Internal Analysis of Rolls Royce
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:
Literature Review:
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:
Firm Infrastructure
Human Resource Management
Technology Development
Sourcing
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
MARGIN
MARGIN
PRIMARY
ACTIVITIES
SUPPORT
ACTIVITIES
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).
* Procurement
This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department
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:
Literature Review:
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:
Firm Infrastructure
Human Resource Management
Technology Development
Sourcing
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
MARGIN
MARGIN
PRIMARY
ACTIVITIES
SUPPORT
ACTIVITIES
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).
* Procurement
This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department
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)