NAVIGATING DIGITAL TURBULENCEAccenture Technology Vision 2016 for Aerospace and Defense Companies

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The aerospace and defense industry is now well into a new era of powerful market forces and disruptive technologies. These present entirely new mandates for building, operating and maintaining commercial, military and space products. These forces are reshaping the future of aerospace and defense. Some offer exciting opportunities. Others present clear threats and challenges. All require a decisive response.

Defense budgets in both the United States and the European Union are essentially flat, as new platform development is deferred and acquisition levels are reduced. Asia and Middle Eastern markets are increasing, which may offset tepid traditional market performance. Overall, however, global defense acquisition spend of $461 billion is expected to grow by a very moderate 0.7 percent over the next five years1.

Powerful Market Forces

A significant proportion of aerospace and defense talent is fast approaching retirement. For example, the U.S. aerospace workforce has an average age of 48 and 28 percent of its employee population is at or approaching retirement age. The problem compounds as competition for science and technology talent comes from other, more visibly digital industries and demand for these skills, in Europe in particular, are expected to grow at double the rate of other occupations4.

Aircraft are generating unprecedented volumes of data. For example, the Boeing 787 transmits 28 times more data as that of a 777—up to 500 GB for every flight3. The criticality of data is also rapidly increasing in the defense industry, with connected battlefield technologies in particular raising demand for big data capabilities.

New aircraft program durations have doubled from four to eight years. Risk sharing is now the norm for major programs as is system integration and peer-to-peer collaboration between suppliers and OEMs.

In contrast to defense spending, the appetite for civil aviation is increasing with a burgeoning middle class in high-growth global regions driving demand. Airlines are also seeking the higher efficiency and better environmental performance from new aircraft. Overall, the $738 billion airline industry is expected to grow by 6 percent or higher over the next few years2.

Flat defense budgets

Rising demand for airliners

Longer, more complex programs

A shrinking talent pool

Operational cost optimization

The explosion of big data

Slashed defense budgets mean that upgrades, rather than platform replacements, are taking priority. Commercial operators are seeking greater insight and fidelity into operational data to fine tune support operations and reduce costs.

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Adding to the market forces affecting the aerospace and defense industry are significant developments in digital technologies that are exerting an increasingly decisive influence on the future shape of all industries. Accenture’s annual analysis of key technology trends, the Accenture Technology Vision 2016 (www.accenture.com/techvision2016), identifies the disruptive changes that digital is bringing to all sectors. While digital has been prevalent in the aerospace and defense industry for some time, the sector is far from exempt from the transformational changes that digital is driving.

Here is how these important technology drivers are manifesting themselves in the aerospace and defense industry.

Important Technology Trends

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Aerospace and defense businesses are embracing greater use of technologies such as robotics on the production line and predictive maintenance for in-service support. Eight out of ten expect their investment in automation related to production and maintenance to increase over the next three years. 85 percent of aerospace and defense executives expect artificial intelligence to have a significant impact on the industry in the next three years, with one-third seeing the impacts as transformational.

Companies are investing in tools such as wearable technology to keep pace with constant change in the digital era. But there is typically a critical factor that is falling behind: an adaptable, change-ready workforce. Accenture’s research shows that the willingness to embrace change is the number one characteristic that aerospace and defense executives are looking for in their future workforce. Flexibility and adaptability to new digital environments are all sought after qualities, while deep technical expertise is seen as less critical.

The ability to operate across digital platforms and ecosystems is seen by over half the aerospace and defense executives as mission critical to the future success of their business. And 85 percent see digital driving a shift in power within the industry from supply-side (where control of the end-to-end supply chain is the key to success) to demand-side economics that are based on broader participation of multiple stakeholders in digitally-enabled ecosystems.

Every business now understands the transformational power of digital. Silicon Valley is eyeing aerospace and defense markets. Software and drones are changing how capabilities are delivered. However, the majority of aerospace and defense executives see disruption as more likely to emerge from within the industry than from outside. At the same time, they are not downplaying the extent of disruption: 58 percent identify pervasive digital change as having a major impact on businesses within the industry. 85 percent see the Internet of Things (IoT) as causing significant change or a complete transformation of the aerospace industry.

With the globalization of aerospace and extended supply networks, digital security and protection is more important than ever. Pervasive new technologies raise potent new digital risk issues, and the industry has seen greater frequency of privacy and security breaches over the past 24 months. 39 percent of aerospace and defense executives say that the number of incidents has doubled, and 18 percent report three times as many breaches compared with two years ago. And the challenge of operating digitally will increasingly stretch the abilities of aerospace and defense companies to manage the risks that arise from being a data-driven, digitally-enabled business.

Intelligent Automation

Predictable Disruption

Liquid Workforce

Digital Trust

Platform Economy

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The Digital Intersection Aerospace and defense companies have been relentlessly developing digital capabilities for many years. But the urgency to fully embrace these emerging technology trends is increasing.

The Boeing 777, for example, was designed in the 1990s using digital tools. The Airbus A350 XWB has a fully 3D digital model for partner design collaboration. However, the focus of digital is now expanding beyond engineering to increasingly embrace every aspect of the industry value chain: from passenger experience in the seat to airline operations and from design and manufacturing to service and support. Digital is driving decisive changes in the way that businesses operate, interact and integrate with the world around them. This is creating new digital cultures that thrive on the ability of technology to empower people to think and act differently. It’s no longer simply the case that digital is helping people to operate better, faster and cheaper. Instead, digital is empowering people to do different things and discover new areas of value to secure breakthrough performance.

So while today aerospace and defense companies differentiate through their products, digital will start to enable differentiation in their operations. Digital will increasingly secure its place at the heart of the industry value chain, reshaping people’s activities from design to operations and all the way through to the passenger experience.

Accordingly, aerospace and defense companies are focused on how digital can help them harness people and technology to reduce cost, manage product lifecycles, deliver on time, become more efficient and improve customer service.

Examples of how digital is continuing to expand its presence in aerospace include:

• Increased use of real-time aircraft communications for both operational and navigation purposes

• New ways to interact with operators— civil and government—through digital channels to integrate more effectively with their operations

• Supply chain integration to streamline logistics and inventory management

• Analytics to manage and optimize supply chain performance

• 3D printing to optimize part design characteristics and bill of material reduction

Digital is driving decisive changes in the way that businesses operate, interact and integrate with the world around them.

• Collaboration across the supply chain to shorten increasingly longer development cycles and ensure parts availability during production upswings

• Product and Application Lifecycle Management supporting the shift from hardware to software-enabled capabilities

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New technology trends fueled by digital disruption are creating significant opportunities for aerospace and defense companies. It’s time for a fundamental shift in how aerospace and defense companies apply these innovations to more effectively operate, differentiate and grow their businesses.

What are the most important touch points and the “moments that matter” with your customers, suppliers and employees and how can digital help maximize value at each?

How can you use digital to drive higher customer value, lower cost, shorten cycle time, improve quality, shorten delivery time and avoid delays?

Implications and Actions

Digital strategies offer new and improved ways to optimize the supply chain, reduce time to market and increase revenue.

As a result, many aerospace and defense companies are considering how they use digital to generate and sustain business results. Accenture refers to this as a digital “coming of age” for the industry.

However, investments in digital capabilities should be carefully considered. Being able to perform endless analytics or simulations is not the answer.

Accenture suggests that companies evaluate their digital investments and adopt a comprehensive digital strategy based on the answers to three key questions:

How can digital and the Internet of Things (IoT) help you improve your products, better understand customers and capture new business? How can it help secure a bigger share of business by doing more with the same product, leveraging untapped expertise or extending an existing process? How can digital create a differentiated digital customer experience leading to higher loyalty?

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About Accenture in Aerospace and DefenseAccenture works with aerospace and defense companies throughout the world to develop and deploy solutions that harness the digital revolution to support growth, improve program performance and foster an extended enterprise for risk reduction, agility, efficiency and innovation. We provide consulting, technology and operations services to all industry sectors including commercial aerospace, defense and space.

About AccentureAccenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions-underpinned by the world's largest delivery network- Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 373,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com

Sources1 Strategic Defense International

2 IATA, ICAO

3 Virgin Atlantic

4 U.S. Bureau of Labor Statistics; European Centre for the Development of Vocational Training