Tag Archives: Company Expansion

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.

Is “agile enterprise IT” an oxymoron?

Have we managed to design agility out of enterprise IT? Are the two now incompatible? Our decision to measure IT purely in terms of cost (ROI) or stability (SLAs) means that we have put aside other desirable characteristics like responsiveness, making our IT estates more like the lumbering airships of the 1920s. While efficient and reliable (once we got the hydrogen out of them), they are neither exciting or responsive to the business. The business ends up going elsewhere for their thrills. What to do?

LZ-127 Graf Zeppelin
LZ-127 Graf Zeppelin

An interesting post on jugaad over at the Capgemini CTO blog got me thinking. The tension between the managed chaos that jugaad seems to represent and the stability we strive for in IT seems to nicely capture the current tensions between business and IT. Business finds that opportunities are blinking in and out of existence faster than ever before, providing dramatically reduced windows of opportunity leaving IT departments unable to respond in time, prompting the business to look outside the organisation for solutions.

The first rule of CIOs is “you only have a seat at the strategy table if you’re keeping the lights on”. The pressure is on to keep the transactions flowing, and we spend a lot of time and money (usually the vast majority of our budget) ensuring that transactions do indeed flow. We often complain that our entire focus seems to be on cost and operations, when there is so much more we can bring to the leadership team. We forget that all departments labour under a similar rule, and all these rules are really just localised versions of a single overarching rule: the first rule of business, which is to be in business (i.e. remain solvent). Sales needs to sell, manufacturing needs to manufacture, … By devoting so much of our energy on cost and stability, we seems to have dug ourselves into a bit of a hole.

There’s another rule that I like to quote from time-to-time: management is not the art of making the perfect decision, but making a timely decision and then making it work. This seems to be something we’ve forgotten in the West, and particularly in IT. Perfection is an unattainable ideal in the real world, and agility requires a little chaos/instability. What’s interesting about jugaad is the concept’s ability to embrace the chaos required to succeed when resource constraints prevent you for using the perfect (or even simply the best) solution.

Vickers F.B. 5 Gunbus
Vickers F.B.5. Gunbus

Consider a fighter plane. The other day I was watching a documentary on the history of aircraft which showed how the evolution of fighters is a progression from stability to instability The first fighters (and we’re talking the start of WWI here–all fabric and glue) were designed to float above the battlefield where the pilots could shoot down at soldiers, or even lob bombs at them. They were designed to be very stable, so stable that the pilot could ignore the controls for a while and the plane would fly itself. Or you could shoot out most of the control surfaces and still land safely. (Sounds a bit like a modern, bullet proof, IT application, eh?)

The Red Baron: NAME
The Red Baron: Manfred von Richthofen

The problem with these planes is that they are very stable. It’s hard to make them turn and dance about, and this makes them easy to shoot down. They needed to be more agile, harder to shoot down, and the solution was to make them less stable. The result, by the end of WWI, was the fairly unstable tri-planes we associate with the Red Baron. Yes, this made them harder to fly, and even harder to land, but it also made them harder to hit.

Wizz forward to the modern day, and we find that all modern fighters are unstable by design. They’re so unstable that they’re unflyable without modern fly-by-wire systems. Forget about landing: you couldn’t even get them off the ground without their fancy control systems. The governance of the fly-by-wire systems lets the pilot control the uncontrollable.

The problem with modern IT is that it is too stable. Not the parts, the individual applications, but the IT estate as a whole. We’ve designed agility out of it, focusing on creating a stable and efficient platform for lobbing bombs onto the enemy below. This is great is the landscape below us doesn’t change, and the enemy promises not to move or shoot back, but not so good in today’s rapidly changing business environment. We need to be able to rapidly turn and dance about, both to dodge bullets and pounce on opportunities. We need some instability as instability means that we’re poised for change.

Jugaad points out that we need to allow in a bit of chaos if we want to bring the agility back in. The chaos jugaad provides is the instability we need. This will require us to update our governance processes, evolving them beyond simply being a tool to stop the bad happening, transforming governance into a tool for harvesting the jugaad where it occurs. After all, the role of enterprise IT is to capture good ideas and automate them, allowing them to be leveraged across the entire enterprise.

Managing chaos has become something of a science in the aircraft world. Tools like Energy-Maneuverability theory are used during aircraft design to make informed tradeoffs between weight, weapons load, amount of wing (i.e. ability to turn), and so on. This goes well beyond most efforts to map and score business processes, which is inherently a static pieces/parts and cost driven approach. Our focus should be on using different technologies and delivery approaches to modify how our IT estate responds to business change; optimising our IT estate’s dynamic, change-driven characteristics as well as its cost-driven static characteristics.

This might be the root of some of the problems we’re seeing between business and IT. IT’s tendency to measure value in terms of cost and/or stability leads us to create IT estates optimised for a static environment, which are at odds with the dynamic nature of the modern business environment. We should be focusing on the overall dynamic business performance of the IT estate, its energy-maneuverability profile.