ROLLS-ROYCE: INTERNAL ANALYSIS
For the purpose of internal analysis, I have selected civil aerospace SBU of Rolls-Royce. This analysis has been done considering the fact that the case study was published in year 2005. Financial Analysis:
Rolls-Royce has been generating higher margins in past few years. In last four years i.e. from 2002 to 2006 the operating profit has grown from £168 million to £692 million with the annual growth rate of 42.5%. The net profit has also increased at compound annual growth rate of 71.3% from £53 million to £998 million in these four years. These figures are the indicators of a strong financial performance. It is evident from the figures that the high levels of margin in their field of operation are very high resulting in high profitability for the company.
Value Chain Analysis:
To analyze the specific activities through which firms can create a competitive advantage, Porter (1985) proposed a framework which is useful to model the firm as a chain of value-creating activities. Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted below:
Human Resource Management
The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin. Any or all of these primary activities may be vital in developing a competitive advantage. * Firm Infrastructure
This includes planning and control systems, such as finance, accounting, and corporate strategy etc. (Lynch, 2003).
This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices.
* Technology development
It is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments.
* Human Resource Management
This is a function concerned with recruiting, training, motivating and rewarding the workforce of the company. Human resources are increasingly becoming an important way of attaining sustainable competitive advantage.
* Inbound logistics
This functional area includes the receiving, warehousing, and inventory control of input materials.
These are the value-creating activities that transform the inputs into the final product.
* Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfilment, etc.
* Marketing & Sales
This area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target audience of the company about the firm’s products and services. Companies make use of marketing communications tools like advertising, sales promotions etc. to attract customers to their products. It is also associated with getting buyers to purchase the product, including channel selection, pricing, etc.
Service activities are those that maintain and enhance the product's value including customer support, repair services, etc.
Application of the framework:
* Technology development: Very strong
The strength of Rolls-Royce is their technical wing. They have strong domain knowledge and their engineering team always strives for innovations.
* Inbound: Strong
As Rolls-Royce have variety of suppliers to chose from and have created purchasing policies aimed at establishing...
References: Barney, J. (1991), The Resource-Based Model of the Firm: Origins, Implications, and Prospects, Journal of Management, vol.17
Barney, J. et al (1991), The Resource-based view of the firm: Ten years after 1991, Journal of Management 27 pg 625-641
Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall Financial Times.
Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press.
Teece, D. et al (1997), Dynamic Capabilities and Strategic Management, strategic management journal , vol.18, issue.7 pg 509(25)
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