

A nice demonstration of the first, and most valuable, of Peter Drucker‘s seven sources of innovation.

The unexpected. The unexpected success, failure or outside event.

Posted via web from PEG @ Posterous

Tesco’s looking outside the building to predict customer needs

Tesco is using external weather data to drive sales
Tesco is using external weather data to drive sales

Tesco, the UK’s largest retailer, has started using weather forecasts to help determine what to stock in its stores across the UK.

Traditional approaches to stock management use historical buying data to drive stock decisions. This has worked well to date, but the increasing unpredictability of today’s weather patterns — driven by global warming — has presented business with both an opportunity and a challenge. An unexpected warm (or cold) spell can create unexpected spikes in demand which go unserviced, while existing stock is left on the shelves.

In Tesco’s own words:

In recent years, the unpredictability of the British summer — not to mention the unreliability of British weather forecasters — has caused a massive headache for those in the retail food business deciding exactly which foods to put out on shelves.

The present summer is a perfect example, with the weather changing almost daily and shoppers wanting barbecue and salad foods one day and winter food the next.

Tesco’s solution was to integrate detailed regional weather reports — valuable, external information — with the sales history at each Tesco store. A rise of 10C, for example, led to a 300% uplift in sales of barbecue meat and a 50% increase in sales of lettuce.

Integrating weather and sales data will enable Tesco to both capture these spikes in demand, while avoiding waste.

(Largely adapted from the article in the Times Online.)