Dealing with Complexity in Rolls-Royce Marine

1. London School of EconomicsFriday 4th June 2004 SPV32543

2. Dealing with Complexity in Rolls-Royce Marine Terry Stock Executive VP, Human Resources - Marine Leszek Puszczynski VP Customer Business - Defence Aerospace

3. Brief introduction to a project conducted with LSE Outcomes: The difference it has made Context – Rolls-Royce Marine Project overview: Process, tools, methods What are we going to talk about?

4. The difference that the LSE and the project made > 12 work streams now being implemented LSE Complexity Group specifically brought: Academic Rigour Methodology and Analytical Tools Complexity Thinking Change in Emphasis

5. We are now the world leader in marine propulsion • Large • £1 billion turnover • 7500 employees • 2300 customers • Equipment on over 20,000 vessels International • Main manufacturing in UK, Scandinavia, North America • Emerging manufacturing sites • Sales and service offices in 35 countries Rolls-Royce Marine: Now World Leadership in cruise, fast vessel, offshore and naval markets World Class engineering competencies: people, processes and tools

6. Full Marine Market Reach and a Balanced Portfolio Naval Commercial Traditional Rolls-Royce Vickers / Ulstein acquisition 1999 A balanced portfolio £1bn

7. The acquisition brought with it… Hundreds of products 2,000 customers Fast lead times Commercial quality standards Very international business Different national cultures ‘Privately-owned’ culture: Family Nervousness of Rolls-Royce / Lack of trust / History

8. 7,500 Employees Non UK 4,200 UK 3,200 Sweden 464 Norway 2111 Canada 86 Finland 324 Denmark 57 Holland 27 Poland 356 China 20 France 9 USA 328 Italy 33 Germany 64 Spain 48 Middle East 11 Far East 98 India 71 Brazil 7 Australia 22 Manufacturing facilities in 8 countries Sales and service offices in 33 countries Manufacturing facilities in 8 countries Sales and service offices in 35 countries 20030226 LSE - 3 March 2003/SLK.ppt

9. Lots of products Lots of places Complex organisation (and history) Complex relationships (and history) Different National and (Business) Cultures Complexity

10. 2002 Conference: Key Business Issues Identified Clarifying roles and responsibilities Number 1 Improving delivery performance Improving products (reliability, quality, range)

11. Simple at the top Gets more confusing lower down It needs to be integrated License to operate Matrix issue: CFBU / OBU / Functions Three bosses “...just don’t know how the organisation is supposed to work” What did they mean? But, everyone had a slightly different perspective

12. Project launched September 2002 to achieve Improved clarity of roles and responsibilities: Identify Understand Action plan

13. 3 teams of RR and RR Marine personnel 1 team from LSE (21 people) The Project Plan Sept 02 Oct Nov Dec Jan 03 Feb Mar Launch Team preparation Interviews LoM questionnaire NetMap Agent based model Analyse data Confirm understanding Sponsor review Marine Exec review

14. Roles / responsibilities • Culture Holistic view Business impact vs clarity of issue Team review Group review Identify themes & tensions Identify underlying assumptions Evaluate issues in context Prioritise the issues Culture Collect data Clear Interviews Netmap Visualisation ABM LoM Analyse unclear issues Identify options Unclear Pugh’s OD matrix Sponsor review Confirm understanding Develop action plan Evaluate options and develop recommendations Identify options Marine Exec approval Implement Co-create Complexity theory Process Map - Triangulation

15. Tools: Semi - Structured Interviews / Workshop 44 conference participants interviewed Open questions about: the future culture customers systems failure the present organisation communication success Decoding what is said (2-day workshop): identify themes and tensions identify underlying assumptions

16. Themes (recurring) • Over 100 different themes identified • Summarised into 8 ‘Overarching themes’ • Complexity of structure - Communication • Human behaviours - OBU / CFBU interface • Relationships - Cultures • Leadership / role of central - Identity team / management

17. Underlying assumptions (inherent and widely-held beliefs) • Some of the main underlying assumptions identified: • In a matrix organisation, people need to manage/be managed differently • Synergistic benefits can be realised • People or businesses have to look after their own interests • There’s a hidden agenda • The customer is mine • The current organisation is transitory, it will change • People hide behind the matrix organisation • Clarity is good • Someone should make it clear for me • If I am empowered, I will do the right thing

18. Key outcomes in 4 broad areas… Customer / Market Interface Account management process Customer Focus programme Product strategy process Working the Matrix Training and support for working in a matrix Leadership / Management / Process Marine Leadership Programme Co-ordinated change initiatives Strategy / Structure / Synergy Strategy and strategic process Structure, roles & interfaces Synergistic benefits and knowledge sharing

19. 1. Customer/market interface Recommendations and outcomes • Implement account management process across Marine including consistent establishment of the ‘Customer Executive’ role • Develop a ‘Customer-Focus’ programme to reinforce, for example: • the benefits of a single point of contact in a complex environment • the importance of market information in product development • the need to put the “most appropriate” people in front of the customer Training programmes/Pilot running in Merchant business • Clarify product strategy process Product strategy board structure implemented

20. Product Strategy Process • Market forecast and predicted sales • Anticipated customer requirements • Anticipated external constraints (legislation etc) • Competing products • Product concepts & key attribute targets • Product/technology availability (including supply chain) • Business objectives • Higher level system requirements • Cross business buy-in required for Marine level prioritisation - i.e. move from site-based to product / system based strategy • Product strategy documents required for each product area • Iterative process; as business and system strategies are refined, product and technology will follow • Most important role of Product Strategy Boards is to prioritise CCS Stage 1 activity Product StrategyProposal Product Strategy Board Marine, Commercial or Naval Executive Marketing Led Create Customer Solutions Stages 1 to 6 Engineering Led

21. Key Reporting Inputs Marine Executive Rolls-Royce MarineProduct Strategy Board Structure “Product Strategy Conference” Marine Product Strategy Board Product Sector Product Sector Product Sector Product Sector Product Sector Cable handling Propulsion & Electrical & Prime Systems machinery manoeuvring controls movers Board Board Board Board Board

22. Product Development Strategy Content / Format • Overview of the business and market drivers • Competitor assessment and competitive position • Market size and requirements (current and future) • ‘New Product’ opportunities and requirements • Basic assessment of risk, cost, timescale and profitability for each potential ‘new product’ • Outline development plans including supporting Research & Technology programme • Recommendation for a prioritised set of potential ‘new products’ that should proceed to full business case, Project Policy Document and Project Requirement Document development

23. 2. Working the matrix Recommendations and outcomes • Define desirable characteristics and ways of working in a matrix • Training and support for working in a matrix Development of ‘interactive’ presentation on how the matrix works • Piloted in 2 businesses • Released March 2004 • Video stories/engagement tool in preparation

24. System Collection of “Products” & “Know-how” put together into a “Connected Whole” Commercial Naval System Engineering Product Application Engineering External Supply Application Engineering Engineering required to Estimate, Manufacture, Install, Commission & Support Products System Engineering Engineering required to Define & Support a System CUSTOMER System Product CFBU System MES OBU 1 Product Product Product MS Product Product OBU 2 OBU 2 OBU 2 OBU 2

25. 3. Leadership / management / process Recommendations and outcomes • Develop business leaders and managers in Marine “Marine Leadership Programme”: first 3-module programme completed in 2003 Two more underway in 2004 ‘Community of managers’ concept: Plenary at end 2004 • Co-create change programmes rather than impose • Co-ordinate the approach to change initiatives (BPI) Addressing four business priorities for 2004 (Quality, Customer Responsiveness, Efficiency, Growth) – co-created and coordinated

26. 4. Strategy / Structure / Synergy Recommendations and outcomes Clearer communication of structure, roles and interfaces Marine organisation charts on Intranet – navigable Articles in in-house publications Video stories/engagement tool planned Assemble an IPT to identify and drive out synergistic benefits/share knowledge Common processes on supplier management: external savings of £11m in 2003 claimed Procurement and Engineering databases sharing knowledge

27. 4. Strategy / Structure / Synergy – contd. • Clarify the strategic process Concluded and published • Better and further communicate the strategy Various channels used to communicate strategy: publications, President’s newsletter, President’s road-shows, Marine card, scorecard, new video, conference

28. Backup slides follow

29. The Holy Grail of Organisation Design [give examples of a few key ones] Facilitate (does not inhibit) emergence Encourages self-organisation Explores its space-of-possibilities Facilitates co-evolution (Vickers U/RR) Understands connectivity and interdependence (Relationships. Not isolation. Co-evolve.) Fosters a collaborative culture (same point)

30. The Holy Grail of Organisation Design (Cont’d) Creates variability - large repertoire of responses (diversity – people, cultures, products, markets (speed and cost), cope with change) Copes in unpredictable environment Not too organised and not too random (“fuzzy matrix”) Emphasises enabling infrastructures Facilitates the emergence of: New ways of working and relating New organisational forms Creation of knowledge