The Digital Coming of Age. Seizing the Digital Opportunity in Aerospace

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1 The Digital Coming of Age Seizing the Digital Opportunity in Aerospace

2 Digital is transforming the aerospace and defense industry. Or is it? Conventional wisdom would suggest that digital is a pervasive change agent across the industry, changing how companies interact with customers and suppliers, manage talent, make their products, and support them in operation. We wanted to know more.

3 Digital is generally defined as a set of technologies that include social, mobile, analytics, big data, and cloud. Accenture takes this technology-focused definition further, focusing on the impact of digital technologies in a given industry. We do this from two perspectives. The first is digital customers, markets, and channels understanding how digital can deliver a consistent, meaningful, and relevant customer experience across all channels, customer segments, and geographies. The second is the digital enterprise demonstrating the impact of digital on optimizing the efficiency and effectiveness of internal operations and the delivery of products and services. The Digital Coming of Age 1

4 Given that aerospace and defense Original Equipment Manufacturers (OEMs) and tier one suppliers can be both digital customers and enterprises, the industry provides a complex proving ground for the value of digital. To evaluate the impact of digital in the industry, Accenture surveyed a global set of executives from several leading commercial aerospace companies to understand how they view, value, and are investing in digital. The perspective of these industry leaders and Accenture s digital experience leads us to an evolved understanding of the implications of digital within the aerospace and defense industry and a set of recommendations for how the industry can take full advantage of digital s promise. Accenture Digital Framework Digital Customers, Channels & Markets Digital Enterprise Comms/ Financial Products Health/ Resources Comms/ Financial Products Health/ Resources Digital Strategy & Business Architecture Digital Sales Digital Corporate Functions Digital Marketing Digital Supply Chain, Manufacturing, Operations Digital Content Management Digital Connected Products Digital Commerce Digital Customer Service Digital Customer Experience Digital Social Media & Collaboration Digital Applications Digital Connected Devices Analytics 2 The Digital Coming of Age

5 Developing a New Perspective The aerospace industry was an early adopter of digital, particularly in digital design and engineering. Our research shows that the industry is ready to take the next step. Digital is now starting to transform every aspect of the aerospace value chain, from the design of aircraft through to the onboard passenger experience. The executives we surveyed are increasingly making strategic investment decisions through a digital lens that looks across the asset lifecycle from the supply chain and manufacturing, to the in-flight experience and aircraft service and support. Combined with the existing digital foundation in engineering, these developments mark an opportunity to optimize cost, service, and revenue. While our survey shows that design and engineering still attracts the greatest amount of digital investment, customer service, supply chain, and manufacturing are drawing digital investment (FIGURE 1). How then should aerospace companies harness digital to improve outcomes from design through the passenger and operator experience? While our survey shows that many companies are investing for a digital future, it also reflects that the industry perceives some major challenges in realizing that future. Internally, respondents were particularly focused on how to develop a digital strategy, attract and retain digital talent, and understand the maturity and effectiveness of emerging digital technologies (FIGURE 2). Externally, the uses of digital to improve customer relationships and to drive incremental and new revenue were seen as the most significant challenges (FIGURE 3). FIGURE 1 In which one of the following areas is your company planning to invest the most in digital capabilities in the next two to three years to increase opportunities? Engineering Customer service Supply chain Manufacturing FIGURE 2 In your company, what are the top three most important internally focused reasons to invest in digital capabilities? Reduce cost 53% 23% 17% 7% 73% Improve efficiency 73% Improve product lifecycle management 53% Better use of analytics/predictive analytics 47% Reduce manufacturing delays 43% Improve safety 10% FIGURE 3 In your company, what are the top three most important externally focused reasons to invest in digital capabilities? Customer retention/improve customer relationship 73% Grow revenues 70% Improve relationship with partners 43% Differentiation from competitors 37% Identify new business opportunities 33% Customer acquisition 23% Given this perspective, how is the industry investing in and applying digital? The Digital Coming of Age 3

6 Building the Digital Aerospace Enterprise Our results indicate that the industry s appetite to adopt and develop digital capabilities is strong. Nearly half of the companies we surveyed are preparing to substantially invest in digital capabilities over the next three years. How substantially? Nearly 50% of respondents indicate that over the next two to three years their companies will invest more than 5% of their total revenues in digital, while nearly 30% of those surveyed will devote over 10% of their revenues to new digital capabilities (FIGURE 4). Aerospace companies are developing digital strategies and capabilities to realize the value of these investments. When asked about digital strategy, respondents to our survey indicate that they are focused on addressing three challenges: creating a coherent vision for digital, securing digital data, and improving the consistency of information across their supply chains (FIGURE 5). We also asked respondents about their perspectives on the digital capabilities that will turn strategy into reality. They told us two main things: First, many question whether digital technologies are mature enough to deliver on their promise. Second, the industry is finding that it requires a more digitally savvy workforce, not only in IT but across the business in areas that will benefit from digital, data-driven operations (FIGURE 6). FIGURE 4 What share of your total revenue do you estimate will be allocated to developing digital capabilities in your company in the next two to three years? Don t know: 17% <1%: 7% 1 4%: 27% Difficulty creating a coherent vision of the digital future Data security Inconsistent information at various parts of supply chain 5 10%: 20% >10%: 29% 49% will spend 5% or more of total revenue FIGURE 5 What are the top three challenges for your company in developing a successful digital strategy in the next two to three years? FIGURE 6 What are the top challenges for your company in developing successful digital capabilities in the next two to three years? Lack of confidence in sufficiently mature technologies Lack of internal skills Lack of infrastructure 43% 43% 40% 73% 70% 53% 4 The Digital Coming of Age

7 Driving the Digital Strategy Looking further, we see that aerospace companies are taking steps to address the needs for having a coherent digital strategy and building digital talent. For example, our survey indicates that companies are moving toward centralized ownership of digital strategy, a move that will provide a platform for driving forward a single, coherent digital strategy (FIGURE 7). As digital strategies mature, aerospace companies expect that they will generate potential benefits across their supply chains. Digital s promises of improved data accuracy, timeliness and insight underscore the potential benefits that survey respondents expect from implementing a digital strategy. In particular, they pointed to reduced costs, fewer program delays, and overall process optimization as targeted outcomes of their digital strategies (FIGURE 8). Aerospace companies also expect that their digital strategies will drive benefits in specific operational areas. Corroborating the perspective gleaned from additional Accenture research on product lifecycle management in aerospace, our survey results suggest high confidence in digital s ability to accelerate the design and development process (FIGURE 9). FIGURE 7 Which function or functions within your company are currently in charge of implementing the digital strategy and which will be in three years time? Function within each business/ geographic units Function across business/ geographic units Digital transformation activities as a separate business (spin-off) FIGURE 8 What will be the biggest impact of a digital strategy on your supply chain? Reduce costs Reduce manufacturing delays Optimize processes Improve customer service Reduce risk of errors Speed to market Higher profits Develop new services 63% 60% 47% 60% 7% 13% 73% 53% 50% 40% 33% 27% 20% 3% FIGURE 9 What will be the biggest impact of a digital strategy on your design and development activities? Reduce costs Reduce manufacturing delays Optimize processes Improve customer service Reduce risk of errors 87% 77% 70% 40% 23% The Digital Coming of Age 5

8 Building Digital Capabilities As aerospace companies begin to translate digital strategies into reality, they remain concerned about the maturity of digital technologies. The way forward to the digital enterprise in aerospace may well follow that of the industry s products. Contemporary aircraft are platforms, with software increasingly used to augment or supplant physical systems. Indeed, today s aircraft have nearly three times the number of software-driven functions as their predecessors from the 1990s. (Source: EU Scarlett Program, 2014.) Our survey also indicated a growing focus in the industry on acquiring digitally savvy talent. These requirements extend across the entire enterprise, from software engineering to digital marketing, operational analytics, additive manufacturing, human resources, and beyond. As their talent supply chains broaden to acquire digitally fluent talent, aerospace companies are no longer competing for talent solely within the industry but also across the broader technology ecosystem. Too often, they are losing. Aerospace companies will need new talent supply chain strategies, from identifying and developing new sources of internal supply to selectively using teaming arrangements and third parties to augment their digital talent. This shift to software has enabled greater flexibility and performance for aerospace assets. By taking the long view and building open, flexible architectures, aerospace companies can benefit from mature digital technologies while creating a defined roadmap to incorporate digital capabilities that will emerge over the length of a program s lifecycle. Our respondents indicate that they are taking such a lifecycle-centric view to their digital investments. To this point, engineering continues to garner the majority of digital investments (FIGURE 10). Yet as the bow wave of new programs currently in development moves into operation, we see indications that digital investments will similarly move into the manufacturing, service, and support functions. Our research suggests that the industry is looking to digital as a means to support product and services development, shorten design/development lifecycles, reduce program and service delays, and increase the efficiency of Maintenance, Repair and Overhaul (MRO) execution and in-service support (FIGURE 11). FIGURE 10 In which one of the following areas is your company planning to invest the most in its digital capabilities in the next two to three years to increase opportunities? Engineering Customer service Supply chain Manufacturing FIGURE 11 How important are the following capabilities for your company s digital strategy? Design collaboration Engineering collaboration Digital supply chain Supporting MRO Forecasting and prediction using big data technology Virtual prototyping Important: 33% Very important: 60% 37% 56% 40% 43% 40% 33% 54% 13% 36% 27% 53% 23% 17% 7% 93% 93% 83% 73% 67% 63% 6 The Digital Coming of Age

9 The Digital Coming of Age 7

10 Recommendations Our survey confirms that aerospace companies recognize that digital has the potential to deliver significant benefits for their own businesses and for their customers. From increased integration of design and manufacturing to new customer experiencedriven revenue streams, digital is driving fundamental changes in the industry. Based on these research results, we suggest five important steps that aerospace companies should take to realize the digital promise: 1 Develop a comprehensive digital strategy across the organization. It sounds obvious: develop a strategy. Yet, our research clearly shows that aerospace executives are wrestling with the complexity of building digital strategies that can deliver measurable benefits, not just buzz. The challenge starts with the breadth of digital s reach and impact, from core enterprise activities such as engineering, to the operator and passenger experience. As our survey indicates, aerospace companies understand digital s potential, but their investments have yet to mature beyond the funding of hot functional areas such as engineering to a prioritized roadmap of digital enablement. Respondents understand that future investments in digital will need to reach across the full value chain. This requires an integrated digital vision that incorporates enterprise and customer imperatives: enhancing supply chain operations, increasing manufacturing efficiency, improving in-flight experience, and improving fleet availability through aircraft service and support. 8 The Digital Coming of Age

11 2 Establish a digital governance framework to coordinate the development of digital assets and capabilities. As aerospace companies shift from digital strategy to digital operations, they will need to address two concerns voiced in our survey results: developing cross-functional digital teams and building confidence in digital technologies. Our experience indicates that digital strategy doesn t become digital reality without formalized leadership and governance to set the digital agenda and measure outcomes. To be most effective, digital program governance should have internal authority and external input. Internally, stakeholders from across the organization should be represented in the governance process and have objectives aligned to its outcomes. Externally, digital governance should incorporate customer and business partner feedback to accelerate acceptance across the supply chain. The Digital Coming of Age 9

12 3 Use digital to support a comprehensive value chain. Our survey and market experience strongly suggest that digital is central to aerospace companies thinking as they move toward providing full lifecycle products and services. For product-centric companies, digital provides a platform for the rapid introduction of complementary services and greater customer intimacy. In return for access to new service channels, aerospace companies must be prepared to deliver those services in a fashion that addresses the specific requirements of customer segments and even individual operators. 10 The Digital Coming of Age

13 4 Develop a plan for capability and skills which taps into multiple pools of digital talent. Aerospace companies recognize that they face a shortfall in the talent needed to enable their digital strategies. Importantly, as digital becomes part of functions across the enterprise, the need for digital talent will extend far beyond the IT organization. To address these gaps, companies must be able to identify and acquire cross-functional digital skills. This will require managing multiple channels across the digital talent supply chain, from traditional sources of hiring, to investments in key skill areas and strategic teaming relationships with third parties. The Digital Coming of Age 11

14 5 Use digital to improve collaboration across the extended supply chain from manufacturing through to service and support. Delays in entry to service and return to service from maintenance have had significant impacts on OEM and supplier financial performance. Our research confirms that many aerospace companies expect digital to build deeper and more pervasive collaboration across design, manufacturing, and aftermarket. As digital tightens connections across the supply chain, participants in the extended supply chain will seek to realize their long sought-after objectives of lowering total cost and pooling risk. 12 The Digital Coming of Age

15 Conclusion As digital strategies offer new and improved ways to optimize the supply chain, reduce time to market, and increase revenue, many aerospace companies are considering how they use digital to generate and sustain business results a digital coming of age. Our research confirms that now is the time to think proactively about how to leverage digital technologies to solve big challenges. Aerospace companies are aligning their cultures and operations to the accelerated pace of digital, re-imagining how to serve connected customers and their own internal operations. Digital Coming of Age in Aerospace Pilot and Passenger Experience Operation & Maintenance Engineering & Manufacturing Supply Chain Research & Development Flight Deck Data Predictive Maintenance Product Lifecycle Management/ Process Optimization Enterprise Collaboration Software Capabilities/ Application Lifecycle Services Inflight Entertainment/Wi-Fi Inventory Optimization Planning/ Forecasting Order Management Information Security Personal Electronic Devices Operations Crew Management Automation/ 3D Printing Supplier Collaboration Risk Partner Collaboration The Digital Coming of Age 13

16 Accenture Digital in Aerospace Survey 2014 Accenture polled executives from 30 aerospace companies to assess the maturity of digital in the commercial segments of this industry and to discover their views on the principal challenges and opportunities associated with digital implementations. These executives represent aircraft manufacturers, engine manufacturers and suppliers from Brazil, Canada, France, Germany, Italy, Spain, the United Kingdom and United States. To learn more about Accenture services for the Aerospace & Defense industry, please contact: Damien Lasou Global Managing Director Aerospace & Defense John Schmidt North America Managing Director Aerospace & Defense Accenture Direct accenture.direct@accenture.com About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, Its home page is Contributors Bouchra Carlier Craig Gottlieb Joyce Kline Mélina Viglino Jeffrey Wheless Copyright 2014 Accenture. All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.