Creating value through integrated products and services in aerospace and defense

Published: September 3, 2009

Executive summary

Aerospace and defense product and equipment manufacturers are facing a challenging period — a simultaneous downturn in both the defense and commercial aerospace markets. On the commercial side, aircraft net orders have evaporated as the recession takes a toll on air travel and carriers revisit fleet expansion and renewal plans. Spending on maintenance, repair, and overhaul (MRO) is also falling as older aircraft are parked due to capacity reductions. The picture is similar on the defense side, where curbed investment is likely after a decade of strong growth.

In the past, aerospace and defense (A&D) companies relied on acquisitions, consolidation, and diversification to find growth when the purchasing environment was tough. While these well-tested approaches to growth will remain available in varying degrees, new opportunities are emerging for companies that approach the marketplace through an integrated product-and-services lens, creating value propositions and business models that link products together with the services required to operate and support them. In short, companies can create additional value by adapting their business models based on an integrated view that spans the product life cycle. In doing so, companies face difficult choices in determining the extent of integration and the operating model to adopt. These choices will be influenced by each company’s product mix, its competitive positioning, and its level of capability across the entire product–services continuum.

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Conclusion

Unlocking and capturing value from a set of opportunities may not always be as easy as it seems for many companies. It may require displacing competitors, some traditional and some nontraditional, that have become deeply embedded with the customer. It is possible that certain competitors in certain segments of the product–services continuum of a platform or system will have superior assets, lower production costs due to scale or scope, a higher-quality operating model, or an inherent intellectual property advantage over rivals. Product manufacturers must carefully analyze these aspects and assess their existing business portfolios to determine how far to integrate their product and service businesses. Choosing the right options and operating model, and implementing them along with the required investments to build the right capabilities, can help players sustain a growth path to capture greater life cycle value.

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Creating value through integrated products and services in aerospace and defense

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