High Value Design How to maintain competitiveness in advanced engineering … · 2021. 3. 12. · the Spitfire to the Vulcan bomber to the Concorde, it seemed inevitable that the

High Value Design How to maintain competitiveness in advanced engineering

November 2017

2 Roland Berger Focus – High Value Design

portance of HVD. Over the past two decades, the UK has seen a steady erosion in the capabilities and role of its aerospace sector at a global scale. While both the private and public sector have recognised the need to address the pace of technology development – for example through the Aerospace Technology Institute and Manu-facturing Catapults – these initiatives have been limited in their ability to address the know-how and creativity required to conceive and design holistic complex sys-tems, such as whole aircraft.

On the surface this might seem like a minor distinction, but the implications for the sector are potentially pro-found. Our work with the ATI shows that a targeted and ambitious effort to boost HVD in UK aerospace would re-enliven the sector, establish a new trajectory, and cre-ate knock-on benefits into other advanced industries and the wider economy.

In today's fast-changing world, globally competitive High Value Design ecosystems are key to securing long term growth.

Management summary

The world is at an inflexion point. In a time of increasing nationalism, industrial protectionisms, and ever-rising uncertainty, what can countries turn to to be a reliable engine for future growth?

Working in partnership with the UK Aerospace Technol-ogy Institute (ATI), Roland Berger has found that ad-vanced technology lies at the heart of long-term compet-itiveness and economic growth – and that the ability to consistently translate advanced engineering from con-cept to market is the key. We refer to this capability as High Value Design (HVD), i.e. the combination of skills and capabilities required to conceptualise, define and integrate complex technologies at a system level.

Through our analysis of 11 HVD-focused institutions, we have found that HVD is the source of creation that leads to new businesses, increased exports, and positive exter-nalities such as skills development and increased labour productivity. Wherever HVD has been consistently and successfully supported and stimulated the benefits have been far-reaching.

We have found that successful institutions always work at the technological cutting edge, identify and fast-track the most impactful ideas and find the best teams and capabilities to deliver them. We have also found that HVD activities must draw on a wide range of stakehold-ers – from government and universities, to technological incumbents and start-ups – aligning their incentives with funding and IP to ensure effective collaboration and a holistic positive impact. While incumbents' know-how and access is crucial to ultimate success, the entre-preneurial mind-set of a new entrant is required to really bring about disruptive change.

Throughout the document, we use the UK's aerospace industry as an extended case study to illustrate the im-


High Value Design – Roland Berger Focus 3

Contents

1. The Fierce Urgency of Now .......................................................................... 4

There has never been a time like the present.

2. What to do ....................................................................................................... 8

High Value Design.

3. Why to do it ..................................................................................................... 12

Maximisation of positive externalities.

4. How it can be done ......................................................................................... 18

Setting up a dedicated institution for HVD.

5. The time to decide is now ............................................................................. 24

Securing long-term competitiveness.

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Section 1:

The Fierce Urgency of NowThere has never been a time like the present.



Developed countries are on the cusp of losing their competitive advantage. Countries from the USA to Germany are facing the question of how to retain their technological superiority, endangered by a perfect storm of decades of low infrastructure investment, a rising wave of Asian advancement, and the emergence of nationalist sentiment.How could this happen? Globalisation and offshoring by companies to Asian countries – though initially valuable in boosting profits – has resulted in long-term skills and capability loss. Short-termism driven by both market and democratic cycles has led to in-vestment in short-term payback industries such as fi-nancial services and software, boosting the share of the tertiary sector in Western countries. Concurrently, investment in the secondary sector has fallen by the wayside, away from long-term payback industries such as aerospace & defence.The result has been the emergence of developing countries like India and China into the realm of ad-vanced engineering. India has risen on to the global stage as a low-cost satellite launch destination, com-peting directly with SpaceX for the lowest cost per ki-logram launched. China's "Made in China 2025" has an even broader gambit: Global technological leader-ship by 2025 in 10 industries including aerospace & defence, automated machines & robotics, new energy vehicles, and advanced medical products, to name but a few. If China achieves its goal, it will have raised its domestic content of core components and materials to 70% and will have upgraded 10 priority industries, of which most are predominantly controlled by West-ern countries today.In the meantime, the loss of jobs caused by this shift in the Western world is partly responsible for the re-emer-gence of populism that we are experiencing today. The upheavals in the US and the UK have shifted political influence zones and are challenging the complex global

supply chains that underlie high value industries. The political and economic uncertainty has slowed down business decision making and investments, increased risk, and threatens to worsen the position of developed nations going forward.Thus a serious question to consider is what will the future look like if these trends continue? It is incum-bent on business leaders, entrepreneurs and political leaders alike to develop considered opinions on what could happen if industrial and manufacturing skills keep eroding – and what to do about it.This document will attempt to break down these con-siderations, and to present a potential solution. What can be done to stem this loss in competitiveness? What short- and long-term benefits result from ac-tions taken? How can changes be put in place?

It is incumbent on business leaders, entrepreneurs and political leaders alike to develop considered opinions on what could happen if industrial and manufacturing skills keep eroding.

6 Roland Berger Focus – High Value Design6 Roland Berger Focus – High Value Design

The descent of UK AerospaceThrough the 1990’s and 2000’s, the UK aerospace sector has had a tough run. Once an aerospace superpower, from developing major platforms from the Spitfire to the Vulcan bomber to the Concorde, it seemed inevitable that the British Isles would always play a central role in aerospace technological development.

High Value Design – Roland Berger Focus 7High Value Design – Roland Berger Focus 7

Not so. The UK's capability to design and deliver a complete modern aircraft is no more. Today it mainly conducts sub-system design and manufacture. Moreover, as demons-rated by the ongoing problems at Rolls-Royce, and the re-cent issues at BAE Systems, there are wider issues in UK aerospace which stand to make the situation worse:

DECLINING ECONOMIC IMPACTThe UK's engineering sector, in its broadest sense, con-tributes about 26% of the UK's GDP today, of which high-value added industries make up about 6% to GDP and export GBP 136 billion from the UK1. Of this, aerospace makes up GBP 28 billion, or about 21% of high-value added industry exports1. Despite this, the UK has lagged behind the USA, Germany and France as the fourth largest ex-porter of aerospace goods for decades (although purports to retain global 2nd in the Civil market) and its position is getting worse: The UK's share of global aerospace exports has declined from 8% to 6% since 20012.

LOSS OF BRITISH OWNERSHIPThough the UK continues to be a home to some key global aerospace brands such as Rolls-Royce and Airbus, a history of M&A and industry consolidation has led to many tradi-tionally British companies becoming majority for-eign-owned. While foreign-owned companies continue to provide valuable employment and export revenues to the UK, the control of decision making and intellectual property rights are lost to other countries.

LACK OF A STRONG LOCAL SUPPLY CHAINThe UK also lacks a robust middle-tier in aerospace3, forcing UK-based OEMs to buy from abroad, while UK-based Tier 2/3 players sell into the international markets, making the UK's aerospace industry completely reliant on international players.

SKILLS SHORTAGEThe UK aerospace industry directly or indirectly contrib-utes about 240,000 jobs, of which about half are highly skilled1, including the crucial design skills which are at the heart of value creation in engineering4. However, the UK's engineers are part of an aging population, with about 50% of registered chartered and incorporated engineers being over 551. At the same time, despite a still strong engineer-ing education system in the UK, there is an expected short-age of 20,000 engineering graduates every year in the UK5. Thus by maintaining the status quo, the UK's position in engineering and aerospace is liable to worsen.

BREXITThe UK leaving the EU will also make the situation worse. Greater complexities – and potentially higher taxes – in trade could scupper the country's ability to export high value goods. A change in the country's stance on immigra-tion would also put pressure on aerospace companies' abil-ity to easily hire the best talent. Indeed, Airbus has made public the potential implications of Brexit on its UK opera-tions, depending on the negotiated agreement. However, a weaker pound brought on by Brexit, at least in the short term, provides some advantage to net exporters.

1 ATI; 2 Trademap; 3 The UK is home to OEMs such as Rolls-Royce, Airbus and BAE Systems are OEMs, and Tier 2/3 companies such as Meggitt – but it lacks a firm base of Tier 1 companies where intellectual property, and design and development is increasingly held; 4 According to historical data, 80% of downstream costs are fixed and inevitable at the end of the design stage, demonstrating the importance of ensuring a good upfront design in managing lifecycle cost; 5 Engineering UK

Section 2:

What to doHigh Value Design.



Western countries must focus on rebuilding their core competitive advantage by securing their capability to de-velop and deliver highly engineered solutions. The skills, experience, capabilities and infrastructure required to conceptualise, define and integrate complex systems is known as High Value Design (HVD). This process is cen-tral to translating promising advanced engineering, ma-jor assemblies and complex systems from research to viable and marketable products. A Crucially, it is not enough to focus on component or sub-tier part supply, but system-level technologies. Our analysis of engineering ecosystems around the world shows that the best way to foster HVD at a country level is to develop a sharp vision, an ambitious techno-logical strategy and establish an institution dedicated to delivering it with industry participation. Such an institu-tion can challenge traditional practices, accommodate greater risk, form tight networks and co-ordinate stake-holders to undertake ambitious designs challenges. In doing so, it fosters high-value skills, experience, ideas and technology that bring competitive advantage to ad-vanced engineering firms that work with it. This drives a culture of innovation, straddling governments, industry players, start-ups, investors and academic institutions to strengthen the ecosystem.Such an institute must work with a wide range of stakeholders to identify the most promising develop-ments relevant to its over-arching mission, and can conduct multiple streams of work in parallel in the route to commercialisation. BIt can drive activity forward: Either in-house, co-ordi-nating external activity, or a combination of the two. Hosting activity internally offers unique benefits: Be-spoke teams of specialists can be formed most suited to the task, including secondees from industry. This approach is useful in developing strategic skills that are under threat. External delivery offers different ad-vantages, injecting pace into technology and develop-

ment activities within specific specialist firms and inviting broader problem-solving creativity around well-defined challenges.Throughout this journey, the institution can encourage collaboration between stakeholders to ensure best prac-tice knowledge sharing, while working to develop new and more effective design processes to improve the en-tire sector's pace and cost to market.

Current technologies which exemplify HVD are systems such as aircraft, submarines, smart factories, and wind turbines, or their significant sub-systems such as engines, autonomous robots, and high power gearboxes.


A: High Value Design in technology R&D. A dedicated institution focused on HVD can help bridge research and market in partnership with industry.

Source: ATI, Roland Berger

Market

Fundamental research Accelerating research to market

Applied research

Commercial product development

University labs/ research institutes

Enhanced link to market needs, beter funding, improved pull-through of research

HVD feasibility studies

Draw down on landscape of fundamental research to validate in context

Collaborative design challenges with industry hosted by HVD institution

Draw down on validated research to test in real design challenges


B: High Value Design ecosystem and route to commercialisation.High Value Design brings together multiple stakeholders and delivers designs either directly or by co-ordinating external delivery.

Source: Roland Berger

Consumers

Investors

Technology accelerators

Industry

Universities

Start-ups

Government

Other research

institutions

Regulators

Source appropriate funding for

projects

Identify promising

technologies

Decide on delivery model

Deliver in-house

Product design and integration

Demonstra-tion and

validation

Deliver to market

Align stakeholder incentives

Define milestones and provide

fundsCo-ordinate

external delivery Help find

market entry strategy

Accelerate pace to market

Marketable cutting-edge

technology

Develop new design processes to enhance sector-level capabilities

Define vision and mission

Source ideas and funding Deliver internally Deliver externally

Section 3:

Why to do itMaximisation of positive externalities.



A thriving HVD ecosystem creates advantages for all stakeholders involved, from the originators of the technology, to its investors and partners, and to the wider economy. C

Technology originators, partners and investorsHVD, delivered by an effective dedicated institution, in-creases the likelihood of success for good technologies, reduces the risk of funding poor technologies, and ulti-mately increases the pace of the research-to-commercial-isation process. With its multistakeholder perspective, it opens up the possibility of cross-industry collaboration, improving the business case for nascent technologies.As a result, technology originators can rely on higher success rates for good technologies, as well as the broadened network provided by access to a wider range of stakeholders.Partners, too, benefit from the increase in success rates, but also gain from faster decision making. Faster and cheaper failures allow them to cycle through more ideas in search of a major success. Partners positioned downstream in the value chain can also benefit as good design can lock in competitiveness throughout the value chain, from manufacturing to customer use, to through-life services.Investors can benefit by a reduction in technological and implementation risk, as well as an increase in the "op-tion value" of a technology increased through cross-in-dustry collaboration, improving the business case for investors and increasing long-term returns.

Wider economyA national HVD-focused institution gives a country a stake in the intellectual property it funds, ensuring benefits accrue to the home country. By staying at the forefront of development, it provides global influence including regulation, standards and international adoption of technology.

By establishing bold visions and backing these through real and ambitious undertakings, countries can inspire industry and people of all generations. An HVD institu-tion, which is well-funded and has a strong public mis-sion, can motivate and attract a generation of Science, Technology, Engineering and Mathematics (STEM) stu-dents and graduates. A generation of youths, empow-ered to enter STEM disciplines and find jobs to realise their ambitions, can over time create a higher skilled and better trained populace.Such an initiative can have significant positive external-ities, helping to create a world class advanced engineer-ing ecosystem. This can attract industry, new enterprise and increase labour productivity that spills into other industries, lifting the entire economy.Fundamentally, HVD can help a country enhance its competitiveness, secure valuable intellectual prop-erty, and generate other positive externalities through-out its economy.

HVD offers a country and industrial sector the ability to leapfrog its competition.


C: Beneficiaries of High Value Design initiatives. High Value Design creates many winners throughout the economy.


Examples of stakeholders

Enhanced cmpetitiveness

Economic boost

Increased labour productivity

Inspiration for next generation

Control of intellectual property2)

Through value-chain benefits

Cross-industry collaboration1)

Faster pace to market

Faster, cheaper failures

Higher success rate

Technology originator

Start-ups

Industry

Research institutions

HVD itself

Investors

Government

Private investors/ financial institutions

Industry

Partners

Industry

Up/downstream players

Research institutions

Wider economy

Citizens

Youths

Schools

Government

1) Also increases "option value", i.e. improves the business case by creating wider range of potential applications for a technology; 2) Control of IP provides aditional long term benefits including the ability to influence an industry at a wider scale


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16 Roland Berger Focus – High Value Design16 Roland Berger Focus – High Value Design

A need for HVD in the UKOver the long-term, the aerospace sector generally grows faster than the wider economy (between 1.5-1.7x GDP). Our indicators show that in the next 20 years, 33,000 new commercial aircraft worth GBP 5.5 trillion will be manufactured to meet consumer demand1. Further, as per Roland Berger's annual Management Issues Radar 2017, 92% of leaders are expecting global defence spending to increase in the next five years2.


Most aerospace companies have a global purview and can migrate their investments, offices, and workforce to other countries to capitalise on these trends. If the challenges faced by the UK continue, the export revenues, jobs, and skills generated in the UK today are at serious risk. The country would risk losing the wider positive externalities of the aerospace industry, including: A highly skilled work-force, a bedrock of intellectual property which can generate long-term returns, technology spill-overs that increase competitiveness across industries and the direct contribu-tion to the country's defence and security.

Both the private and public sector have made a start in ad-dressing the UK’s R&D gap – most notably with Govern-ment’s industrial strategy and stated intent to raise R&D funding to 3% of GDP by 2020 (though this is still behind some of the UK’s closest international peers). It remains to be seen whether the initiatives that emerge from this R&D uplift target the kind of vision, ambition and change the country truly needs. Recent announcements of the Faraday challenge, which focuses mainly on automotive electrifica-tion and complements existing focused measures such as the Advanced Propulsion Centre, are a positive sign of UK determination to build a thriving automotive industry.

Past attempts by Government have tended to be too broad, lacking the focus to “move the needle” in priority areas. Con-sultation on the industrial strategy, through a green paper published by Government in April 2017, highlights important topics – but the critical question with this process is whether Government is prepared to make the difficult trade-offs in-herent in a focused and purposeful strategy.

At the same time, the UK private sector has remained fo-cused on incremental technologies and innovation, and is not yet embracing the sort of disruptive change being seen elsewhere around the world. The possible reasons for this are difficult to pin down – but risk appetite, business eco-system and culture of innovation are likely to be factors holding the UK back. Industrial strategy can change this, investing to de-risk and accelerate technology, and build-ing institutions and clusters that strengthen ecosystems and lead a cultural change. Until this happens, the UK will struggle to achieve global relevance, or the scale required to re-enliven industry, increase exports and upgrade skills.

Given these challenges, what can the UK do differently to capitalise on the global potential of aerospace, and its other advanced industries? A focused effort on High Value De-sign could make the difference.

A significant well-funded drive towards invigorating HVD capabilities – delivered through a dedicated High Value De-sign Organisation (HVDO) – could help reverse the negative trends faced by the UK, and position the country well for the future:

ECONOMIC GROWTHHigh-value technologies, underpinned by an effective de-sign, create economic value for the end-customer and through the supply chain; new aerospace technologies, if developed in the UK, could potentially boost UK exports and GDP.

REGAINING BRITISH OWNERSHIPAn effective HVDO will pull through technologies and prod-ucts sourced directly out of the UK, allowing the UK to cap-ture more value out of its aerospace activities.

DEVELOPING A ROBUST LOCAL SUPPLY CHAINBrand new technological development in the UK could ex-pand the country's base of companies; UK-based incum-bents which currently buy products and services from abroad would be able to leverage new local entrants, thereby strengthening the local supply chain.

SKILLS BOOSTPublicly visible successes created by a new dramatic pro-gramme of activity, bolstered by an effective HVDO, would lead a new culture of innovation in the country, inspiring the next generation of engineers; over time, this could help to ad-dress the engineering skills gap by bringing in younger talent.

MAKING THE MOST OF BREXITIncreasing innovation in the UK, developing a local supply chain and creating exportable products could position the country to mitigate the risks created by Brexit; the current weakness of the Pound Sterling would also allow locally produced products to be more competitive abroad.

1 ATI; 2 According to Roland Berger's 2017 survey of 220 senior leaders in the aerospace industry, spanning 100 companies in 15 countries

Section 4:

How it can be doneSetting up a dedicated institution for HVD.



Through primary research, Roland Berger examined 11 advanced engineering institutions around the world to understand the underlying drivers behind their suc-cess1. While some of these organisations, such as NASA and Fraunhofer, conduct design work themselves, all of them work with a wide range of external bodies to work jointly and co-ordinate others' work. DThere are a number of important contextual and cul-tural differences between these organisations. Our re-search identified 6 dimensions to consider:

Mission and statutesA defined vision and mission to achieve the intended impact, set a clear yet ambitious target and route to achieving it – ideally one that is powerful enough to in-spire employees, tax payers and the next generation of students, alike.

InterfacesA positioning and active network in between all of its relevant stakeholders – governments, industry incum-bents, start-ups, investors, academia and potentially other institutions – that facilitates successful delivery of the mission.

ResourcingAn effective method for both fundraising and project re-sourcing. Funds should originate from the same stakehold-ers which wish to influence the direction of the institution. At the same time, project funding should ideally be allo-cated to the individuals with the best knowledge for a given task, whether internal or external to the institution.

Operating modelThe management of the key workings of the organisa-

tion, from project evaluation and delivery to intellectual property management.

Organisation and governanceAn organisation and governance structure that provides the required flexibility to keep pace with fast innovation cycles and the necessary stability to support long run-ning and complex innovations.

ImpactA defined set of KPIs to ensure that the mission is achieved and that all impacts generated by the institu-tion are being measured. Different institutions measure their impact along verticals particular to the achieve-ment of their own missions.

Each institution analysed demonstrated competencies along each of these above dimensions: A strong vision and mission to guide the work, a clear and established governance framework, a network of interfaces with a wide array of stakeholders, a structured funding scheme, a strong and effective operating model, and defined KPIs to measure the impact.In addition, the most successful organisations went a step further to generate the best outcomes. The follow-ing four success factors were found to be essential to consistently create value:

Operating at the global technological cutting edgeThe best organisations have a strong network and estab-lished processes to identify the global cutting edge be-fore others can do so – such as by working closely with leading research universities. For example, today's cut-ting edge in manufacturing can be characterised by In-dustry 4.02 , while in transportation it is electrification

1 Roland Berger analysed 11 institutions in six countries – USA, Germany, Singapore, France, the Netherlands, and India, considering a wide range of funding levels from EUR <1 million, to EUR 21.3 billion; 2 Industry 4.0 is defined as the digitalisation of manufacturing, or the Internet of Things


D: Advanced engineering organisations analysed in Roland Berger's study.Dedicated institutions and labs exist around the world in many shapes and sizes, with lessons for boosting HVD.


1) Estimated annual funding from latest publishing, plotted on log-scale

Founded

NASA US

Agency responsible for the civilian space programme, as well as aerospace research

NLR France

The main knowledge enterprise for aerospace technology in the Netherlands

Fraunhofer Germany

Europe's largest application-oriented research organisation (cross-industry)

ONERA France

The French national aerospace research centre

Bauhaus Luftfahrt Germany

A research institution that focuses on innovative aerospace technologies

DARPA US

US DoD agency responsible for development of emerging military technologies

A*STAR Singapore

An agency for science, technology and research focusing on mission-oriented research

IRT Saint Exupéry France

An aeronautics and space technology development centre

DLR Germany

A national aeronautics and space research centre, also addressing transport & security

DMDII US

An innovation platform focused on promoting the digitalisation of US manufacturing

NCAIR, IIT-Bombay India

A consortium of Indian companies and academia for aerospace research

1958

1961

1949

1946

2005

1958

1991

2012

1997

2014

2010

Funding [EUR m]1)

100,

000

10,0

00

1,000

100

1010.1

21,300

700

2,100

240

4

2,700

360

33

870

40

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Identify and fast-track the most impactful technologiesLeading organisations ensure that the projects se-lected for further work have dramatically impactful business cases, and satisfy all relevant stakeholders. Crucially, different ideas and projects may require dif-ferent delivery models. E

Finding the best team and capabilitiesLeading organisations must work to bring together a strong combination of human resource (people with the relevant skills, technical knowledge and managerial expe-rience) and assets (for research, validation, manufactur-ing, etc). This may change from project to project, involv-ing resources and assets from within or external to the organisation. If there are gaps, the organisation must act on its role to fill them by directly or indirectly providing design expertise and resources, facilities, mentorship, val-idation (both technical and commercial), etc.

Aligning partner incentives with funding and IPThe best organisations take on responsibility for ensuring that all partners (including investors, the government, universities and industry partners) are aligned both con-tractually and in spirit regarding the project goals, fund-ing, intellectual property and the capturing of long-term benefits of the work. Such alignment is both legal and contractual in nature and is essential to prevent conflicts of interest and unnecessary project delays and/or failures.

Think:Act BookletAircraft Electrical Propulsion The Next Chapter of Aviation?

There have been consistent upward trends in the electrification of aircraft systems, research into Electrical Propulsion, and fundamentally, a greater investment of money and business effort into electric aircraft. Electrification not only offers the capability to reduce emissions, but could also unlock the potential for more energy-efficient aircraft and brand new architectures and use cases. Electrification could also revolutionise the supply base in the aerospace industry, posing an existential threat to incumbent suppliers and facilitating access for new entrants.

It is not a question of if, but when

Aircraft Electrical Propulsion – The Next Chapter of Aviation?

2017

September

navigating complexity


E: Potential High Value Design delivery models.Different delivery models have varying levels of involvement from the co-ordinating institution, and a trade-off between number and size of projects.


Venture Capital Competition Industry Consortium Tiger TeamFunding multiple projects to run broadly independently. Highly challenging business milestones to achieve, generally linked to market performance. Incentivises projects to get to market to demonstrate product-market fit and generate revenues as quickly as possible.

Setting a technological goal, and allowing multiple entrants to independently develop the technology by a set deadline. Generally incentivised by a significant prize. All competition entrants generally also self-fund their developments (either directly or with sponsors).

Bringing together multiple industry players to work together to deliver project – In- house experts and secondees from industry. Funding for the project is at a consortium level – Industry consortium members contribute part of the funding.

Bringing together a strong group of individuals from different disciplines to work to-gether – In-house experts and secondees from industry. Generally dedicated work space and development facilities. Tiger Team has complete control of budget.

Works best when the likelihood of failure of individual projects is high, but enough of them will likely succeed to justify the total investment.

Works best when the end goal is ultimately expected to be achievable, but the method to achieving it is unknown.

Works best when a wide variety of complex skillsets are required which no one group has.

Works best when a wide variety of complex skillsets are required, and co-location is necessary as costs or time associated with cross-discipline interactions are too high.

Co-ordination of external parties Conducting design work in-house

Number of projects

Size of projects


Rebuilding UK Aerospace The time is now for the UK to re-enliven its aerospace sector.

The 2020s are expected to see a ramp up in global aero-space production with new commercial aircraft platforms and increased defence spending. This represents both an opportunity and a threat. If the UK can gear up for the chal-lenge and position itself as a strong destination for High Value Design in aerospace, the 2020s could be a decade of technological growth. If not, the UK could stand to lose its high value aerospace competencies once and for all.

To capitalise on this potential, the UK should set up a new High Value Design Organisation (HVDO) dedicated to deliv-ering world-changing aerospace innovations. The UK has a number of enablers it can draw upon immediately:

The HVDO can begin by leveraging these enablers and the nation's foremost aerospace experts' knowledge to source the best ideas from industry, start-ups and research institutes.

The HVDO should then shape ambitious projects with stakeholders, deciding the most appropriate delivery mod-

el(s). Through this process, the HVDO should be as public as possible, creating a buzz and aura to inspire the country, while embracing public pressure and remaining focused on delivering its mission.

As employees and industry secondees filter in and out of the HVDO over time, capabilities and skills will be shared with other advanced engineering sectors, which will boost productivity and create a competitive edge across the industrial economy.

In this way, a UK-based HVDO could be a major boost for the country. The HVDO can maximise its chances of suc-cess by operating at the global technological cutting edge, identifying and fast-tracking the most impactful technolo-gies, developing the best team and capabilities, and align-ing partner incentives with funding and IP.

An A&D-focused challenge can create positive externalities on sectors across advanced engineering.

A substantial research, start-up and higher education ecosystem

An existing engineering skills and knowledge base

Strong engineering incumbents, supported by a num-ber of capable design consultancies

Existing organisations for technology development, including High Value Manufacturing Catapults and Aerospace Technology Institute

A strong financial market centred in London

Section 5:

The time to decide is nowSecuring long-term competitiveness.



High Value Design is a core competency of any advanced nation. The ability to inspire and incubate the develop-ment of world-changing technologies – and critically their commercial application – is an enabler of long-term economic superiority. By contrast, the inability to do this is a recipe for long-term stagnation and decline. An ecosystem of universities, research organisations, in-dustrial bodies, start-ups, investors, and regulators, bol-stered by a dedicated institution focused on HVD to or-chestrate the design and delivery of disruptive systems and design methods, is essential to consistently create new value adding technologies.But why is it necessary for countries to focus on techno-logical innovation? Is it not possible for developed econ-omies to focus on services and outsource the manufac-turing work to other geographies? Not over the long term. Service sector industries are best at redistributing wealth and improving the flow of wealth through an economy – but fundamental wealth creation must have some basis in new and unique solutions which require new technological advancement. Through the knock-on impacts on increased exports, direct and indirect job creation, and increased long-term labour productivity, this can generate a multiplier effect of wealth creation throughout the economy.Though why can technological incumbents not do it themselves? Do they not already invest heavily in R&D, and are they not motivated by profits and have the skills in-house? No, because incumbents cannot con-sistently disrupt themselves. Incumbents, by their na-ture, are primarily interested in their existing prof-it-generating technologies, so their R&D investments generally target incremental improvements on core products, rather than brand new technologies which may cannibalise their existing business. Thus the solu-tion must necessarily also involve start-ups, research universities and other organisations that do not have this conflict of interest. The risk and return associated

with technology and innovation also constrains a firm’s private funded R&D, and ignores the economic and so-cial impact that accrue beyond the firm. By investing alongside industry, Government can change the risk arithmetic and increase overall levels of R&D that boost the wider economy. In today's world of increasing uncertainty, business lead-ers, entrepreneurs and political leaders alike must de-velop a healthy fear of what their country's future may look like if industry and with it manufacturing skills and engineering know-how vanished completely – but also aspire to capture the incredible potential that still exists if action is taken now.

Grow, stagnate, or decline: The time to decide is now.


AUTHORS

Jens Nackmayr Partner+44 20 [email protected]

James McMickingChief Strategy OfficerAerospace Technology [email protected]

Nikhil SachdevaSenior Consultant+44 20 [email protected]

Stephan EffertConsultant+44 20 [email protected]

ROLAND BERGER CONDUCTED THIS INTERNATIONAL BEST-PRACTICE STUDY ON BEHALF OF THE AEROSPACE TECHNOLOGY INSTITUTE

The Aerospace Technology Institute (ATI) is an independent not-for-profit company at the heart of aerospace research and development in the UK whose mission is to raise UK ambitions to deliver the best technology and maximise the UK’s full economic potential by providing objective technical and strategic insight, maintaining a UK aerospace technology strategy.

As one result of our joint project on HVD last year, ATI is considering the creation of a cross-sector "British HVD institution" to bundle and co-ordinate the efforts and to manage the inputs and outputs from related research and development activities for complex engineered products, with aerospace as the lead industry.

In order to design a state-of-the-art operating model for such an institution, ATI had asked Roland Berger to conduct an international best-practice study to understand in more detail how other countries have organised similar tasks.

This publication has been prepared for general guidance only. The reader should not act according to any information provided in this publication without receiving specific professional advice. Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication.

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2016

Novem

ber

BEYOND MAINSTREAM

THINK ACT

High Value Design A strategic capability in the global competition for the next generation of aircraft

A comprehensive guide to reinventing companies

Mastering the Transformation Journey

2015

April

2016

How the fourth industrial revolution is reshuffling the economic, social and industrial model

The Industrie 4.0 transition quantified

THINK ACTBEYOND MAINSTREAM

THINK ACTBEYOND MAINSTREAM

How to manoeuvre in times of technology-driven disruption

Operations Strategy

April

2016

Think:Act BookletHigh Value Design(2016)

Think:Act BookletThe Industrie 4.0 transition quantified (2016)

The British aerospace industry has made numerous important contribu-tions to the history of aircraft and was solely, or jointly, responsible for the development and production of landmark projects.

There is more to Industrie 4.0 than its technical dimension. Technologies like factory virtualisation, smart and intelligent machines, the IoT, the cyber production system, 3D technology, cobots determine the debate.

Think:Act BookletOperations Strategy(2016)

Over the last 300 years, new technolo-gies and processes have paved the way for disruptive products and break-through innovations.

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