6 Compelling Tech Opportunities to Drive Innovation and Transformation in the Aerospace & Defense Industry

The aerospace and defense (A&D) industry is a vital sector of the U.S. economy, with a value of over $800 billion. The industry is known for developing some of the most innovative and cutting-edge technologies in the world, and it is only getting better.

With consistent investments from both the government and private sectors, the A&D industry is projected to grow steadily over the next 5 years. To take advantage and compete more effectively, businesses are embracing digital transformation and new technologies as key anchors of their growth strategy.

In this article, we share 6 compelling opportunities for technology-powered advancement that any legacy or aspiring company should consider to drive operational efficiency, gain a competitive edge, and enhance their overall performance

Market Disruption = Opportunity to Win Market Share in 2023 and Beyond.
With market disruption continuing to be a dominant theme in 2023, topics ranging from inflation and economic uncertainty, to global geo-political tensions and ongoing supply chain issues will likely remain front and center. While this will cause unprecedented challenges, the sector as a whole has more riding on it than ever before.

Companies that embrace digital transformation will be better positioned to withstand today’s challenges and emerge ahead of their competition. Moreso, companies in this space that can harness the unique opportunity that digitalization presents, will have a tremendous platform to accelerate innovation and capitalize on new cutting-edge market opportunities ahead.

1. Digital Manufacturing – Innovating from the Factory Floor.

Adoption of digital manufacturing and Industry 4.0 technology (sensors and smart factories, advanced analytics, digital twins, digital threads, etc.) is lagging in A&D. Embracing this new wave of tech can increase efficiency, agility, and time-to-market. In fact, Cuesta estimates that almost half of the value creation opportunity of digital transformation lies in the manufacturing and supply chain space.

Many digital manufacturing technologies unlock the ability to capture and use data in new, exciting ways and can play a vital role in achieving long-term value in the enterprise. However, identifying clear strategic use-cases and having a modern data approach are both crucial to realizing the benefits of the technology. To begin your digital manufacturing journey, it’s smart to identify specific areas of the business for pilot initiatives and then gradually expand.

2. Supply Chain Visibility – Creating a More Predictable Future.

The pandemic and Ukraine invasion sent shockwaves through global supply chains – shockwaves that are likely to be part of the longer-term outlook. In addition to revamping their sourcing strategies, companies are turning to emerging technology solutions to drive elevated visibility into their supply chains to better manage performance and supplier risk – and to have longer-term and more advanced prediction capabilities. Our experts estimate that companies can realize ~10-20% in supply chain cost savings on average by fully embracing digital technology.

Projects in the areas of data reporting and process automation are great first steps to realizing the benefits of digital technology. From driving better insights into spend categories and supplier performance, to slashing time-consuming manual processing, these types of projects deliver value quickly and establish momentum toward more ambitious projects – like introducing predictive analytics to better adapt to changing demand and incorporating digital thread technology to improve end-to-end traceability.

3. Compliance and Security Automation – Streamlining Operating Costs.

Compliance is baked into everything A&D companies do and security is always top of mind. Cuesta estimates that ~5-10% of operating costs can be directly or indirectly attributed to compliance and security. There is significant value for companies that can streamline and automate aspects of their compliance and security functions.

To bolster security, a number of new tools and capabilities exist to inject process automation and smart AI into and around key business processes– to identify areas of weakness, alert users in real-time to issues or breaches, and to create remedial actions without compromising business continuity and key front-line operations. To improve compliance, particularly on the government side, there’s an emerging number of automation capabilities that can help with managing bids, contracts, suppliers, and other compliance requirements.

Simply put, the risk today is now too large for organizations to not prioritize their compliance and security strategy.

4. Aftermarket Modernization – Capture New Revenue Streams.

Aftermarket services like MRO, field service and spare parts management are typically sources of additional revenue and higher margin for A&D companies. Companies that embrace modern applications and incorporate technologies like predictive analytics and AI will be better suited to protect and grow revenue and margin, while maintaining an advantage over competitors.

In recent years, there has been an accelerated push into servitization business models by a number of industry players to capture and own new market opportunities. These entirely new business units (or in some cases new operating companies) live and thrive off of high-end capabilities to deliver key aftermarket services to customers wrapped around legacy products. Data and digital capabilities are the centerpiece of these offerings. We believe this space is ripe for continued advancement.

5. Software Innovation – Moving Beyond the Legacy Tech Stack to Innovate.

The A&D industry is responsible for some of humanity’s greatest technology achievements; however, many established A&D companies struggle to build differentiating software products today. Companies that can effectively manage their traditional tech stack while pursuing ground-breaking software products will rise to the top, particularly A&D companies playing in emerging markets like space and autonomous weapon systems.

Moving beyond long-established technology is a heavy ambition – but a creative and strategic approach exists to invest smartly in stand-alone areas of the business that could be scaled in the future. A number of organizations are adopting a bimodal IT approach – one to continue driving the business of today, and another to facilitate the solving of new problems and opportunities in a fast-moving world. But both work in harmony to facilitate a culture of digital transformation for the enterprise.

6. Talent Acquisition and Retention – Workforce as a Competitive Advantage.

Acquiring and retaining top talent (especially cutting-edge new digital skills) is fast becoming a challenge across the market at large. Despite the need for both software and hardware expertise today, A&D companies particularly struggle to compete for the latest digital talent against technology firms and the hyper-scalers. Companies that revamp their orgs, incorporate technology into their core processes, and hone the employee experience will have an edge against their peers.

Moreso, firms that embrace a culture of training and reskilling will have an inherent advantage – as the shortage for tech workers will only heighten. To build the capabilities of tomorrow, and fast, companies will need to invest heavily into new skills like data scientists, AI experts, lean project managers and transformation experts, to name a few.  Having a strong employee value proposition in the area of digital skills will be an essential pillar to growth.
The Journey Starts Today.

Each of the aforementioned areas all present unique transformation and growth opportunities for companies in the aerospace and defense space. Despite global economic uncertainties, the investments into this sector have never been higher, and the stakes for success have never been so immense.

At Cuesta, we see rich opportunities for firms to strategically plot their own investments and initial programs ahead – there are a number of pragmatic ways to launch an initiative that can be scaled and showcased with real ROI metrics. Simply put, the competition has never been higher, so the time is now to reshape the organization and capture new market opportunities through new digital capabilities.

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