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Business Strategy
Report
N1079
CandNo: 134492
Rolls-Royce Holdings plc

BusinessStrategyReport –Rolls-Royce Holdingsplc
CandNo:134492
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Executive Summary
Civil aero engine is a mature industry with intensive competition among competitors. Rolls-Royce
Holdings plc. is one of the three major manufacturers dominating the industry. It is a British
multinational public holding company founded in 1906 by Henry Royce and Charles Rolls in
Manchester. This report aims to analysis the failure of Rolls-Royce and suggest possible solutions for
the companyto overcome the problems.
In external analysis most of the factors are stable except that the company will need to face the
worldwide political issues and unstable economic factor. In internal analysis, the company does not
have a positive working culture which leads to the failure of the company. Under a highly
competitive environment, the company will need to implement strategies to retain its customers
and ensure the supply of materials. It is also essential for Rolls-Royce to strength its key success
factors andto maintainitscompetiveness.
With the analysis and the tools to generate strategy, a few strategies are suggested, including
Vertical integration, Engine replacement scheme, New geographical markets, Flight record system,
Retain talented people strategy and Reward and punishment scheme. After using different ranking
methods to rank the strategies, Vertical integration and Engine replacement scheme are highly
recommended for the company, Retain talented people strategy and Reward and punishment
scheme will also be suggested. Vertical integration with small component and electronic control
manufacturer aiming to lower the production cost and to encourage the creation of new engines.
Engine replacement scheme aims to retain customers by providing them an improved engine with
discount. Retain talented people strategy and Reward and punishment scheme aim to change the
workingculture toa more encouragingandinnovative place.

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Tableof Contents
EXECUTIVE SUMMARY .................................................................................................................2
1.1 PROFILE OF THE INDUSTRY,SECTOR, COMPETITORS, CONSUMERS & COMPANY.........................................5
1.1.1 The company ................................................................................................................ 5
1.1.2 The trend – civil aero engines......................................................................................... 6
1.1.3 Industry key players.......................................................................................................6
1.1.4 Market share................................................................................................................ 7
1.2 ORGANIZATIONAL PURPOSE........................................................................................................9
1.2.1 Mission......................................................................................................................... 9
1.2.2 Vision ........................................................................................................................... 9
1.2.3 Value statement:...........................................................................................................9
1.2.4 Mission, Vision and Value statement analysis ............................................................... 10
1.2.5 Financial analysis........................................................................................................ 11
1.3 EXTERNAL, INTERNAL AND COMPETITIVE ENVIRONMENT.................................................................. 12
1.3.1 External analysis - PESTEL........................................................................................... 12
1.3.2 External analysis - SWOT............................................................................................. 13
1.3.3 Internal analysis - SWOT.............................................................................................. 13
1.3.4 Internal analysis – VRIN............................................................................................... 15
1.3.5 Competitive environment - Porter’s 5 forces.................................................................. 15
1.4 BASIC OF COMPETITION &KEY SUCCESS FACTORS .......................................................................... 17
2. STRATEGIC DEVELOPMENT ..................................................................................................... 18
2.1 EXISTING STRATEGY(S)............................................................................................................ 18
2.1.1 Business stream level................................................................................................... 20
2.1.2 Corporate level............................................................................................................ 21
2.2 GENERATION OF STRATEGIC OPTIONS.......................................................................................... 23
2.2.1 External strategies ...................................................................................................... 23
2.2.2 Internal strategies....................................................................................................... 25
2.3 EVALUATION AND RANKING OF OPTIONS...................................................................................... 29
2.3.1 Ranking of Strategies .................................................................................................. 29
2.3.2 Evaluation - SAFe Criteria............................................................................................. 30
2.4 CHOICE OF STRATEGY.............................................................................................................. 31
3. IMPLEMENTATION ................................................................................................................. 32
3.1 GANTT CHART ...................................................................................................................... 32
REFERENCE ................................................................................................................................ 33
APPENDIX.................................................................................................................................. 38

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Tableof Tables
Table 1: Rolls-Royce financial analysis ......................................................................................... 11
Table 2: PESTEL .......................................................................................................................... 12
Table 3: SWOT - OT..................................................................................................................... 13
Table 4: SWOT - SW.................................................................................................................... 14
Table 5: VRIN.............................................................................................................................. 15
Table 6: Porter's 5 forces............................................................................................................. 16
Table 7: Rolls-Royce Value Chain analysis..................................................................................... 26
Table 8: Marketing Assets ........................................................................................................... 27
Table 9: Rolls-Royce Dynamic marketing capabilities .................................................................... 29
Table 10: Strategies Ranking ....................................................................................................... 29
Table 11: SAFe Criteria ............................................................................................................... 30
Tableof Figures
Figure 1: Global Commercial Engine Market Share Trend 2011 – 2015 ............................................ 7
Figure 2: Commercial Engine Market Share Trend - GE, PW & RR 2011-2015....................................8
Figure 3: Generic routes to competitive advantage creation ......................................................... 19
Figure 4: Porter's generic strategies I .......................................................................................... 20
Figure 5: Ansoff Matrix I ............................................................................................................. 20
Figure 6: BCG ............................................................................................................................. 21
Figure 7: ADL ............................................................................................................................. 22
Figure 8: Porter's generic strategy II ............................................................................................ 23
Figure 9: Ansoff Matrix II ............................................................................................................ 24
Figure 10: Value Chain ............................................................................................................... 25
Figure 11: Dynamic marketing capabilities ................................................................................... 28
Figure 12: Gantt Chart................................................................................................................. 32

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1. Strategic Analysis
1.1 Profile of the industry, sector, competitors, consumers& company
1.1.1 The company
Rolls-Royce Holdings plc. is a British multinational public holding company founded in the 1906 by
Henry Royce and Charles Rolls in Manchester, and is a manufacturer of luxury cars (48). The company
was mainly responsible for the production of road vehicles until 1973 when the company divergedin
order to expand their business, creating another company known as Rolls-Royce Motors. Rolls-
Royce is well known for their aero engines (48). They created their first aircraft engine in 1914, and
by 1920, majority of Rolls-Royce’s business comprised of aero engine production. Rolls-Royce has
customers from over 150 countries and operates in more than 50 countries worldwide, with an
estimated of 550,000 employees. Rolls-Royce Holding plc. provides a wide range of products and
services,includingcivil aerospace,Defence aerospace,Nuclear,Marine andPowersystem (48).
This report will mainly focus on the civil aero engine business stream. Rolls-Royce mainly focus on
twomain markets:
1. Sales of brand new aircraft engines to aviation industry leading manufacturer Airbus
industryandBoeingandto some otherairlinesas well (48).
2. Spare part to those old purchase engines and aftermarket services and maintenance to its
customer airlines. This segment of market consists competitors who specialized in
maintenance (48).
Recently, their civil aero engine performance deteriorated significantly. Financial professionals
identifiedafewmainproblemsthatthe company faced.The problemshave beenlistedbelow:
1. Global economic downturn: the drastic drop of oil prices from 2014 until present day (58) (See
appendix 1)
a. Which led to extensive cancellation of different programs and orders. This has cost
Rolls-Royce ahuge lossduringthis periodof time.
2. Decision to exit IAE and not join Pratt & Whitney in developing the Geared Turbofan for the
single aisle market (1).
a. Lost the chance of sharinginformationandresourceswithothercompetitors (55).
b. Reduced chances of joining the group and working on huge projects, which could be
beneficial inthe longrun.
3. Imbalance in the allocation of resources as well as the inability to develop successor out-of-
date engines (1).

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a. With inequitable resource allocation, the research and development on some
engines will be slower and it will give the competitors a chance to take over the
market. For example, the company has devoted heavy resources to A380 but not
AE3007, which gave Pratt & Whitney, GE and Sanfran the chance to dominate the
marketof AE3007 (40).
4. Firstlossina Gulfstreamenginecompetition (1).
a. The image and reputation have dropped substantially after they lost in the
competition, because this is the very first time they lost in the Gulfstream engine
competition, with rumours speculating that they lost their talents in order to create
betterengines.
1.1.2 The trend – civil aeroengines
The industrial trend is to reduce the number of in-flight engine shutdowns, abort take-offs and flight
delays through the use of advanced engine health monitoring technology (38). Currently, Rolls-Royce
invests monumental effort in reducing the number of in-flight engine shutdowns, aborted take-offs
and flight delays through the use of advanced engine health monitoring technology (44), which is
beneficial to society. There is an inherent shift in the emphasis placed by the companies, where
instead of selling engines to customers, there is a fundamental shift to adopt the power-by-the –
hour contracts. These airlines make fixed regular payments based on the number of hours flown and
the engine manufacturer retains responsibility for engine maintenance (35). To support this new
approach, improvements made to the in-flight monitoring of engine have been introduced with the
collection of more detailed data on the operation of the engine. More Boeing 737 is dominated by
CFM, GE Aviation is taking action to dominate Boeing 747, 767 and 777 plane (23); with Pratt &
Whitney dominating the geared turbofan engine which suitable for Airbus A320 neo (38)(40).
Although Rolls-Royce launched their TrentXWB engine for the redesigned A350XWB (53), the period
between the development and the launch will take a long time, which may not be fast enough to
compete withitscompetitors.
1.1.3 Industry key players
There are 3 major manufacturers dominating the large commercial jet engine – GE Aviation (GE)
corporate parent is GE, Pratt & Withney (PW) corporate parent is Limited Technology Corp. and
Rolls-Royce PLC (RR). GE, the biggest competitor for Rolls-Royce, they have the biggest market share
in the industry and during the past 5 years, they maintain over 40% of market share in the past 5
years(22).

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1.1.4 Market share
Figure 1: Global Commercial Engine Market Share Trend 2011 – 2015 (4)(9) (34)(36)(45) (63)
From the above figure 1, we can see the general trend of market share. The market share of Rolls-
Royce only decreased by 2% in 2014 and it went up again by 1% in 2015. It appears that the
company’s performance is considerably decent. However, there are lots of joint ventures in this
industry. For example, the CFM, having the highest market share among all the companies, is a joint
venture company where 50% of the share belongs to GE. Therefore, if we recreate the market share
bar chart, the real changesduringthispast few yearscan be seen.
62%
38% 38% 39% 41%
9%
21% 22% 19%
22%
14%
10% 10% 10%
11%
6%
12% 12% 12%
10%
5%
13% 13%
11%
12%
4% 6% 5% 9% 4%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013 2014 2015
Global Commercial Engine
Market Share Trend 2011-2015
CFM GE Aviation (GE) IAE Pratt & Withney (PW) Rolls-Royce PLC (RR) Others

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Figure 2: Commercial Engine Market Share Trend - GE, PW & RR 2011-2015 (2)(7)(14)(15)(20)(36)(63)
The above recreated chart shows that the market share of Rolls-Royce is relatively small, and as they
exited, the IAE and PW purchased all its shares. This indicates that Rolls-Royce is being threatened
by the other 2 competitors, and they will need a strategy to be more competitive and boost its
marketshare.
40.00% 40.00% 42.00% 39.00% 42.50%
10.55%
18.50% 18.50% 18.50% 17.15%
9.55%
13.00% 13.00%
11.00% 12.00%
39.90%
28.50% 26.50% 31.50% 28.35%
2011 2012 2013 2014 2015
commercialengine market share trend -
GE, PW & RR 2011 - 2015
GE Aviation (GE) Pratt & Withney (PW) Rolls-Royce PLC (RR) Others

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1.2 Organizationalpurpose
1.2.1 Mission
“Trust to DeliverExcellence”(46) (48) (50)
They embody the values of the business: trust, deliver and excellence, in which they define the
termsas following:
Trust: is something we know can only be earned. It comes from the way we behave towards our
colleagues, our customers, shareholders and partners. They need to know that we can be relied on
to do the rightthingsinthe rightway (48) (50).
Deliver: part of earning trust is delivering on our promises. We seek to meet our customers’ needs
by ensuring the quality, performance and reliability of our products and matching this with first-class
servicesthathas value and can be repliedupon (48) (50).
Excellence: standard, a way of life; few companies can aim higher. If we can be trusted and we
deliver on our promises, then we will be regarded as an excellent company; one that people are
proudto work for,workwithand investin (48) (50).
1.2.2 Vision
Their vision is to create a “better power for a changing world” as the world is changing constantly
around us (51) (52), Rolls-Royce believe that they can help by developing a power system, enhancing
the quality and continue to strive for the better and create new standards for business to conduct.
Rolls-Royce is the leading aero engines manufacturers in UK, with the largest market share (over
50%) in UK. They export their civil engines to worldwide companies, and also work with
governments andprovide defence aerospace marineenginestothem.
1.2.3 Value statement:
1. Beingpart of Rolls-Royce teammeans (51) (52)
o Beingtrustedtodeliverexcellence forourcustomers,businessandpeople
o Leadingwithopennessandhonesty
o Beingpersonallyvaluedand recognized,withavoice thatis heard
o Enjoyingyourworkand sharingmutual respectwithyourcolleagues.
2. Creatinga culture thatdrivesperformance (48) (51):
o We have nurtured a culture where managers lead by example and our employees
are focused and flexible team players. Rolls-Royce is all about performance, where
they create high expectations and unlock potential. They recognize exceptional
contributions and inspire others to reach the same heights. They have a role in
exploitingindividualsand theircollectivetalents.

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1.2.4 Mission, Vision and Value statementanalysis
However, the working environment is good as the company has previously alluded to. In the reviews,
both the present and ex-staff have pointed out a few key problems with regards to the internal
issuesinthe company.
1. The biggest problem is that the company is adopting a slow pace, which will take the
companya longtime to solve aproblem (24) (see appendix)
2. Decision-making is a long and complex progress, and may ultimately lead to a poor
communicationof change (42).
3. It isa verybureaucraticcompanyand people are not willingtochange (24)
4. Difficultyinretaininggoodtalentdue to antiquatedwaysof managingstaff (24)
5. The enterprise information systems project implementation is unsuccessful because of poor
managementandimplementationprocess, includingpoorcommunication (24)
From the reviews, we can see that the company does not have schemes to encourage employees to
be more innovativeandcreate new engine models.
Secondly, the company stated that employees’ opinions and feedback will be reviewed. However,
the truth is that the company is a hierarchical one and there are lots of layers in management, and
employeessaiditisnoteasyto communicate andto expresstheirideastoseniormanagers.

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1.2.5 Financial analysis
2011 2012 2013 2014 2015
Profit before
tax (£m)
1105 2766 1700 67 160
Operating
profit (£m)
1186 1373 1479 1390 1499
Cost of Sales
(£m)
8676 9416 11482 10533 10459
ROCE 21.24% 41.27% 21.10% 1.72% 2.91%
Turnover
(£m)
11,124 12,161 15,513 13,736 13,725
Current
ration
1.20 1.33 1.31 1.46 1.48
Inventory
turnover
period (£m)
107.74 105.67 105.51 95.92 92.03
Gearing 1.10 0.80 1.11 1.28 1.82
Gearing 2 0.52 0.45 0.53 0.56 0.64
Table 1: Rolls-Royce financial analysis (25) (29) (33) (45) (46) (52) (58)
From the above analysis, we can see that the company performances drop a lot in 2014. The profit
of the company drop dramatically in 2014, and the recovery in 2015 is not high. This indicate the
companymay needafewyearsto recover.
Return on Capital Employed (ROCE) aim to measure how efficiently a company can generate profits
from its capital employed by comparing operating profit to capital employed. Rolls-Royce most
efficient year is in 2012 (41.27%) and 2014 (1.72%) is the worst. The reason for the ROCE drop is
because the operating profit drop 89 million pound and the capital employed increased by 738.05
million. This indicate that in 2014 the company increase their capital employed but it didn’t help to
generate more profit which means the efficiency of the company is very low. And it didn’t recover
much in2015.
The gearing ration measure the proportion of the company’s borrowed funds to its equity. Rolls-
Royce do have a relatively higher gearing ration compare to the industry average (gearing 1: 1.0 and
gearing 2: 0.48) this indicate that they may have a financial risk as the excessive debt can lead to
financial difficulties.

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1.3 External, Internal and Competitive environment
1.3.1 External analysis - PESTEL
(See appendix3for detailedPESTEL)
Political factor
 Strongpolitical influence (14)
 UK governmentinterventiontoavoid
potential foreigntakeoverof Rolls-Royce
 Sanctionmaycost delaysand
cancellation(57)
 Major receiverof fundingfrom
governmentwhichputsthemina
powerful position (5)
 Benefitfromarelative stable democratic
government
 Importand exportpoliciesandcontrols
(57)
 Decrease ingovernmentspending
 SubsidiesbyUKgovernmentUStax
breaksfor Rolls-Royce(26)
 Carbonemissionunderthe Kyoto
protocol istarget forreductionbyEU,
creatingpressuresforreducedimpactof
air travel (35)
EconomicFactor
 Worldwide recession (12) (21)
 Fierce competition,savviercustomers
and economicheadwindsare addingto
pressure tocut cost (16)
 Cost of productionhigh (34)
 Currencyrisk (34)
Social factor
 Civil aerospace correlatedwithtrendsin
airline sector(17)
 Airline influence bydemandof global
population;Increase numberof
passengerstravellingby air (2) (3)
 OutboundTravel Alertaffectthe number
of people travelling
 Growth of aviation (7)(9)
 Demandforaftermarketproduct+
servicesincrease ie.long-termcontract
(28)
Technological factors
 Innovationof new materialsanddesign
 Advancedtechnologyhelptoshortenthe
time fornew inventions
 Many yearsof experience andR&D –
forefrontfortechnology
 IT security
 Productperformance
 Riskof technologicalobsolescence,with
longdeliverycycles
Legal factor
 REACH (Registration, Evaluation and
Authorisationof Chemicals)Norms
 Articlesinterpretation
 Employmentprotection:Healthand
Safetyimportantinmanufacturingand
alsoin liabilityforairsafety(17)
 Environmental standardsandlegislation
 EU/US lawand WTO rulingon
competition
Environmental Factor
 Geographical locationlimitation (19)
 Unstable weatherconditions
 Supplychainperformance (8)
 Capabilityof global resources
 Reductioninconsumerdemanddue to
concernsregardingclimate change (20)
Table 2: PESTEL

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Political and legal factor will be the key affecting the aero engine industry, especially for Rolls-Royce.
There are many regulations for importing and exporting engines to foreign countries, since aero
engines companies do provide products and service to the military in different countries. Therefore,
governmentswill implementdifferentpolicies inordertoprotecttheirowninterest.
Economic and Social factors are also factors that the company need to be concerned about when
making a decision. There is evidence that when the demand of aeroplane increases, the demand of
aero engines will increase correspondingly. However, the industry is facing fierce competition and
the economy is going through recession, which coerces companies to reduce cost in order to survive
and brave the adversity.
1.3.2 External analysis - SWOT
Opportunity
 Governmentinterventionprevent
takeoverfromothercompany (32)
 Governmentfunding have sufficient
fundingforproject (28)
 Increaseddemandforcommercial aero
enginesdue tothe demandof airtravel
increase
 Salesof engine correlated/dependent
on salesof aircraft
 Rolls-Royce iswell positionedboth
geographicallyandtechnicallyto
service the huge aircraftmarketinthe
future.
 Increaseddemandforturbine
helicopters
Threat
 Economicrecession (60)
 Governmentpoliciescompatibilities
(38)
o Importand exportcontrols
o Sensationpolicyof other
countries
 Highlevel of competition
Competitorsstarttodominate some
of the aeroengine model
 Riskfor supplychain
Table 3: SWOT - OT
1.3.3 Internal analysis - SWOT
Strength
 Good relationshipwith:
o Suppliers&buyers(especially
Singapore airline)
o Europeangovernment
 InvestmentinUSto smoothenthe
political issue
 Major playerinaero-engines
manufacturing
 Businesshave reachtodifferentparts
of the worldmarket
 Highcapacity for R&D
Weakness
 Brand image decrease due toloss in
engine competitionandfailure to
improve the engine AE3007model
 Workingenvironmentisgettingworse
 Culture of the companycausesan
associatednegative impact,whichmay
adverselyaffectthe performance of
R&D
 New CEO couldnothandle the media
(24)
 Long decision-makingprocesswhich
may nothave been accurate
 The way that Rolls-Royce dealtwith
legal affairsisnotmature enough,fines
and otherremedies hamperedthe

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image of the companyas well asthe
business,positionandoperations
Table 4: SWOT - SW

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1.3.4 Internal analysis – VRIN
Competency Valuable Rare Inimitable &
Non-
substantiate
Exploitable
by the firm?
Competitive
outcome
Relationship
between
customers
Yes Yes No Yes Yes
Company
name and
reputation
Yes No No Yes Yes
Design/
Product
Yes No No Yes Yes
Product
expertise
Yes No Yes Yes Yes
Innovation Yes Yes No Yes Yes
Security of
supply
Yes No No No Yes
Supplier
network and
relationship
Yes Yes No Yes Yes
Information
system
Yes Yes No Yes Yes
Table 5: VRIN
VRIN shows the competitiveness of the company. ‘Inimitable and non-substantiate’ is evidently the
most significant problem that the company needs to face, as competitors can easily copy knowledge
and services. The regular press conference and participation in the exhibition will increase the
chances of information leakage. Also, during the news conference of launching a new engine, the
company will need to explain the new features or the new materials used in the design, which
provide competitors a chance to copy our product or ideas. Also, when the company fail to keep the
employees, the chance of informationleakageincreases.
On the other hand, the company does have the ability to exploit the resources, which can increase
theircompetiveness.
1.3.5 Competitive environment - Porter’s5 forces
Bargainingpowerof Buyers
 Middle - High:long termcommitment topurchase anaircraft engine.Customersprefera
trustedbrand (11)
 Limitednumbersof buyersandincreasinglevel of global carrierswithinairline industry
 Globalisationof the manyairlinesinrecentyearshasenhancedtheirpurchasingpowerto
great extent(4)
 Long-termdecisiontobuya specificaircraftorany combinationof aircraftengines
therefore theywill compare differentmodelsandchoose carefully (15)
 Easy for themtoget newinformationfromotherpartiesandthe customerscaneasily
change aero engine suppliers
 Increasedreferral once asale hasbeenmade

CandNo:134492
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Bargainingpowerof supplier
 Depends
 Aeroenginesmanufacturerare involved inmanydifferentsource supplyapplyingdouble
supplierstrategies.Supplierof highendtechnologylikecomplicatedelectroniccontrol
componenthave the mostbargainingpowerwhere the suppliersof the smaller
components are decreasinginthe recentyears (42).
Threat of newentrants
 Low
 Thisis a reputedmarketandhighcost of R&D and need approval fromthe authorities
 Also,itishard to winthe buyers’confidence fornew entrants (29)
 AeroenginesmarketdominatedbyGE,RR & P&W
 The name of the companyalso playsa vital role inthisindustrydue tothe sensitive nature
of thismarket
Threat of substitute
 Low
 There ismost likely nosubstitute forairtravel because of time constraints,andalthough
optionslike highspeedtrainsare available,theyare notutilised (13)
 Due to nature of sector,“substitute products”difficult
 But still these emergingtechnological developmentstakingplace along withincreasing
opportunityof airtravel
Rivalrywithinindustry
 High
 Thisis an oligopolisticglobal industryisdominatedby3 mainplayers(General electricGE,
Rolls-Royce andPratt& Whitney) fuellingabalance,resultinginintensifiedrivalry (19)
 Civil aerospace engine industry ishighlybudgetorientedasitrequiresmassive capital
investmentforadvancedtechnologyandR&D.
 Single manufacturersfinditdifficulttodominate the market, whichleadsto the increased
competitionamongthe opponents.(20)
 In recentyears,eachproducertried to enhance theirvolumeshare,whichbrought a
healthycompetitiontothe existingmarket (20)
 Wide range of labour, industryis well developed
Infrastructure availableinUK+ sourcesof capital and nature resources
Table 6: Porter's 5 forces
Overall aero engine is a highly competitive industry as there are only a few players in this sector and
there are a few buyers. The barriers of entrant is high and the threat of substitute is low, thus
companies can focus on the existing competitors and fight for their market share. However, the
barging power of buyers and suppliers are relatively high. Therefore, companies should impose
strategiesinordertoretain theircustomersandensure their supply.

17
1.4 Basic of competition & KeySuccess Factors
There are fourmainkeysuccessfactors forthe civil aeroengine industry.
Partnershipswith Governmentagencies
Becoming a partner with government agencies will be a key for the company to success. As the
company will have funding and support for the university infrastructure, complementary basic
research, which seek to attract key researchers. Besides, it is easier for the company to reach
customersworldwide,asitwill be hassle-free togetthroughthe legal process.
Customisationof approach for differentcountriesand cultures
This can help customers contact the company more easily. In the long term, with increased
ease of contact, it can attract customers. Ostensibly, the approaches employed by the
companies will be a key factor taken into the consideration of customers when they make
decisions.
High quality control standard
This can ensure that the company will provide products of high quality, and can prevent any
accident caused by mistakes.
Well-developed aftermarket services
These services can help to keep the customers as they can maintain the life expectancy of
an engine. This will also be a key element when customers make their decisions.
Advance IT system
The process of creating engine involves a lot of calculation and design. It will require a good
IT system and software to work on and to record all the processes. Clearly, an advanced IT
system is essential. Beside, easily accessible information will enhance the operation
mechanics and lead the company to eventual success.

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2. Strategic Development
2.1 Existing Strategy(s)
Their existing strategy is to focus on differentiated, mission-critical power systems, which create
tough barriers to entry in our chosen markets. Leverage world-leadingengineering can drive growing
marketshares.Thiswill capture long-termaftermarketvalue anddeliverprofitable growth.
 Engineeringexcellence (44)
o Investing in and developing the excellence of our engineering to produce high-
performance powersystems.
 Operational excellence (44)
o Transforming our manufacturing and supply chain to embed a lean approach across
our facilities andprocess
 Capturingaftermarketvalue (44)
o Leveraging our installed base, product knowledge and capabilities to provide
outstandingservicestocustomers
Currently, Rolls-Royce is facing a financial disadvantage (figure 3) due to the economic recession,
and their decision to exit IAE and not join PW in developing the geared turbofan for single market.
Theirincome and support from the third party has since dropped and this made them suffer. After a
number of profit warnings from 2014 to 2015 (41), the company’s emergent strategy was to cut cost
and to boost its brand image. In 2014, the company had cut 5% of its work force due to the drip in
demand and it mainly occurred in its aerospace division (41). In 2015, there was a major
management restructure in the company in order to cut cost once more (49). However the company
need more strategies to tackle the problems and to recover from the failure. Rolls-Royce will be
implementingstrategiestoaimmarketadvantage (figure 3).

19
Figure 3: Generic routes to competitive advantage creation (29)

CandNo:134492
20
2.1.1 Business stream level
2.1.1.1 Porter’s generic strategies
Figure 4: Porter's generic strategies I (29)
Currently the company is on a differentiation side where they hire talented employees to help them
differentiatetheirproductsfromthe competitors.
2.1.1.2 Ansoff matrix
Figure 5: Ansoff Matrix I (29)
Rolls-Royce current strategy is product development, in the past years the company develop new
engines, nuclear energy and power system in the past years. Also they planned to develop and move
intonewmarketstoo.However,theyhave not take anyaction formarketdevelopmentyet.

21
2.1.2 Corporate level
2.1.2.1 BCG
Figure 6: BCG (29) (31)
According to the market share and the growth rate data, there is still a question mark when it comes
to the power system and the nuclear business, as there is still a long way for the business to grow
before entering the mature level (see appendix 4 for industry life cycle). In addition, we are still
unsure of the popularity level of these product and services. However, there will be a great chance
for these two businesses to become the star product of the company as the demand of energy is
growing and many industries will need an easy access and safe power system operate in their
products.
The civil and defence aero engine are still the cash cow of Rolls-Royce. Although the business is
dropping, these 2 businesses have generated over 50% of the company’s total revenue (48). With
the appropriate strategyimplemented,civil canagainbecome the starproductof the company.
Marine business will be a question mark product too, but it will be more close to the middle point, as
the business rate is medium and their relative market share is not very high (51). More investment
will be required inordertostandout andattract more customersinthisbusiness.

CandNo:134492
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2.1.2.2 ADL
Figure 7: ADL (29) (31)
The ADL matrix used the dimension of environment assessment and business strength assessment to
identify the general strategy. Rolls-Royce’s nuclear and power system business is in the growth stage
where the demand is increasing and more companies wish to enter this industry (61). There are a
few of larger player in this industry but not a dominating one. Therefore, it will be located on the
GrowthXFavourable, where the company can attempt to improve the business by investing more
these two areas and try to develop a safer and easier way for people to access the energy and the
system.
Civil and defence aero engines will be located on the MatureXFavourable. Although the engine
sector is more mature, the growth rate has been slowing down and the competition is intense. The
company provide quality engines to their customers. However, the company has failed to regularly
provide new inventions or the enhancement of old engines (1). Along with the economic recession
and wrong decisions made, especially the civil aero engine business stream, the damage inflicted is
significant. Rolls-Royce should find ways to boost their research and development to create a more
competitiveadvantage whenpitchedagainstothersin the industry.
Last but not least, the Marine business is located on GrowthXTenable. There are only a few
competitors in this particular industry as the cost of setting up this business is very high, and it also

23
takes a long regulation process before the business can be started (51). As a result, this business
performance in Rolls-Royce is not performing well. Hence, the company will need to differentiate
theirmarine productsfromothercompetitorsinorderto protect theirbusiness.
2.2 Generation of strategic options
From the financial analysis, the ROCE indicate that the company did increase the capital employed in
2014 trying to generate more profit for the company. But these actions fail. Tolls will be used in the
following to analysis and generate the strategy that Rolls-Royce should follow in order to improve
theirfinancial performance andbe more competitive.
2.2.1 External strategies
2.2.1.1 Porter’s generic strategy
Figure 8: Porter's generic strategy II (29) (31)
Rolls-Royce is moving towards a differentiation, the resources from the power system and marine
business that can be used in the aero engine business. However, their biggest competitor GE is a
diverse company, they have 12 different business stream operating and a multinational parent
company supporting them. This shows that Rolls-Royce will need to put extensive effort in order to
become a differentiate company and to compete with its competitors. Becoming a differentiate
company may be difficult to the company Vertical integration could be another choice for Rolls-
Royce to choose. The R&D department of Rolls-Royce is well-developed and they have sufficient
amount of resources and talented people working in the company. Backward vertical integration
means Rolls-Royce can invent and manufacturer new materials for the engines. Inventing new
materials for the engines can inspire engine designers to improve their old model and to design new
and more effective model in the future. Moreover, the company can benefit from it, the company
will have more control over the supply and they may enjoy a lower production cost. Besides, the

CandNo:134492
24
company can also create data collection andinformation system for aeroplane, as it is vital to collect
all informationduringthe flight.
2.2.1.2 Ansoff
Figure 9: Ansoff Matrix II (29) (31)
Market penetration allows the company to maintain or increase their market share of their current
products. It also allows the customer to secure dominance of growth markets and to increase the
usage by existing customers. The company can introduce loyalty schemes to attract and keep their
customers. For example, the company can implement an Engine Replacement Scheme. When the
company creates a better engine to replace the old one, the customers can enjoy discounts to
change their engine and they do not have to repurchase the whole aeroplane. Most importantly,
the companies can seek to improve the quality of products and services. High quality products and
professional services are the most important in this industry, as tiny mistakes would not be
permitted in this market. Company can increase the quality standard to maintain the high quality
producttheyprovide.
Market development allows the company to explore New Geographical Markets. From the previous
analysis, the political issue will be the key that Rolls-Royce need to overcome. There are many
markets that Rolls-Royce can enter and provide aftermarket services for the local airline. Knowing
and understanding the regulations will be the first step that the company needs to take. Then, they
will need to communicate and invest in developing the new market, and try to smoothen the
political issue, provide maintenance and other services to the airlines. Like companies, they want to
enter the Chinese market, and they will first start up the business in Hong Kong as a stepping stone
to enterthe Chinese market.

25
Product development will be one of the growth strategies of the company, where Rolls-Royce will be
aiming to introduce new products in existing markets. This strategy will be suitable to the company
as the aero engines market need to be differentiated in order to remain competitive. The company
can emphasize on R&D and innovation; secondly, they need to understand what the customers need.
An aeroplane will need many systems implemented in order to work, especially the system to record
the flight and the power system. Rolls-Royce can invest in creating a Flight Record System to attract
more customers.
2.2.2 Internal strategies
2.2.2.1 Value chain
Figure 10: Value Chain (29) (31)
Primary
activities
Inbound
logistics
Rolls-Royce handle the materials with extra, they have details
highlighting the process of handling materials/ product and stock
control that the employeeswillneedtofollow.
Operations Aero engines need a lot of different components to make the final
product. Engineers will need to do lots of measurements and to find
pieces of materials to fit in the product to become an engine. A team
of workerswill needtoplanandcreate the engine together
Outbound
logistics
Engine is a big piece of machine which is not convenient to store in a
warehouse. Rolls-Royce will start to make the product when there is
an order and they will need to communicate with airplane
manufacturer ahead to make sure that they can transport the engine
safely to the right place. They will then communicate with the plane
manufacturerandhelptoinstall the engine of the plane
Marketing Company provide details of the engine on their website except those

CandNo:134492
26
and sales for military usage. Companies tend to use personal selling where they
will contact their customers individually to promote their new design.
However they do expose details to the media when they launch any
newtechnologyordesign.
Service Installation, repair, training and spares are the main aftermarket
services the company provide. This is the area where Rolls-Royce can
improve and provide more sophisticated aftermarket services to the
customers.
Support
activities
Procurement Acquiring resources is essential to the company. The company will
examine the supplier and its products before ordering, also they will
regularly look for new technology and for production. However, the
working pace of the company is very slow and the company will thus
need to improve this problem. Technology has been flourishing in
recent times and the company will need to move faster in order to
more competitive.
Technology
development
Rolls-Royce do have a well developed R&D department, where they
have sufficiently talented people and materials. However, the
company culture is not ideal and the development of the company is
thus slowing down. The company should implement schemes to
encourage people be more innovative andcreate new models.
Human
resources
management
The people are the key to the company, and Retaining Talented
People is thus vital. The company can attract many talented people,
but the culture of its company is the main factor responsible for the
failure to retain these people. The payment and working hours is fair
to all the employees, but the working environment cannot fulfil their
need and they find it unattractive to work in the company and they
will tend to leave the company. To attract more talented people to
join their company, they can create a sponsor scheme, which mainly
sponsors masters and PhD students for their research projects. These
people will need to do relevant projects for the sponsor scheme and
the result of the findings can benefit the company. Beside they can set
up Reward and Punishment Scheme to encourage people to work
more effectively.
Infrastructure It is believed that the company followed all the industry standards to
produce all their engines. There were no accidents that occurred as a
result of their engines. However, the information management of the
company has room for improvement, where there is a new computer
system introduced, the company will take a long time to implement to
all the computers, whichsignificantly affectthe dailyoperations.
Table 7: Rolls-Royce Value Chain analysis

27
2.2.2.2.Resourcescompetencies
Table 8: Marketing Assets (29) (31) (50)
Overall the marketing assets of the company is not bad. Companies do have sufficient amount of
assets to maintain its company’s viability. However, if the company can create their own materials
for their engine and manufacture them by themselves, the company can enjoy a lower cost of
productionandencourage innovationandnew engine designs.
Customer-based Assets
Customer relationship is fair, Rolls-Royce
needs to work on the aftermarket services
to retain more of their customers.
The reputation has dropped after they
exited the IAE and lost in the engine
competition for the very first time.
Rolls-Royce is one of the three main
dominator of the engine industry, with the
right strategy implemented, market share
will stop decreasing.
Internal support assets
Rolls-Royce has high technical skills and
expertise in production. However, they do
not enjoy cost advantages. Also, the
information system is not perfect. It can
be one of the areas that the company can
improve on.
Alliance-based assets
In recent years, the sharing of new
technology and information in the aero
engine industry had been changed and it
is easier for the company to access new
information. Sharing of technology has
become more popular in these days, and
companies will tend to work together,
such as join venture for a particular
project.
Supply chain assets
The security of supply is medium as there
are risks that the natural resources are not
enough for the industry. Besides, suppliers
may not provide them with materials in
the future. To increase the security of the
materials supplied, the company can find
and make their own materials for the
engine. Not only can these materials be
applied to the aero engines, it can also be
applied to other business streams such as
marine and the power system.
Marketing
Assets

CandNo:134492
28
Figure 11: Dynamic marketing capabilities (29) (31)
Marketingsensing
capability
Understanding the external environment is essential to the company,
especially for a mature company like Rolls-Royce. They need to regularly
update the information under the fast changing and rapidly progressing trends
of the industry (36). The R&D department of the company is strong and they
have a relatively high marketing sensing. However, they lack creative people to
design and develop better engines to compete with their major competitors.
Therefore, the company should use the resources to hire or cultivate more
talentedgraduatestojointhe company,andinventedmore advancedengines.
Learningcapability The company refused to work with P&W and chose to exit the IAE, which
shows the company is not willing tolearn from other companies, nor share the
information and research with other companies. The company should learn
new know-how tactics from other companies from the same industry and
applyintheirowndesignstogaina long-termcompetitive advantage.
Targetingand
positioning
capability
The current target market of Rolls-Royce civil engines is quite small, they can
increase the number of target airline to gain more revenue and increase their
marketshare.
Customer
relationship
management
According to the market assets analysis, the current customer loyalty of Rolls-
Royce is weakening, as the company have lost in the xxx competition and they
have failed todesignanadvancedengine toreplace the xxx model.
Absorptive Capability
Market sensing capability
Learning capability
Adaptive Capability
Targeting and positioning
capability
Customer relationship
management
Innovative Capability
New product and service
development capability

29
Newproductand
services
development
capability
Product and service development are important elements to the company.
Rolls-Royce have advanced technology and sufficient capital to carry out
research and development. Hence, they should focus on designing advance
engineswithlighterbutstrongmaterials.
Table 9: Rolls-Royce Dynamic marketing capabilities
2.3 Evaluation and ranking of options
2.3.1 Ranking of Strategies
Strategic
options
Fit technical
competences
Fit with
sector
know-
how
Builds on
our known
reputation
Reached
our
‘contact
ceiling’
Build on
client
need
Higher
income
Increased
competition
Ranking
Vertical
integration
2 2 2 0 2 2 2 12 A
Engine
replacement
scheme
2 2 2 0 2 2 2 12 A
New
geographical
markets
0 0 1 2 2 1 2 8 P
Flightrecord
system
2 2 1 0 0 1 2 8 P
Retain
talented
people
strategy
0 0 2 0 1 1 2 6 p
Rewardand
punishment
scheme
0 0 2 0 1 2 2 7 P
2 = favourable;0= unfavourable;1= uncertain/irrelevant
A = most suitable;P= possible;U= unsuitable
Table 10: Strategies Ranking (29)
From the above ranking, it shows that vertical integration and engine replacement scheme are the
twomost suitable strategiesthatthe companyshouldconsiderandtake action.

CandNo:134492
30
2.3.2 Evaluation - SAFe Criteria
On scale of 1-5, 1
being the lowest and 5
being the highest
Vertical
integration
Engine
replacement
scheme
New
geographical
markets
Flight
record
system
Retain
talented
people
strategy
Rewardand
punishment
scheme
Suitability
Does the proposed
strategy address the
key opportunities and
threats the
organisation?
5 4 3 2 3 3
Acceptability
Does the proposed
strategy meet the
expectations of the
stakeholders?
4 5 3 2 4 4
Is the level of risk
acceptable?
4 5 2 4 4 5
Is the likely return
acceptable?
4 3 3 4 4 4
Will the stakeholder
reactions be positive?
5 4 4 3 4 3
Feasibility
Would the proposal
strategy work in
practice?
4 4 3 3 3 4
Can the strategy be
financed?
3 5 2 4 5 5
Do people and their
skills exist or can be
obtained?
4 5 4 5 3 5
Total of 45 33 35 24 27 30 33
Table 11: SAFe Criteria (29) (31)

31
2.4 Choice of strategy
Four strategiesare chosenafterthe ranking.
Vertical integration
Backward vertical integration will be highly recommended, this strategy can help the company to
enjoy a lower production cost and differentiate its product by using newly created materials. Rolls-
Royce can firstly search for small component and electronic control component manufacturer that
have incentive to merge with them. Then Rolls-Royce can do some research the manufacturers
understand more on their overall performances. Then to write up the documents and reach the
sellers. Arranging meetings for negotiation, discussion of the heads of terms and complete the deals.
While signing the contract Rolls-Royce researchers can start to create new materials for the new
engine design. After developing the new materials and the new engine, the company will need to do
a range of testing and amendments before finalising the design and sent the product to
manufacturer.
Engine replacementscheme
The company will need to count up the number of plane that need to change engine. Then predict
the cost of production, selling price and the expected revenue. Meanwhile, the company can
promote their new scheme and to contact customers and arrange the engine replacement. Lastly
the company can take actions and change the engine for their customers. This strategy aims to
retaintheircustomers.
Reward and Punishmentscheme
The HR development and the senior should come together and discuss the details for the scheme.
Then the company should implement the strategy for 5 months for testing and evaluate the results
and see if there is any amendments that they nee to make. After all the amendments, the company
can officiallyimplementthisstrategyandtryto encourage the employeestoworkina fasterpace.
Retain TalentedPeople scheme
Talented people are not willing to stay in the company as they found the job is not challenging nor
attractive. The HR department should understand the employees needs and to come up with
strategy to encourage innovative ideas. Also to offer the non-monetary rewards to fulfil the
employeesneeds.Thisstrategyaimstoretainthe talentedpeople.

CandNo:134492
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3. Implementation
3.1 Gantt Chart
Figure 12: Gantt Chart (see appendix 5 for the enlarged Gantt chart)
The strategy will be divided into three levels, short terms, mid terms and long terms. For the vertical
integration and the reward and punishment scheme will be a long term plan. As these two plan will
need a longer period time to implement. Engine replacement scheme is a mid term plan as it will
depends on the number of flight that need to change the engine, the duration of time will vary from
1.5 years to 2.5 years. Last but not leastis the retained talented people scheme. As it believed that it
will be a short term strategy to back up the reward and punishment scheme. This strategy can help
to improve the working culture and to identify the needs of employees. Which the strategy can be
stop once the reward and punishment scheme can maintain a positive working culture in Rolls-Royce.

33
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Appendix
Appendix 1:Share price forthe past 5 years
The share price of the company dropdramaticallyfromthe early2014 till earlythisyear.
Appendix 2:
The biggestproblemisthatthe companyis adoptingaslow pace,whichwill take the companya long
time to solve aproblem
a. For example, IT Equipment is outdated even if the equipment has just been installed
eg PCs running XP. Until the upgrade to vista in 2014, software access is still poor as
the IT department has a command control attitude that makes innovation in IT or
engineering almostimpossible. Senior managers are apparently aware but choose to
ignore the issue andsweepitunderthe rug.
Appendix 3:PESTEL
Political factor
 Strongpolitical influence
 UK governmentinterventiontoavoid
potential foreigntakeoverof Rolls-
Royce
 Sanctionmaycost delaysand
cancellation,forexample Russiawhere
theyrequire lotsof information
 Major receiverof fundingfrom
governmentwhichputsthemina
powerful position
 Benefitfromarelative stable
EconomicFactor
 Worldwide recession
o Oil price decrease
o Interestrate fluctuation
o Inflationrate
 Fierce competition,savviercustomers
and economicheadwindsare addingto
pressure tocut cost
 Cost of productionhigh
 Currencyrisk will affectthe importand
exportof engines

39
democraticgovernment
 Importand exportpoliciesandcontrols
o OpenSkiesliberalisation
package 2008 allowinganyUS
or EU-basedairline tolaunch
scheduledservicesbetweenthe
US and EU
 Decrease ingovernmentspendingwill
leadto lessresearchanddeveloping
spending
 SubsidiesbyUKgovernmentUStax
breaksfor Rolls-Royce
 Carbonemissionunderthe Kyoto
protocol istarget forreductionbyEU,
creatingpressuresforreducedimpact
of airtravel
Social factor
 Civil aerospace correlatedwithtrends
inairline sector
 Airline influence bydemandof global
population;Increase numberof
passengerstravellingby air
(www.airbus.com: Global Market
Forecast)
o Leads to pressure on airports
and air traffic management,
creating demand for larger
aircraft (opportunity)
o Boeingplane orderforthe
comingyearhas increasedby
30% whichindicate the aero
engine demandwill be
increasing
 AccidentshappenegMalaysia Airlines
incident
 OutboundTravel Alertaffectthe
numberof people travelling eg
terrorism
 Growth of aviation
 Demandforaftermarketproduct+
servicesincrease ie.long-termcontract
Technological factors
 Innovationof new materialsanddesign
 Advancedtechnologyhelptoshorten
the time for new inventions
 Many yearsof experience andR&D –
forefrontfortechnology
 IT security
 Productperformance
 Riskof technologicalobsolescence,
withlongdeliverycycles
Legal factor
 REACH (Registration, Evaluationand
Authorisationof Chemicals)Norms
 Articlesinterpretation
 Employmentprotection:Healthand
Safetyimportantinmanufacturingand
alsoin liabilityforairsafety
 Environmental standardsandlegislation
eg.Pollutioncontrol,emissions
reductionsandnoise abatement
Environmental Factor
 Geographical locationlimitation
 Unstable weatherconditions
o Testingdelay
o Affectoperation
o Affecthe transportationof
materials/finishedproducts
 Supplychainperformance  supplyof
raw materialsdecrease
 Capabilityof global resources

CandNo:134492
40
 EU/US lawand WTO rulingon
competition
 Reductioninconsumerdemanddue to
concernsregardingclimate change
Appendix 4:
Both Civil and Defense aero engine industry are mature and moving on to the decline section. There
is a slow growth in this industry, the innovation has not kept pace with competing product. Aero
engines are similar, is it hard for company to have new innovate ideas, as inventing new materials
for enginesisadifficultprojectwhichwilltake lotsof time.
Marine is moving towards the mature side, but there are still rooms for the business to improve and
gainmore marketshare.
Where Nucluar and power system is in a growing stage, there is a increasing number of competitor.
It is important for the company to differenicate it product and services offering from other
competitors. The demand for energy is increasing as there are insufficient amount of oil, there is a
needtofindreplacementwhichcanofferstable amountof energytopeople.
IndustrySales
Time
Industry Life Cycle

41
Appendix 5:GanttChart

final bsr report (2016)

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