Rolls-Royce “Power by the Hour” (TotalCare)
Business model innovation: from selling engines to selling flying hours, made possible by IoT data.
- Sector
- Aerospace engines
- Source
- Digital Entrepreneurship case collection, chapter by Ghosh, Hughes, Hughes and Hodgkinson (2021)
The case in brief
Rolls-Royce’s civil aerospace business makes engines for commercial aircraft, regional jets and business aviation. Customers used to pay a large one-off sum for an engine and then buy a service contract for maintenance.
Rolls-Royce moved from this product-centric model to an outcome-centric one, in which airlines pay by the engine’s operating hours and do not have to buy the engine or pay separately for maintenance. That allowed low-cost airlines to sign contracts and widened the customer base.
The model evolved in stages: “Total Care Term” (a fixed fee per engine flight hour, from the mid-1990s), “Total Life” (maintenance for as long as the aircraft flies, transferable to a new owner, 2007) and “Total Care Flex” (a higher hourly rate for more flexibility, 2015). IoT-based real-time monitoring, AI and big-data analytics let Rolls-Royce maintain engines proactively.
Key facts
- Market share of the aircraft engine business
- 35%
- Revenue of the aircraft business (2018)
- €7.3 billion
- TotalCare introduced
- Mid-1990s
- Total Life introduced
- 2007
- Total Care Flex introduced
- 2015
Analysis through module theory
Innovation types (Week 1)
The core innovation is business model innovation: the revenue model and the relationship with the customer change, while the engine does not (so it is not product innovation). Real-time monitoring and proactive maintenance are process innovations that make the new model affordable to run.
Business Model Canvas (Week 2)
Revenue Streams move from one-off sales plus service contracts to recurring per-hour fees. Customer Segments widen to low-cost airlines. Key Resources now include IoT data and analytics, and Customer Relationships become long-term partnerships.
Digital intrapreneurship (Week 12)
This is digital entrepreneurship inside an established firm: the case collection treats it as corporate digital entrepreneurship through business model transformation. In Learning Diary terms it sits closest to intrapreneurship.
Discussion questions
- 1.Why is TotalCare business model innovation rather than product or service innovation?
- 2.Is the change incremental or radical for the aircraft engine industry? Justify your level.
- 3.How could a small firm borrow the “pay for the outcome” idea when entering a new market?
Takeaways
- Digital data can turn a product into a recurring service revenue.
- Separate the core innovation (business model) from the enabling one (process).
- Lower up-front costs for customers can open new customer segments.