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Zen and the art of aircraft engine maintenance

By Phil Verghis on December 17, 2009

(From the Dec ’09 issue of my newsletter, The Verghis View. Get your own subscription at my home page  – www.verghisgroup.com )

Many of you have heard me refer to software maintenance fees as “bad” revenue. While it is very lucrative, it’s bad because customers are unhappy paying it – ask any CIO. To give you a sense of how massive these fees are, Oracle made $12 billion last year – no, that’s not a typo – $12 billion from services and maintenance fees, according to Information Week.

I did some research on how other industries demonstrate value for their maintenance fees, and found it in an unlikely source – aircraft engines. (From this article in the Economist.)

All the major players – Rolls Royce, GE, and Pratt & Whitney – reportedly lose money on the sale of the engine. They make up to seven times the revenue from servicing and selling parts.

Interestingly enough, Rolls Royce has embraced two concepts that go beyond what the vast majority of companies provide in the software space.

First, they abandoned the traditional “break fix” model. Instead, they have taken real-time monitoring to a new level. In a world of mind-numbing complexity, they have (thankfully!) assumed that customer-impacting failures are to be minimized.

In their operations center in Derby, England, vast amounts of data is collected in real time from thousands of engines in flight. This flood of data is immediately analyzed and, if a problem is detected, Rolls Royce informs the pilot in flight. Repairs are arranged at the next stop, rather than waiting for it to become a full-blown emergency.

The data analysis continues after each flight is over. This helps Rolls Royce anticipate future problems and reduce the number of emergency repairs – and unhappy customers. As you can imagine, whenever a plane is yanked from service, the ripple effect on an airline’s schedule, revenues and customer satisfaction is non-trivial.

Real-time information monitoring saves Rolls Royce lots of money in terms of better-designed engines, and increases the time between engine rebuilds (now up to 10 years).

The second thing RR does differently is to charge by the hour the engine is run. This makes perfect sense. The aviation industry’s equivalent of “shelfware” is idle planes parked in the desert. The struggling airline industry loves it. After all, why pay for maintenance on expensive engines when your planes are grounded?

The lesson? Don’t settle for break-fix when you can do far better than that. Your service and support team can actually improve your customer’s business, while charging fees that make more sense for the customer.

In this example Rolls Royce gets paid very lucrative services revenue only if the service is being used. So it’s in both Rolls Royce’s and the airline’s interest to keep planes in the air – one of the key drivers to reducing cost per passenger.

Look ahead to 2010. How can you use customer information to improve their business – and your own?

Interesting article on software maintenance fees

By Phil Verghis on December 11, 2009

Oracle’s revenue from software maintenance and service fees have reached $12 billion a year. Read what this interesting article had to say on this topic (includes SAP and more).

http://bit.ly/Sv3ub


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