Aerospace and defense companies are going through disruptive changes and are faced with overwhelming, competing challenges as they continue to navigate the impacts of the COVID-19 pandemic.
- The commercial segment is witnessing a shift from supply led to demand driven manufacturing and supply chain.
- Rising regional tension across the globe, coupled with defense platform replacement in the United States and Europe, will continue to drive demand in the Defense industry.
- Reduced aircraft demand, coupled with the trend to move from product to innovative service-based business models powered by data, will also reshape the industry.
- The competition for talent continues to intensify, with the industry finding it tough to compete for the best STEM (Science, Technology, Engineering, and Mathematics) talent.
- Health and safety will remain a concern.
All these disruptive forces point to a singular conclusion: the need for digital transformation. Aerospace and defense executives acknowledge this and anticipate more than a two-fold increase in the sale of new digital services over the next five years.
We believe that companies that successfully adapt to the changing landscape and embrace digital will reap huge rewards, such as increased revenue, higher return on investment, greater shareholder returns and higher future value. Failing to act could have harmful repercussions.
Companies that successfully embrace digital at the core of their businesses achieve up to four times improvement on their return on digital investments than other industry players (figure 1). Their digital returns even beat the industry average for returns on overall invested capital. What’s more, they’re successfully scaling more than 50% of their digital proofs-of-concept.
A three-point plan for the digital future
So, how can aerospace and defense companies realize the full potential they clearly identify? We have a three-point approach to help companies adapt to these disruptions, successfully embrace a digitally driven future and reap the rewards of doing so.
- Digitize across the value chain
To increase efficiency and address new portfolio imperatives, aerospace and defense companies need to embrace a Be Digital and Go Digital approach which leverages digital technologies. By adopting a stream of digital technologies to automate across the value chain, aerospace and defense companies can build a responsive and resilient enterprise and be future-ready for black swan events.
- Collaborate to innovate
Aerospace and defense companies operate in a complex ecosystem. To drive innovation and boost future-readiness, they need to collaborate across the industry and technology ecosystem, working together with a wide range of different partners, suppliers and vendors to sustain and grow overall business value.
- Embrace new business models
Aerospace and defense companies need to address changing demands such as the shifting towards narrow-body and electric aircraft and the drop in overall travel. They need to reinvent their business models while managing the Wise Pivot. This means balancing today’s essential ongoing business with new business models for the future, and also current needs with the requirement to move decisively to the New.
Mapping the route to a digital future
To harness the three-point approach and accelerate purposefully towards digital transformation, companies need to establish a cloud-enabled, Artificial Intelligence-powered, digital-first mindset, across all aspects of their business. That means putting digital at the heart of operations and building digital capabilities across the value chain. In addition, companies must pay careful attention to transformation management to establish a working culture in which digital initiatives can thrive.
A successful digital transformation will rest on defining clear objectives at the outset – companies must set a destination with a comprehensive digital vision. This needs to be broad enough to encompass their own organization and the wider ecosystem, as well as articulate what the vision means for all their stakeholders. The digital value proposition must also be defined upfront, with a clear idea of the performance drivers and strategic objectives that will inspire innovation and create value. With that vision set, companies must develop a digital roadmap, with clearly defined milestones.
To support their journey to digital transformation (figure 2), companies must build digital platforms to break down silos, maximize data and solution synergies, and reduce the cost of digitization by avoiding the need to ‘reinvent the wheel’ for each digital program. Deploying digital twins and digital threads can ensure smooth product lifecycle management across different functions and organizations.
At the same time, it is important to take a pragmatic approach to legacy technologies, with a multispeed IT approach that builds digital capabilities progressively. It’s also important to foster a digital culture to embed and sustain new ways of working across the organization.