Taking Flight: How Data is being used to Create New Business Models and Drive Profitable Growth
Rolls-Royce makes highly sophisticated and costly jet engines for leading airlines around the world. In the past, it has employed a business model that many businesses know all too well—sell equipment to the customer. There have been some modifications and improvements to this model, such as financing options and leasing arrangements, but the basic idea remains. After selling the equipment, the company offered maintenance and parts to its customers, which often provided the bulk of its profitability.
As independent servicing firms and competing jet engine manufacturers began swooping in on the company’s lucrative aftermarket business, Rolls-Royce decided to dramatically change its business model. Instead of selling the physical equipment, they started selling the utility of the equipment. For many customers today, they provide the engine to the customer and then charge based on hourly use. Included in this fee are all of the services and parts required to keep
the engine up and running. This fundamental change in Rolls-Royce’s business model is made possible by the ability to closely measure and monitor equipment usage.
The solutions developed by modern businesses often involve a variety of components, such as equipment, consumables, and services. Spurred by the ability to monitor information in real-time, many new business models are emerging to capture more effectively the value offered by their solutions. These data-driven business models provide a multitude of benefits to suppliers and their customers. The jet engine example showcases three advantages brought about by new, data-driven business models:
1.) Create Value for the Customer: Instead of solely selling products and services, Rolls-Royce has positioned its business model as offering the customer a guaranteed outcome. This provides customers the reassurance that the company’s engines will operate reliably at all times. In many industries where reliability and uptime are critical, customers are willing to pay for this state of mind by shifting these responsibilities to their trusted supplier.
2.) Broad, Life-cycle Presence: By packaging services with equipment, Rolls-Royce expands the total customer solution offering. It avoids having its aftermarket business poached by competitors, and creates broader touch points throughout the customer organization and throughout the life-cycle of the equipment.
3.) Customer Loyalty: Metrics and KPIs are more precise than ever to measure supplier performance. Rolls-Royce can easily validate its performance in terms of uptime, reliability, efficiency, etc. By using evidence that demonstrates their value, manufacturers can prove their worth and cultivate more loyal and long-term relationships.
Each market and solution is different and requires thoughtful analysis to determine how to launch a new business model that leverages data. At Blue Canyon, we have worked (and are continuing to work) with numerous clients that seek innovative ways to be rewarded for the value they deliver. From risk-sharing models in healthcare to preventative monitoring services in oil and gas, to fleet management solutions in construction, companies across industries are realizing that reshaping their traditional business models is absolutely critical to propelling their companies into a new era of profitable growth.