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

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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.:
The use of financial markets in general and the stock market in particular to sustain the development of the RB211 is also detailed. The final section considers the implications of the RollsRoyce case for understanding the governance of innovation. The origins of the RB211 and the bankruptcy of Rolls-Royce The British national context Already in the mid-1940s Rolls-Royce had proved to be the most successful and competent British aircraft engine firm. Unlike vertically integrated competitors such as de Havilland and Siddeley Armstrong Motors, Rolls-Royce was an independent engine supplier that could seek orders from any of the airframers. Rationalisation of the industry occurred between the end of the 1950s and the beginning of the 1960s. A series of combinations reduced the number of airframers to three -- Hawker Siddeley Group, British Aircraft Corporation, and Westland Aircraft – and engine manufacturers to two -- Rolls-Royce and Bristol Siddeley Engines. Then in 1966, when it appeared that Bristol Siddeley would join with SNECMA to build the Pratt & Whitney JT9D engine for the Airbus, Rolls-Royce acquired Bristol-Siddeley, and thus became the only British aircraft engine company that could contemplate competing on global markets (Pugh 2001, 94-102). Both Bristol Siddeley Engines and the government (which had recommended the merger of the two companies in the Plowden Report) welcomed