Rolls-Royce has prospered by relentlessly pursuing technical innovation and making world class

aircraft enginesRolls-Royce engines power about half of the latest wide-bodied passenger jets

and a quarter of all single-aisle aircrafts entering service. A crucial ingredient for its success has

been the move from manufacturing to selling "power by the hour"a complex offering of serv-

ices and manufacturing that keeps the engines of its customers burning.

Imagine this, high above the Pacific, passengers doze on a long haul flight from Tokyo to Los

Angeles. Suddenly, a bolt of lightning cleaves the air. Those startled by the flash will soon settle back

into their dreams. But on the other side of the world, in Derby in England, engineers at Rolls-Royce

get busy. Lightning strikes on jets are common and usually harmless, but this one has caused a

cough in one of the engines. The aircraft will land safely and could do so even with the engine shut

down. The question is whether it will need a full engine inspection in Los Angeles, which would be

normal practice but inconvenience hundreds of passengers waiting in the departure lounge.

A torrent of data is beamed from the plane to Derby. Numbers dance across screens,

graphs are drawn and engineers scratch their heads. Before the aircraft lands word comes that

the engine is running smoothly and the plane can take off on time.

Industry experts estimate that manufacturers of jet engines can make some seven times the

revenue from servicing and selling spare parts than they do from selling the engines. These juicy

margins have attracted a swarm of independent servicing firms, which can offer spare parts for as

low as one third of the price charged by the original manufacturers. This is where Rolls-Royce has

integrated its technology with service which makes it more difficult for competitors to pinch its

clients. Instead of selling engines and then later parts and service, Rolls-Royce has created an attrac-

tive bundle, which it branded TotalCare, that charges for every hour that an engine runs. Its web-

site advertises it as a solution ensuring "peace of mind" for the lifetime of an engine. Rolls-Royce

promises to maintain the engine and replace it if it breaks down. The operations room in Derby

continuously monitors the performance of some 3,500 engines, enabling it to predict when engines

are likely to fail and let airlines schedule engine changes efficiently, and reduce repairs and unhappy

passengers. Today, about 80% of engines shipped to its clients are covered by such contracts!

a) Can you find out any manufacturing company that can be successful using the route of Rools-Royce? How?

b)Can you find out any service organization that can also be succesful by focusing marketing of and through serviec using the route of Rools-Royce?

2. Illustrate the strategic implication of the characteristics of service.