Speaking of
high-tech companies, maybe there is nothing in the planet that can compare with
Rolls Royce. When this motor company makes its products, they require years of
extensive development where the science of materials and engine performance are
pushed to the maximum limit in order to produce only the top quality products.
How does Rolls
Royce make profits out of this kind of business strategy? The engines Rolls
Royce produce are sold to users at competitive prices. However, since the
engines are of top quality, the margins are realized ten years later out of the
sales from the spare parts business. Rolls Royce calls the strategy The Total
Care business model. This model shifts company’s relationship with its clients
from the product to long term contract to keep their aircrafts flying.
The contracts
yield profits from Rolls Royce’s “power by the hour”
service. The company offers its clients, within the terms of the contract,
engine servicing, monitoring and spare parts check, which guarantee the
engines’ top performance. This way, Rolls Royce manages the risks involved with
its products while earning revenues through the available opportunities.
To keep the
company in the forefront, Rolls Royce executives have prioritized R&D. In
2011 for instance, Rolls Royce has spent £460 million on R&D efforts that were focused on projects that
aim to produce engines that improve environmental performance and reduce
emission of toxic gases.
A good portion
of the amount spent for R&D went to strengthen Rolls Royce internally. The
company anticipates more long term partnerships in the future and Rolls Royce
want to be on the cutting edge even as technological advances are too fast.
Rolls Royce created University
Technology Centers, a global network designed to help the company in its
decentralized research and technology approaches.
Rolls Royce is
now dealing with forward orders worth £60 billion.
In the aviation sector alone, there is an order of 137,000 units of new
engines. These orders are just part of the estimated $1 trillion worth of
aerospace engines in the next decade, where Rolls Royce is expected to take a
good share.