The Change Process of Rolls Royce - Essay Example

Activity 3 a Rolls Royce has been following a consistent strategy for a decade till 2001. As part of strategy, its major thrust was on creating a balanced portfolio and strong management team. It made changes in portfolio by disposing non-core businesses and by focussing on the organic and inorganic growth of core- businesses. For stronger management team, it filled three quarters of senior positions by new people out of who one third were absolutely new to the organization. Key changes in strategy outlined in CEO’s report: From Investment in People to Investment in Infrastructure: In 2001, the company’s strategy was ‘Investing in products, capability and people’ (Rolls Royce, 2001). However, after 9/11 events, it expected downturn in the economy, hence it felt the need to cut costs. Thus, in 2002, the company’s strategy was changed to ‘Investing in technology, capability and infrastructure’ (Rolls Royce, 2002). To cut costs it decided to change the priority on employees and lay-off extra resources wherever needed. In 2002 alone, it reduced the total head count by 4900 (Rose, Rolls Royce Annual Report 2002, 2002). Shift in focus from New Product Development to Creation of Capabilities which Increase the Scope and Value of Service Activities: Due to fall in overall demand for new engines, Rolls Royce shifted the focus from new product development to cost reduction per unit and creation of capabilities which increase the scope and value of service activities. Rescaled the business to balance load and capacity: Post 9/11 company analysed the impact of the event on the demand and capacity of civil aerospace business and its consequence on the workload and employment with Rolls Royce facilities throughout the world. In line with the expected downturn in demand for civil engines, Rolls Royce revised the number of engine units it expected to sell in 2002 (1500 from to 900 engines) Change in the mix of sales: Due to decrease in expected sales of new engines, Rolls Royce placed more stress on services front as a growth avenue. They strategized to increase their after- market revenue by developing comprehensive services capabilities. As a result of increased focus on services in 2001, the revenue from services accounted for 44% of sales in 2002 (Rose, Rolls Royce Annual Report 2002, 2002) Supply Chain Restructuring: Post September 2001, Rolls Royce decided to reschedule its entire civil engines supply chain effecting a 40% reduction in planned deliveries at very short notice. Supply chain restructuring was possible due to the implementation of SAP system planning for Enterprise Resource Planning Unit Cost Reduction: In the changed environment of lesser new orders and slow business activity, Rolls Royce decided to reduce per unit costs. It aimed to achieve it by reduction programmes in the global supply chain, consolidation of major global commodity groups, cost improvement workshops and early supplier involvement in new product launch programmes. Due to this new focus in strategy, it was successful in reducing operating costs and product unit costs (Rolls Royce, 2002). The change process from October 2001 onwards has been successful in delivering results to the company. Civil Aerospace accounted for 54% of the group sales in 2001 (Rose, Rolls Royce Annual Report 2002, 2002). However, by conscious efforts to build a balanced business model, the group was able to reduce its dependence on civil aerospace business. Civil Aerospace business contributed only 20% to the group sales in 2003 (Rose, Rolls Royce Annual Report, 2003). Also, the group successfully increased the revenue from after-market services to 50% in 2003 (Rose, Rolls Royce Annual Report, 2003) from 40% in 2001 (Rolls Royce, 2001). Activity 4a The exhibit mentioned in the article is reproduced below: The above given exhibit shows four stages of supermarkets lifecycle and what should be done at each stage to ward off recession effects. In UK supermarket industry, top four supermarkets hold major market share (almost 75%) (UK Supermarket Analysis 2007- 2010, 2010). The major players are: Tesco (30.6%), Asda (16.3%), Sainsbury (16%), Morrison’s (11.3%) (Defra, 2006). UK Supermarket industry grew at the rate of 3% in the beginning of the year whereas it grew at the rate of 5% in 2009 (Sanderson, 2010) The 2000 Competition Commission (CC) report on supermarkets concluded that “the industry is currently broadly competitive and that, overall, excessive prices are not being charged, nor excessive profits earned.” The above mentioned facts point to the fact that UK Supermarket industry is growth oriented and has high potential. Thus, as per the exhibit given above, the industry falls in the top quadrants. The weakness or strength of its major players can be assessed by the following diagram: Figure 1Movements in Grocery Margins and Market Shares of Major Grocery Retailers, 2000,01-2004,05 (Institute of Grocery Distribution, 2005) The above figure shows the strength /weaknesses of the companies before recession hit them in 2008. Thus, we find that Tesco, Somerfield and Waitrose are the only companies whose operating margins have been consistently on a rise. Tesco, being a strong company, with a market share of 31.8% (Sanderson, 2010) falls in the second quadrant of high growth potential and strong business health. Thus, it has the options to fight recession by: refreshing stores, acquiring businesses, recruiting talent and winning locally. However, competition policy, as implemented by Competition Commission doesn’t allow further concentration of power to Tesco through inorganic ways, thus ruling out the option of acquiring new businesses. After 2008 recession, Tesco made efforts to win locally by ensuring different SKUs and quantities of products in each store based upon the demand in the area. Also, it has changed the layout of several of its stores to clear the aisle and give better shopping experience to the customers (Tesco, 2009) Figure 1 also shows that operating margins of Morrison’s, Sainsbury and Iceland have fallen drastically. Thus, these companies fall in the first quadrant of high potential market but with relatively weaker business health. To fight recession, the exhibit suggests that they reduce direct and indirect costs and eliminate wastes. However, Morrison’s, instead of increasing operational efficiency, went ahead and bought Safeway, which was not advisable as per the exhibit. The result was that at the time of recession the company was bleeding and its market share was on a decline. Activity 5 a Core purpose is a statement which states either of the following: What you are best at doing, or, What you think you were meant to do in this life Clarity about one’s core purpose is the guiding light through peaceful and turbulent times—and it also reduces the stress and anxiety of trying to be something different from what one is. (Peck, 2008) Tesco’s core purpose is ‘to create value for customers to earn their lifetime loyalty’ (Tesco, 2009). Strategy could be defined as ‘long-term action plan for achieving a goal’ (Investor Words, 2009). Tesco defines its strategy as ‘the steering wheel’ since it is the foundation for achieving the company’s goals of: To be a successful international retailer To grow the core UK business To be as strong in non-food as in food. To develop retailing services - such as Tesco Personal Finance, Telecoms and Tesco.com To put community at the heart of its activities. The steering wheel aims to steer the company towards the ideal expectations of customers, employees, and community along with creating ideal situations in finance and operations of the company. In real life, Tesco is known for its reasonable prices. It puts in efforts to avoid any queues in its stores and each of its outlets had a different range and quantity of stock s depending on the demand of items in that particular area. Tesco strives to ensure mutual respect among its employees, innovate the job description of its employees, and ensure that managers extend support to sub-ordinates. By doing this, it ascertains employee loyalty it ensures that customers keep coming back to Tesco for all their food and non-food item needs, thus making it a successful retailer wherever it is. This helps in realizing its following goals: To be a successful international retailer To grow the core UK business To be as strong in non-food as in food. Tesco works with communities locally to ensure jobs and services to local people and contribute to local causes. It strives to contribute to the welfare of community by: opening stores which revive disadvantaged areas, creating jobs and providing jobs to long term unemployed and supporting local economies. Its efforts are directed towards improvement in environment by: creating environment friendly stores, improvements in packaging and recycling techniques so as to reduce waste, reducing its carbon footprint and by cutting carrier bag usage. All these efforts help in realizing the following goal: To put community at the heart of its activities. Tesco’s risk management process recognises that there are opportunities to improve the business by treading into newer avenues, such as finance and telecom, in future. To assess their feasibility and other aspects of business, Tesco spends in Research and Development and market studies. By doing this, it establishes its efforts towards: Developing retailing services - such as Tesco Personal Finance, Telecoms and Tesco.com We find that actual practices of Tesco enable it to achieve the objectives mentioned in the strategy of Tesco and thus, are in line with the strategy of Tesco. Thus, when Tesco states its core purpose as ‘to create value for customers to earn their lifetime loyalty’ (Tesco, 2009), it aims to do it by implementing its corporate strategy which will ultimately result in customer (both internal and external) loyalty. Activity 6 a Elmuti and Kathawala present following points which favour strategic alliances: Many companies enter into strategic alliances with their suppliers who do much of their actual production and manufacturing for them. Strategic alliances can be effective ways to diffuse new technologies rapidly, to enter a new market, to bypass governmental restrictions expeditiously, and to learn quickly from the leading firms in a given field. Using a well managed strategic alliances agreement, companies can gain in markets that would otherwise be uneconomical. (Elmuti & Kathawala, 2001) Rolls Royce also aims to achieve the above mentioned benefits through its strategic alliances. This is the reason why it stresses that strong partnerships is one of the key areas of focus; the other areas being operational excellence and technological superiority. Rolls Royce has entered into strategic alliances with its suppliers the world over. In the field of civil aerospace alone, it has aligned with 22 companies world over, in some of which it is a stakeholder also (Rolls Royce, 2010). ‘The development of effective partnerships continues to be a key feature of the Group’s long-term strategy. Major partnerships are of two types: joint ventures and risk and revenue sharing partnerships’ (Rolls Royce, 2008). The company emphasizes on developing products with risk and revenue sharing partners and through strategic long-term relationships. In my opinion, following points form the basis of strategic alliances entered into by Rolls Royce, the world over: Growth Strategies and entering new markets: Rolls Royce has created a strong global network of partners and suppliers to gain expertise and access to new markets. It is implementing the strategy of developing its business in new markets and geographies and increasing the revenue through long-term service contracts, by creating strategic alliances outside UK and even in third world countries like China. In newer, smaller markets, it discovers, grows and develops small businesses and integrate them into its supply base Obtain new technology and/or best quality or cheapest cost: In 2003 alone, Rolls Royce prepared 250 applications for new patents. It was able to progress in its aim of innovative technology due to substantial contributions from R&D centres around the world with which it has partnered. It had set up an international network of technology-oriented relationships and more than 50 per cent of the Group’s total spending on technology programmes are directed outside the UK (Rose, Rolls Royce Annual Report-2004, 2004). Innovation is an important aspect of Rolls Royce’s sustainability and, hence, it partners with the best of the R&D centres to get the best technology. In 2004, it sourced supplies from emerging, low cost markets (through its alliances) increased from four per cent to six per cent of purchases (Royce, 2004). Reduce financial risk and share costs of research and development: In Rolls Royce’s flagship Trent program (in civil aerospace) collaboration played an important. It agreed on important risk and revenue sharing partnerships with a wide range of global companies. Such agreements have enabled the company to share its R& D costs with its partners, thereby reducing financial risk. 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