Enabling Strategic Growth

Consider the substantive changes in U.S. defense and global security strategies of the past four years, many of which are incorporated in the just released 2010 U.S. Quadrennial Defense Review. They include asymmetry, expanded situational awareness, integrated missile defense, UAV growth, force protection, mobility, and agility of forces, to name a few.

Next, review the impacts these changes have had on government acquisition priorities, strategic system investments, and the follow-on effects in buyer behavior on R&D budgets in the aerospace and defense industry. These impacts include fewer new systems, greater interoperability, equipment resets and upgrades, smaller production runs, and more variants.

Finally, couple these changes with the effects of the global recession on national economies, international trade considerations, and the impacts of widely varying threats to security and stability, and you have a call to action to enable new growth strategies across the A&D industrial base.

For many of these industrial companies, their strategies are similar to the imperatives of 15 years ago – the last major downward inflection in the industry. To some extent, what is old is new again when it comes to preserving and growing core businesses, competing in the international marketplace, introducing mature product technologies to adjacent commercial markets, and expanding global sourcing and production footprints.

However, compared to the mid 1990s, today’s investments by A&D companies, to enable these strategies and to expand and add new capabilities to support these agendas, are being made within a more complex and interconnected network of suppliers and customers.

In response to these complexities, industry-wide campaigns to reduce costs and improve operating efficiency continue. Three high priority investments to support strategic growth encountered most often are intended to:
Accelerate product, process innovation;
Retain, protect, and share institutional knowledge; and
Create new value chain networks to meet customer and marketplace requirements.


Innovation
Allocation constraints, in concert with volatility in demand from defense customers for certain product categories, are affecting how the U.S. Department of Defense budget is being consumed. In the last year, several major programs were either scaled back or eliminated. For others, reductions in total order quantities have led to higher total lifecycle operating costs for the asset because of the fixed costs of support. Smaller acquisitions complicate cost-efficient manufacturing and support models. Order quantities for single-design products are decreasing, and the numbers of system variants are increasing. In addition, greater emphasis is being placed on extending serviceable lifetimes, capturing asset reset campaigns, upgrading performance and capability, and for certain systems, pursuing foreign military sales. All of these factors underpin a need for greater agility in product and process design processes, and more rapid innovation.

The volumes and timing of design changes are also good indicators of the need for capability improvement in this area. Key requirements are often changing later in the design and test phases, delaying design finalization and compressing downstream stage gates. The ability to adhere to the program plan, meet milestones, and deliver products on such compressed timelines is becoming a more significant and competitive differentiator.

In addition to schedule compression as a primary reason for capability investments, the roles of product/process development organizations are adjusting to narrower scopes and greater emphasis on system and asset serviceability. Customer operating requirements demand greater design for mission flexibility. In this climate, rapid product innovation is a key driver of new sales and expansion revenue. The situation is pressing senior managers in product and process engineering to enhance today’s tools, processes, and program team structures to support greater collaboration and to speed the sharing of data needed by collaborative teams.

Investments in collaborative technologies, both within the conventional CAD/CAM/CAE realm and the social computing paradigm, are gaining momentum. Leaders in these disciplines seek to reduce or eliminate information dwell times – the time that information is idle, or a process is queued, awaiting other data. For this reason, and because of increasing technical sophistication of products resulting from the net-centric missions of current and future systems, defense internal investment flows are likely to be retained at comparatively high levels, even when doing so requires significant cost adjustments in other parts of the business.


Institutional Knowledge
As the need for collaboration continues to grow, so does the need to retain, protect, and share knowledge and information. While extra-enterprise collaboration is a key reason to invest in this area, the industry demographic statistics provide another, and give A&D companies cause for concern.

Nearly 60% of the industry workforce is 50 years of age or older, while only 22% is age 35 or younger. The average age is 45, and at least 13% of the workforce is eligible to retire today. Although the industry has launched programs to encourage young people to pursue advanced education and careers in science, technology, engineering, and mathematics (STEM), significant shortages in talent are being forecast. Because of the pending wave of retirements, of knowledge walking out the door, the industry is focused on capturing and retaining the institutional knowledge of its workforce.

These two factors are driving companies toward investments that provide greater control and protection of information. While retaining knowledge, making it more accessible, and making it more reusable are benefits in themselves, the contribution of knowledge management to speed, agility, responsiveness, and cost can be dramatic. Here, as well, companies are focused on reducing information dwell times.


Value Chain Networks
Investments and strategies to support growth in this area build upon the capabilities implemented in the two areas already discussed. The marketplace is requiring A&D companies to build ever more complex supplier networks to meet localization and trade offset requirements. Customers are also including lifecycle support requirements (often under the government’s performance based logistics (PBL) banner) in more of their acquisitions.

These two factors, along with collaboration and knowledge management enablers, contribute to the need for new, more robust value chain networks. Investments here include identification, qualification, and maintenance of key supplier relationships; the implementation of supply chain visibility and alert tools; and other collaborative technologies. These investments serve to integrate A&D companies in the development, design, manufacture; and delivery of their products.


Conclusion
The defense components of the A&D industrial base have experienced relative stability and growth over the last decade. While significant new challenges are appearing, the companies that embrace change as a constant – focusing their investments in information technologies and processes that enable collaboration, speed, agility, and knowledge retention, together with wide network partnering – will be better able to achieve their growth targets.

CSC
Atlanta, GA
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