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Technology Enablement in Aerospace & Defense: Now is the Time

Michael Bender, Senior Partner, McKinsey Aerospace & Defence practice and Ryan Brukardt, Partner in McKinsey Aerospace & Defence practice
Michael Bender, Senior Partner, McKinsey Aerospace & Defence practice

Michael Bender, Senior Partner, McKinsey Aerospace & Defence practice

A rare convergence of forces is affording CIOs an opportunity to reshape the role that both the IT function and technology professionals play in aerospace and defense (A&D) companies. Global technology disruptions such as mobile operations and advanced analytics, coupled with challenging secular industry trends offer leaders the opportunity to lift the IT function to be a true value-creating partner. While plenty of challenges remain (e.g., cyber threats, talent gaps, IT ‘run costs’), business and IT leaders have an important and time-sensitive opportunity to take actions to elevate the role of IT in transforming the A&D industry.

Technology is Disrupting Many Industries, Including A&D

Four fundamental technology discontinuities are currently affecting industries across the globe and accelerating the pace of change in business models:

1. Mobile: Every employee, supplier, and customer is carrying a high-powered computer in their pocket, which opens new paradigms for communication and interaction

2. Cloud: New platforms offer a dramatic shift in the cost and flexibility of applications, data and information sharing, and collaboration

3. Advanced Analytics: Extremely rich and rapidly improving insights into customers, markets, products, and operations

4. Automation: Increasingly digital processes and advancements in robotics provide automation, productivity and quality improvement opportunities across the value chain

Leading A&D companies are exploring how to best harness the power of these four trends, but other industries are often further ahead. 

“A&D companies have long been leaders in leveraging advanced engineering and manufacturing technologies to achieve high-quality parts and components”  

A&D Business Trends Driving Technology Prominence

A&D companies have long been leaders in leveraging advanced engineering and manufacturing technologies to achieve high-quality parts and components.  However, when it comes to using IT enabled capabilities to improve decision making or automate workflows (for example), many A&D companies lag peers in other industries such as banking or consumer products. Why? The rationale for slow adoption can be partially attributed to the historical perception of IT as a “back office” function, complex and onerous IT requirements from disparate customers, significant cyber security concerns, regulatory challenges, and depletion of talent in IT functions.

However, a number of business trends are catalyzing the need for IT to play a larger role in the business, including:

■ Significant Cost Pressure: Defense players must deal with austerity measures, resulting in diminished program funding and lower tolerance for high overhead rates. As a result, executives are looking to reduce cost from SG&A/overhead functions at a much greater degree than can be achieved via continuous improvement. Industry executives are increasingly open to using technology to reduce the cost to deliver support services.

■ Need for Better Data-enabled Decision Making: Mechanisms to collect, analyze, and share data have substantial room for improvement in many A&D companies (e.g., analyzing data from on-board systems or simulation and testing to improve design decisions). The leading options to provide a platform for data-based decision making are complex IT projects such as business intelligence platforms, ERP modules, or integrated data architectures.

■ Increasing Drive for Automation: Increasing production rates on commercial aircraft require further productivity improvements in factories and core processes. Automation and digitization (including mobile), ranging from efforts to accelerate manufacturing to applications in business process management, will be needed to drive incremental cost and quality improvements. 

■ Increasing M&A: Mergers and acquisitions activity in A&D has increased over the past few years and is expected to increase further. Successfully integrating IT can be the key to unlocking the value that is expected from the transaction.

These trends put A&D companies in the position of trying to enable the business with new capabilities, while at the same time taking steps to reduce the cost of IT systems required to support and sustain the business. This dual-mission will require new thinking and new models for successfully managing IT.Ryan Brukardt, Partner in McKinsey Aerospace & Defence practice

Improving Business Performance through IT

Most A&D companies have pulled basic process improvement levers to strengthen business performance, and for these companies the next improvement horizon hinges upon IT-enabled capabilities such as ERP systems, product lifecycle management (PLM) systems, business intelligence platforms, etc. Many A&D companies should pursue the following initiatives to improve the ability of IT to consistently deliver high value capabilities to the business:

■ Improving business and IT alignment by embedding IT staff into the business that can speak the language of the business and partner effectively to identify and craft solutions to address the most pressing business needs.

■ Leveraging new application and infrastructure delivery models (e.g., cloud, mobility, IaaS) can rapidly deliver new and scalable capabilities. In many situations these delivery models can also offer sustainable “run” cost reductions when compared to traditional delivery models.

■ Layered vs. ‘one size fits all’ cyber security through a more integrated and business-back approach, given that cyber-security touches every piece of the business (e.g. technology, risk, legal, marketing, operations). Rapid evolution and escalation of threat environment creates a need for a step-change in cyber resiliency that engages IT and business stakeholders.

■ Fortifying talent and capabilities is key to fill skill gaps in areas that are important to sustain the long term health and effectiveness of the IT organization (e.g., IT architecture, vendor management, portfolio management). A&D companies are often too reliant on vendors to perform this work, and should address the gaps through targeted capability building and aggressive talent acquisition. 

■ Delivering large, complex IT programs. Our research on more than 3,000 IT projects shows that they often are based on poor business cases, take longer than expected to implement, cost more and deliver less value. Business and IT leaders can dramatically improve the success of these programs by managing the program as a business transformation, focusing the implementation plan on value delivery, and overinvesting in user readiness and change management.

Pursuing these initiatives can help A&D companies catalyze business performance through delivery of IT capabilities.

Implications for A&D CIOs and Business Leaders

We believe there are three major implications for A&D CIOs and business leaders:

■ There is a need to elevate the role of IT to be closer to the business and customer, given the potential of IT to be a competitive weapon. While many IT initiatives are self-funding, a full transformation may shift fundamental cost structures to more IT at the expense of traditional cost elements; the end state is not yet clear and managing stakeholders through this shift will be critical.

■ Embracing new technologies and delivery models such as cloud, SaaS, data analytics, and others will be increasingly essential to enabling step changes in business enablement and IT support cost reductions.

■ The war for IT talent is on, and it’s here to stay across a wide range of skill sets (e.g., developers, IT security, IT infrastructure operations, vendor management, etc...) and the winners will enjoy a material advantage over competitors.

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