Rolls-Royce is in the midst of a transformation designed to simplify the business and increase efficiency in an increasingly complex world. McKinsey partner Emma Loxton interviewed Nikki Grady-Smith, chief transformation officer at Rolls-Royce, at the Farnborough International Airshow to discuss the company’s transformation, its midterm goals, and its long-term objectives. What follows is an edited version of that conversation.
Emma Loxton: The chief-transformation-officer role can be quite varied. How do you think about it at Rolls-Royce?
Nikki Grady-Smith: My portfolio obviously covers transformation; it also covers strategy and sustainability. I also have government relations, our regional teams, and our communications team, because engagement and communication through transformation are so critical, with all the stakeholders we need to engage. I also have procurement because we want to make a step change there from a transformation perspective.
Emma Loxton: How do you think about balancing such a diverse portfolio?
Nikki Grady-Smith: It’s always a challenge, but obviously it’s about having the right team. You can never do anything without the right team and the right strategy. So for me, it’s about prioritizing: “Where am I going to have the best personal impact? And where’s that priority for the organization that I need to be focusing on at any one moment in time?”
Because we need to make a step change in procurement, I am going to put a bit more of my personal time in there and make sure we’re driving that forward. Strategy, we’ve already developed; now it’s about making sure we’re performance managing that strategy as we move forward. So it’s about making those choices on where you deep dive, where you pull back, and making sure you’ve got the right team in the right place.
Emma Loxton: There’s a lot to do in any transformation. How do you get everyone in the right place across a company the size of Rolls-Royce, with more than 40,000 employees?
Nikki Grady-Smith: I think the first thing to say is that transformation is transformation. Sometimes people use the word to mean restructuring, and that isn’t what we’re doing at Rolls-Royce. We’re trying to produce a high-performing, competitive, resilient, and growing company.
We started by getting everyone aligned behind a strategy. To do this, we first used external benchmarks to calibrate where we were and hold a mirror up to ourselves. Then we asked key questions about the markets in which we operated. Were they growing? Were they sizable? Were we differentiated, and could we achieve attractive returns? Could we gain a financial competitive advantage by putting some processes in place?
We pulled cross-functional teams together, and hundreds of people were involved. We announced our four strategic pillars at the end of 2023. The first one is about portfolio and partnerships. The second one is about advantaged businesses and strategic initiatives, and we’re really clear on those strategic initiatives; we have single people accountable for each of them. The third one is about efficiency and simplification. And the fourth one is about digital and low carbon. The organization is aligned behind those four pillars, and we’re performance managing against them.
By going through this exercise and aligning the entire organization behind the strategy, we’re going to drive change, and some early signs are already apparent.
Emma Loxton: Sustainability is one of the pillars of your strategy. How do you think about sustainability and the energy transition at Rolls-Royce?
Nikki Grady-Smith: I come from the energy industry, so I’ve spent a lot of time personally thinking about the energy transition. What’s really clear is that the pathways to sustainability are not easy for large industry. They’re very challenging. And they’re challenging for a number of different reasons, primarily because we’re trying to integrate existing and new technologies. We need the enabling policies to be put in place so we can actually have the long-term investment we need to transition sustainably. We need to work in partnerships with governments and regulators to do that.
Because we’re at the Farnborough Airshow, I’m going to really focus on aerospace and defense. At Rolls-Royce, we’ve got nuclear, we’ve got power systems, and I could wax lyrical about other parts of our portfolio. But from a civil-aerospace perspective, we really believe that sustainable aviation fuels [SAF], coupled with improved fuel efficiency—from both engines and the airplanes themselves—are really the fastest and simplest way for us to meet those sustainability targets.
I’m delighted to say that all of our in-production civil engines have actually been tested to be 100 percent compatible with sustainable aviation fuel. We had a successful flight with Virgin Atlantic Airways across the Atlantic last year from London Heathrow to JFK on a Boeing 787 Dreamliner with a Trent 1000 Rolls-Royce engine that was running on 100 percent SAF. And in defense, prior to last year, we conducted a number of different tests with the Royal Air Force, including a 100 percent SAF flight by a Voyager plane and some blended SAF tests with Typhoons, for example.
So we’re on the journey, but I think the key point to make is that aviation is a complex industry to decarbonize. You only have to look at 2019. There were only 200,000 tons1 of sustainable aviation fuel produced. By 2050, we’re going to need more than 400 million tons. There isn’t a straightforward way to get there. So we’re committed to working with industry partners, customers, and governments to enable us to get to where we need to get to.
And obviously, we keep investing in our own technology, things like UltraFan that some of you may have had an opportunity to learn about either here at Farnborough Airshow or previously. And we’ll continue to do that.
Emma Loxton: How do you think about the role of partnerships in the future of Rolls-Royce?
Nikki Grady-Smith: I think there’s clearly lots of different stakeholders, and I’m going to focus on two areas, starting with suppliers. We operate in a very complex and fragmented supply chain environment in the aerospace and defense industry. I want to make sure we’re working in partnership with any key suppliers and debottlenecking a number of areas, which we can do in various ways. But I think we first need to be transparent and honest about where the bottlenecks are. Currently, there isn’t that full transparency throughout the value chain, which is very complex.
From a customer perspective, it’s about win–win partnerships and making sure we’re creating something for both parties so that we can grow moving forward. Ultimately, we want to be a successful organization that will benefit all stakeholders.
All the big macrotrends that are affecting the complex value chains in which we operate will require some form of partnership. The transition to a sustainable world also requires investments that we’ve not seen before. Partnerships or collaboration at different points in the value chain, whether it be with raw material suppliers, airframers, or customers, will be critical. We must also work in partnership with governments and regulators to make sure we’ve got the right industrial, economic, and commercial frameworks in place for long-term growth.
Emma Loxton: The business had a fantastic year in 2023: UK company of the year and best performer in the FTSE 100. As chief transformation officer, how do you think about making bold change become a reality day-to-day?
Nikki Grady-Smith: The first thing I should say is that the success today is being driven by a huge amount of people within Rolls-Royce and also outside of Rolls-Royce. So my thanks go out to all of them for all the hard work and effort they’ve put into getting us to where we are.
The second thing I’d say is we’ve just started and there is a lot more to do. When we set out our plan at the end of last year, at our Capital Markets Day, we were very clear that these were midterm targets, because what we want to create is a high-performing, competitive, resilient, and growing Rolls-Royce. We think there is growth beyond the midterm.
I work as part of an executive team made up of a group of very capable individuals. We’re really aligned on what we’re doing. But if I focus very narrowly, just on the transformation office itself, the role of a transformation office is to enable the pace. It’s to drive the pace. It’s to be relentless. It’s to be clear on the targets, to remove the obstacles, and to build the capabilities within the organization so that we’ve got that sustainable growth.
People drive a transformation. It’s a human activity. Knowing how to influence stakeholders and create the conditions for change is important. I’ve run P&Ls [profits and losses] in different businesses and set up businesses from scratch. At a very basic level, I’d just say, “Well, it’s experience over theory.” Actually, operating and running a company allows you to get clarity about the key drivers for the business. What’s the context in which you’re operating? How do stakeholders operate?
So in our transformation, we have set out clear workstreams with clear owners, and they set the targets. We’ve got very clear projects with single people accountable. And then every week, we have a transformation meeting—it’s transformation Tuesdays—where we go in and review how we’re progressing. And we’re looking at, “What do we need to do next? Where are the next opportunities coming from?”
We also celebrate success. It is important to recognize success along the journey, because that creates the momentum, the motivation; that also enables people to see “the art of the possible” that they might not have seen previously. What we want to create is extraordinary performance. It’s not just about setting financial targets. It’s about making a Rolls-Royce that can do something tomorrow that it can’t do today.
Emma Loxton: You’ve been at Rolls-Royce for 18 months. As you look out over the next 18 months, what are you most excited about?
Nikki Grady-Smith: To succeed at transformation in a world that’s changing as much as ours, we’ve set really clear midterm targets, and that’s our focus. But we’re also thinking beyond the midterm, which we are defining as the time frame through 2027. I see growth beyond our midterm targets. We have some great products that we know are going to add long-term value to the organization.
From a transformation perspective, it’s really about driving sustainable growth and ensuring we’ve got the right holistic capabilities to continue to grow.
