Aerospace & defenseDecember 3, 2019

How to Measure Aviation Innovation

Is there a methodology for assessing the innovation capacity of the aerospace…
Avatar Tony Velocci

Is there a methodology for assessing the innovation capacity of the aerospace industry, and by extension identify the most innovative companies? And does it even matter?

These are questions that have long stymied many industry observers, but only recently have taken on increased relevance as customers increase pressure on equipment suppliers to speed up the delivery of innovative products to the market.

‘Higher, faster, farther’ has been the mantra among aerospace/aviation pioneers testing the limits of aircraft design and development since the birth of the aerospace industry more than a century ago. “In the next 50 years, it will be better, quicker, smarter,” said Jono Anderson, partner, Growth and Strategy, at consultancy KPMG.

In mid-2019, it joined with Aviation Week, the largest information provider to aerospace professionals, to take measure of the industry’s innovation capacity. The study also delved deeply into two parts of the broad innovation ecosystem: corporate-funded research and development and academically funded R&D.

The research project looked at 77 companies worldwide, 32 of which were outside the U.S. Data from the National Science Foundation and U.S. Patent Office informed the study, and a survey of one-fourth of the Accreditation Board of Engineering and Technology-accredited universities (48 in all) was conducted. The endeavor wrapped up very recently.

While the study yielded no standardized tool for assessing a company’s innovation capacity, it did produce insights that should be of interest to all players. Among them:

  • Aerospace companies still do not track revenue tied to innovation in a consistent manner, despite the ongoing cry from financial analysts to keep the innovation pipeline full and moving toward profit-generating products. However, the study remains a work in process, and the AW/KPMG team will continue to try to establish whether a reliable, standardized methodology can be developed for measuring a company’s innovation capabilities.
  • Only one CEO’s compensation package included financial incentives to stimulate the commercialization of new and/or more innovative products.
  • The 77 companies participating in the study spend, on average, about 4 percent of their revenues on research and development, with lower-tier players growing their R&D investment faster than the prime contractors.
  • Large companies (revenues of more than $30 billion) last year spent about 75 percent more on R&D than companies with revenues of $10 to 30 billion.
  • In 2010, all companies in the study invested more in the highest range than in any of the previous five years.
  • When looking at the per-employee investment in R&D, satellite manufacturers were the highest spenders in 2018, with an average of $25,922 per employee.
  • Aerospace as a whole is targeting their R&D spending on the right technologies, according to Jim Adams, partner and leader of KPMG’s aerospace/defense consulting practice. These include, among others: autonomy, artificial intelligence (AI), analytics, additive manufacturing, advanced materials and structures, augmented reality, and Big Data.

Intuitively, it would seem that all companies would consider a tool for gauging innovation capacity vitally important, both tactically and strategically. But that may not be the case. If it were, chances are that manufacturers—perhaps with the help of outside experts on how to excel and grow their businesses—would have developed one by now.

Here’s the rub: Product innovation is the lifeblood of companies, and If they aren’t innovating fast enough then they’re living off of legacy products that inevitably will become vulnerable to being upstaged by hungrier rivals, with possible loss of market share and an erosion in overall competitiveness. Without metrics, how are manufacturers supposed to know the optimum level of company-funded R&D investment and innovation to ensure their long-term success? And what’s the right balance between basic and applied R&D? Moreover, isn’t the alternative—operating with no robust measure of innovation—tantamount to management teams “flying by the seat of their pants?”

Editor:  Learn more about Product-Ready Innovation in Aerospace & Defense

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