Sustaining the Innovation Process: the Case of Rolls-Royce Plc

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Sustaining the Innovation Process: The Case of Rolls-Royce plc William Lazonick The European Institute of Business Administration (INSEAD) and University of Massachusetts Lowell Lowell, MA 01854 Email: william.lazonick@insead.edu & Andrea Prencipe Complex Product Systems Innovation Centre SPRU, University of Sussex and Faculty of Economics University G. D'Annunzio Viale Pindaro, 42 65127 Pescara, Italy Email: a.prencipe@sussex.ac.uk Acknowledgements We would like to thank Joe Lampel for comments on an earlier draft of the chapter. This research was funded by the Targeted Socio-Economic Research (TSER) Programme of the European Commission (DGXII) under the Fourth Framework Programme, European Commission (Contract no.:…show more content…
We also document the sources of financial commitment that enabled these strategic managers to sustain the uncertain innovation process until it could generate financial returns. In focusing on the roles of strategic control and financial commitment in sustaining the innovation process, this study suggests an alternative to conventional agency theory for explaining the relation between the governance of resource allocation and economic performance at Rolls-Royce. According to agency theory, the entrenchment of Rolls-Royce’s managers should have resulted in a squandering of the company’s resources, not superior economic performance. The fact that these managers exercised strategic control, and developed the RB211, under very different ownership structures also raises questions about the importance of ownership to corporate performance and the conditions under which a high-tech company that must make uncertain and expensive investments in technological development can be exposed to the demands of public shareholders. This study, therefore, sheds light on the role of not only career managers but also public shareholders in the innovation process. The next section describes how Rolls-Royce’s attempt to develop the three-shaft engine for Lockheed at the end of the 1960s resulted in bankruptcy. Then we detail how, as a nationalised company from February 1971 to May 1987, Rolls-Royce 2

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