ROLLS-ROYCE: A Circular Economy Business Model Case

This report presents the case study of Rolls-Royce’s ‘TotalCare’ business model for widebody aircraft aero engines. It was chosen due to the commercially successful development of a whole lifecycle, servitised value proposition and associated business model. Insights for business guidelines This case study highlights the following key insights relevant to companies in similar industries or sharing a similar context: Revenue mechanisms that align interests between a company and its customers can create powerful circular business models. Although Rolls-Royce engines are sold to the aircraft owner, the TotalCare service package means Rolls-Royce retains responsibility for ensuring the product performs to customer requirements. The power-by-the-hour charging mechanism (revenues generated per engine flight hour) keeps incentives aligned by rewarding Rolls-Royce when the product is working as needed, and penalising it when it is not. This mechanism and alignment between the OEM and its customers encourages continuous improvement and collaboration. This also drives the extension of asset lifetime while optimising/reducing repair and maintenance costs. This results in reduced waste, increased resource efficiency, and enhances the asset’s value over its lifetime. Service-focused offerings that enable manufacturers to gain insight and intelligence on the use and performance of their products can lead to better customer service, improved product/service design, and resource efficiency. TotalCare provides opportunities for constant insight and learning around customer requirements. This insight is enabled by the collection of engine usage and performance data, as well as through deep customer relationships. This produces ongoing improvements and evolution of the value proposition itself as well as expansion of value added services. This means that the customer is no longer buying ‘just’ a product, but gaining expanded value addressing a suite of needs and requirements. This provides greater flexibility for manufacturers to manage the underlying asset within a service contract, focusing on outcomes for the customer. Servitised performance-based models can be important enablers for ‘Resource Recovery’ as well as ‘Re-condition’ / ‘Re-make’ circular business model patterns. In the example of TotalCare, Rolls-Royce’s service contract includes the provision of maintenance services which it has the responsibility and flexibility to deliver in an optimal way. This ensures that the ‘life’ and utility of the engine product is kept at the right level over its lifetime. Furthermore, the service contract gives the manufacturer visibility of the product throughout its lifecycle. This is especially relevant at the end-of-cycle where it creates an opportunity for product take-back and recovery of high value materials through close-loop recycling. When transitioning from a product-focused to a service-focused business model, the installed base becomes a key asset and driver of revenue and profitability. In product-focused business models, revenue is driven by the product sales price, and potentially some recurring revenue from maintenance services and sale of consumables and add-ons. In a service-focused business model, the installed base of products in use can become the drive