Hedging disruption in aerospace and defense

Several lessons can be learned from disruptions in technology markets

Nokia did not transition to smartphones successfully because it failed to see how the marriage of touchscreen technology and software-first operating systems being developed by Apple and Android would impact its business. Digital Equipment Corporation was vertically integrated and optimized for the minicomputer market and did not develop a strategy for the personal computer in time.

The aerospace and defense (A&D) industry has its own case studies of disruption that predate the oft-cited technology sector ones. Medford Shipbuilding did not transition from wooden sail ships to steam. After World War II, Curtiss Wright – an aviation pioneer – de-prioritized jet propulsion and continued to focus on reciprocating engines for its commercial and defense aircraft.

Other examples abound.

And yet, disruption, which was once considered an affliction of other sectors, is coming quickly to A&D

This is occurring as a result of the sector’s level of consolidation and regulation which has impaired the ability to adopt delivery and business models to the accelerated pace of technological change and rapid changes in customer behavior.

Mapping disruption risk across 100+ business lines

Our Client, an A&D original equipment manufacturer (OEM) with a highly diverse portfolio of platforms and subsystems across several divisions, wanted to understand its true exposure to disruption using Renaissance's proprietary Disruption Indicators & Warning (DIW) portfolio assessment tool.

Renaissance assessed more than 100 lines of business across more than 40 market segment archetypes to identify the level of exposure to change in operating concepts, budget, technology, product alternatives, business model, margin profile, and more. This revealed a prioritized list of markets, business lines, and specific products that are either insulated from market disruption, could be exposed in the future, or already undergoing change.

The analysis helped reveal that disruption is a market-level, not business-level phenomenon. Change cannot be avoided; businesses must identify change and choose to adapt or become victims of disruption.

Understanding exposures across a business portfolio and to what degree helps inform mitigation strategies

Rather than simply identifying disruption risks, Renaissance helped the client successfully navigate market-level sea changes. The methodology was based on extensive case studies built through research and interviews with companies that overcame disruption in commercial technology and A&D sectors and identified key business behaviors and client-specific portfolio actions to limit or overcome exposure over time. The crux of Renaissance’s findings and approach highlighted that disruption occurs gradually and then suddenly; by recognizing this, Renaissance helps clients limit surprise and prepare a hedge strategy in time.