Tag Archives: Transport

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.

The role of snowmobiles in innovation

Note: This post is part of larger series on innovation, going under the collective name of Innovation and Art of Random.

Innovation has become an idea arms race, an arms race that most of us cannot hope to win. We spend so much time trying to consume ideas, drinking from the innovation fire hose, that we have little time to devote to what really matters: synthesis.

When we’re focused on harvesting ideas from the environment around us—either inside or outside our organisations—we are, by definition, on the back foot. We must assume that we’re not the first to see an idea, when it’s discovered outside our organisation. Nor can we assume exclusivity on the ideas we generate. As Sun likes to point out, statistically all the smart people with the good ideas work for someone else.

My guitar teacher of some years back, Tom Fryer, had a bit of sage advice. It’s pointless to try to be original, as someone will always have had the idea before you. A more productive approach is to simply plow your own furrow; focus on the problems you want to solve, steal ideas shamelessly if they seem useful, and invent what you need to fill the gaps.

Tom has a good point. The challenge with being creative is in knowing what problems to solve, and bringing together old and new ideas to create a new solution. Hoarding ideas or worrying about their source, debating the worth of internally generated ideas against those sourced externally, misses the point when we have tools like open innovation at our disposal.

Success in innovation is driven by a smart approach to synthesis. Work to solve a problem. Take ideas from around you to incrementally building something new. Learn, tuning your approach as you go.

Take Sony’s Walkman as an example, an innovation which created the market for personal music devices.

The Sony Walkman was originally designed as a music player for couples, based on Akio Morita’s observation of teenagers lugging their radios with them on vacations (an incongruity) and came equipped with two headphone jacks and a recording facility. It even had a “hotline” button, partially overriding the sound from the cassette and allowing one user to talk to the other over the music.

Of course, nobody really used it like that and Sony was quick to see that most people used it as a personal, portable music player (unexpected) and redesigned it accordingly.

Snake Coffee

The Walkman wasn’t conceived and developed in response to a brilliant idea. Akio Morita noticed an incongruity in the market, which Sony created a new product to address. When they realized that the Walkman wasn’t being used as expected, the product was tweaked to align it with reality. As Peter Drucker pointed out with his seven sources of innovation, innovation usually has more prosaic drivers than brilliant ideas or shiny new technologies.

John Boyd
John Boyd

John Boyd called this process, creating snowmobiles. His area of interest was military strategy: the challenge of creating novel, unexpected and winning solutions when dealing with a rapidly changing and constantly evolving environment. Creating snowmobiles represented a thought experiment he used to challenge an audience near the start of his briefing on strategy.

The thought experiment goes something like this:

Imagine that you are:

  • on a ski slope with other skiers—retain this image,
  • in Florida riding in an outboard motorboat—maybe even towing water-skiers—retain this image,
    riding a bicycle on a nice spring day—retain this image, and
  • a parent taking your son to a department store and that you notice he is fascinated by the tractors or tanks with rubber caterpillar treads—retain this image.

Now let’s pull the:

  • skis off ski slope—discard and forget rest of image,
  • outboard motor out of motorboat—discard and forget rest of image,
  • handlebars off bicycle—discard and forget rest of image, and
  • rubber treads off toy tractors or tanks—discard and forget rest of image.

This leaves us with

  • skis,
  • outboard motor,
  • handlebars, and
  • rubber treads.

Pulling all this together, what do we have?

  • A snowmobile.
Snowmobile
Snowmobile

As Boyd points out, there are two distinct processes at work here. First we need to pull ideas apart and understand how they will work in different contexts (analysis), building a library of interesting tactics we can use in solving a future problems. Second, we need to put these ideas back together in new combinations (synthesis), providing us with the opportunity to understand how apparently unrelated ideas and actions can be connected to one another.

How do we create a situation where we can make snowmobiles?

We often strive for diversity, as we believe diversity brings with it a range of points of view, which in turn encourages innovation. This has prompted some organisations to search for T-shaped individuals: someone professional in one area, but with complementary skills. Their broad experience, so the theory goes, will enable them to look across a number of domains to harvest useful ideas. However, this does not address our core challenge: understanding which questions to ask, the questions which will driven the synthesis process.

The first step is take a mountain climbing approach to knowledge and ideas. At each stage in the innovation cycle we need to establish camp, scout the path ahead and then prepare our tools for the journey to the next camp further up the mountain. This requires a process of constant learning, and a willingness to explore new environments. Environments which might range from the various business functions, across technical and business domains to seemingly unrelated areas, such as John Boyd’s work on military strategy.

Low Cost IVF Foundation
Low Cost IVF Foundation

The Low Cost IVF Foundation is a good example of this approach. The program started with a clear goal in mind: of converting IVF from a luxury of the West into a tool for alleviating the public ridicule, accusations of witchcraft, loss of financial support, abandonment and divorce, not to speak of the shame and depression associated with being childless in the third world. At each innovation camp they scouted the path ahead, exploring the environments around them, identify the problems, and challenging the conventional assumptions about how they should be solved. Incrementally, over a number of iterations, they synthesised a new approach which radically cut the cost of IVF. While the journey might seem prosaic (much like Sony’s), the result is quite profound.

To support this approach to innovation, we need to become fluent in a wide range of environments, the second step. Fluency implies that we have sufficient experience in an environment to make understanding ideas automatic. We’re not devoting our time to basic comprehension. This creates the cognitive time and space to focus on understanding the connections between ideas, and their application to the task at hand. Fluency creates the time and space for synthesis.

Innovation [2009-09-07]

Another week and another collection of interesting ideas from around the internet.

As always, thoughts and/or comments are greatly appreciated.

This issue:

Innovation [2009-03-09]

Another week and another collection of interesting ideas from around the Internet.

As always, thoughts and/or comments are greatly appreciated.

This issue:

Innovation [2009-01-27]

Another week and another collection of interesting ideas from around the Internet.

As always, thoughts and/or comments are greatly appreciated.

This issue: