The UK aerospace industry currently has about 17% of the global market and aims to maintain that share to 2030 as the global market expands substantially. In 2012 the global aerospace and defence industry increased its revenues by over $7bn. Sales from the production of commercial aircraft increased by over $13bn. The defence segment, on the other hand, contracted by about 1% on top of a 3% contraction in 2011. Earnings in the defence segment were broadly level while for the commercial sector earnings increased by nearly 30%. Despite the recent differences in growth rates, the global aerospace defence sector market remains larger than the commercial sector market for the time being.

The US is the top spender on defence aerospace globally and is likely to keep that position for some while. In January 2012 the US published a defence strategy review, Sustaining US Global Leadership. The strategy included a commitment to maintain an adequate industrial base with appropriate investment in science and technology. The US strategy aims to balance reductions necessitated by resource pressures with the need to sustain key streams of innovation with potential for significant long-term payoffs.

Overall the proposed reductions in US programmes plus the strategic military shifts are expected to bring increased competition for top US defence contractors.  The US military aircraft sector fell 2.4 % over the past year and is projected to sink more than 10% in 2013. Continued growth will come from exports of civil aircraft, engines and parts which represent just under 90% of all US aerospace exports – a segment which grew by 12% in 2012.

In the UK in 2012 the House of Commons Public Administration Select Committee criticised the lack of strategic capability in UK policy making in general  amidst a debate on the relationship between UK foreign policy goals and defence and industrial capability. DefenceSynergia put the case to the Select Committee in the following terms:

‘There is a way forward being proposed by those most closely associated with the economics of the defence industrial complex. They cogently argue that an articulated Industrial/Defence Strategy—part of a wider UK Grand Strategy—should form part of the mix that ensures the future security of the United Kingdom by promoting prosperity through a vibrant defence industrial complex that is able to directly support the wider UK economic recovery. This thesis postulates that if the British economy is to recover more rapidly than currently forecast and the Armed Forces are to be structured and equipped to meet the requirements of Future force 2020 then Government investment in the various indigenous defence support industries is not only vital to help kick-start economic recovery but to ensure British strategic security’.

In December 2012 the UK Defence Growth Partnership was launched. The Partnership will look at how links between civil and military technologies can be better exploited. It will also look at the skills required for the sector and how there can be more flexibility in the workforce between the defence sector and other advanced manufacturing sectors.

The Minister for Defence Equipment, Support and Technology Philip Dunne said at the launch of the Partnership:“The MOD has active engagement with the defence industry which faces testing times as defence budgets come under pressure across the world. It is important for Government and business to understand each other and work together. The Defence Growth Partnership will help us to confront these challenges and build on existing relationships and industry successes to date – helping the UK defence industry maintain its position as the world’s second largest exporter of new Defence products and services.”

BIS estimate that the UK’s defence industry has more than £22 billion of annual revenue of which £5.4 billion is exported and directly employs more than 107,000 people.  The new Defence Growth Partnership builds on the Aerospace Growth Partnership model which is the focus for the strategic relationship between the Government and the aerospace sector. BIS Minister, Michael Fallon, co-chairs the Partnership with Steve Wadey, who is UK Managing Director of missile systems company MBDA, a multi-national group with over 10,000 employees in the United Kingdom, France, Italy, Germany, Spain and the United States.

The UK sector strategy for aerospace is expected to be published early in 2013 in the first tranche of UK sector strategies planned by the Coalition. The Government has set out the principles for the new sector strategies. They are to be developed for business and should not just concentrate on Whitehall policy levers. They should be co-created with business with industry taking a central role in shaping development and long-term delivery. They should be based on cross-government consultation and buy-in.

Each strategy must set out a shared long term vision – where we are now, where we want to be, and how we will get there with a full SWOT analysis as well as horizon scanning. The private sector should lead both development and delivery. There should be explicit and specific pledges from government and business about what will be done to deliver each strategy .

Technology will be a key theme of the strategies which will contain a long term plan for investment in innovation plus support for emerging disruptive technologies such as robotics and autonomous systems. On skills, the emphasis will be on giving firms more direct control of vocational skills spend.

Global competitiveness in aerospace is reviewed by the McKinsey Global Institute (MGI) in the major report it published in November 2012 entitled, Manufacturing the Future: The next era in global growth and innovation. MGI identify aerospace as one of the sectors where global skills shortages are already appearing despite the limited current global economic growth. It is also a sector where the pace of change in development, process and production technologies is particularly acute; for example the cost of automation relative to labour in advanced economies has fallen by up to a half since 1990.

MGI segment global manufacturing into five groups. Transport equipment(including both automotive and aerospace), machinery and chemicals (including pharmaceutical) are grouped together under the heading, ‘Global innovation for local markets’. Key success factors in these industries include the ability to innovate and the quality of the supply chain.

In the case of aerospace and defence currently more than 90% of production capacity is in the US, Canada and Europe. More than half of airline deliveries in the next 20 years are expected to be to emerging markets. Nonetheless MGI estimate that by 2020, only 10% of global aerospace production will be located in China. The extent to which an advanced country will maintain its share of global aerospace production will depend how effectively it leverages innovation, skills, technology and upgrades the supply chain relative to other advanced countries.

Illustrating many of the factors identified by MGI, a recent supply chain development  in the US involves Boeing working with BMW to research how to automate the production of ultra-light carbon fibre and how best to recycle the material. The research is targeting cheaper production of carbon fibre. This is the first collaboration between the two companies and follows the opening of BMW’s new carbon fibre plant in Washington, USA, where Boeing also has facilities. The plant produces carbon fibre for the automotive group’s new electric car being released in late 2013, the BMW i3, and the BMW i8 that will follow, the company’s first vehicles with a carbon passenger cell. As part of the collaboration agreement, Boeing and BMW will share carbon fibre manufacturing process simulations and ideas for manufacturing automation.

Industry Forum engineers have plenty of experience of transferring leading edge practice between aerospace and automotive supply chains. We look forward to studying the forthcoming aerospace sector strategy to identify areas where we can support the national approach.

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In July 2012, Nesta, the UK’s innovation foundation, published a report, Our Frugal Future: Lessons from India’s Innovation System. Frugal Innovation (FI) is a response to limitations in resources, whether financial, material or institutional which turns those constraints into an advantage. Through minimising the use of resources in development, production and delivery, or by leveraging them in new ways, Frugal Innovation results in dramatically lower-cost products and services. The low cost Tata Nano is frequently cited as the exemplar of this approach.

Although interest in FI has grown this year, the term frugal has quite a history. The expression Frugal Engineering  was coined by Carlos Ghosn, the joint chief of Renault and Nissan, who stated in 2006, “Frugal Engineering is achieving more with fewer resources.”  Frugal Engineering has developed into the science of breaking up complex engineering processes into basic components and then re-building each component in the most economical manner. The end result is a simpler, more robust and easier to handle final process. It also results in a much cheaper final product which does the same job qualitatively and quantitatively as a more expensive complexly engineered product.

The Dacia Logan, the low cost car which is currently made in Romania, Brazil, Colombia, India, Iran, Morocco, Russia and South Africa, is an example of the frugal approach. It was started by Ghosn’s predecessor, Louis Schweitzer and developed at the Renault Technical Centre near Paris via a project which started in 1999.

FI has become strongly associated with the Indian innovation system as the recent Nesta publication suggests. The Hindi slang term ‘Jugaad’ has become the label for a particular approach to FI. Jugaad is also a colloquial Hindi word that can mean an innovative fix or a simple work-around sometimes pejoratively used for solutions that bend rules or a person who can solve a complicated issue. It is often used to signify creativity to make existing things work or to create new things with meagre resources.

This year three leading Indian researchers,  Navi Radjou, Jaideep Prabhu and Simone Ahuja  published a book about Jugaad which analyses this approach into six fundamental principles.  In October 2012 these three authors published a Harvard Business Review blog encouraging CEOs in Western majors to take up FI as an important tool in addressing current global market conditions.

This looks likely to provoke an interesting debate. Capgemini’s Global Chief Technology Officer, Andy Mulholland began to explore the relationship between Jugaad and Lean in an article published in January 2010. He commented, ‘Every CIO I speak to recognises that there is a lot of Jugaad going on across their business. Readily available virtual machines or platforms, paid for on a per-use basis, have provided increasingly technology-literate end users with the ability to do it. So is this classic Jugaad? I reckon so. It accomplishes the immediate objective, but ignores the bigger impact that such improvisation can bring.’

He contrasts this phenomenon which clearly concerns him with Lean Software Development which marries the principles of Lean Manufacturing with those of Agile Development. Requirements must be scrutinised to manage out all possible sources of waste. Mulholland suggests that the Lean principle of empowering people matches the FI approach of putting the power to solve problems in the hands of those most closely involved. Mulholland concludes, ‘Adding Lean as the bridge from Jugaad to Agile may be the answer.’

The collaborative approach to Jugaad is developed by Rajnish Tiwari and Cornelius Herstatt from the Hamburg Technical University in their article, Frugal Innovation: A Global Networks’ Perspective. They consider the links between Lean, Disruptive Innovation and Jugaad. The goal in FI in their view is the development of innovative products and services that “seek to minimize the use of material and financial resources in the complete value chain (development, manufacturing, distribution, consumption and disposal) with the objective of reducing the cost of ownership while fulfilling or even exceeding certain pre-defined criteria of acceptable quality standards”.

Looking at the overlap between Lean and FI, they observe, ‘One of the core elements of Lean Innovation lies in defining, structuring and prioritizing “values” for specific innovation projects. While frugal innovations undoubtedly seek to rationalize the innovation value chain…. the end outcome of a lean innovation project need not necessarily be a low-cost product.  It takes much more than efficient management of the innovation process to come up with a successful disruptive, game changing innovation.’

The Lean concept of the value chain is likely to emerge as an essential tool for the frugal approach. Lean holds that value always exists in the eye of the customer. With frugal projects this remains true but the boundaries of who the customer might be are extended, usually so that newer poorer customers in expanding emerging markets are brought into the aims of the project.  Within a global organisation the best understanding of the values of the target segment for a frugal project may well be well away far from the technical HQ –  near the bottom of the organisation. The most disruptive innovations may well come from the front line, the part of the organisation that is closest to the customer.

Developing this thought, Bernhard Doll observes that ‘designing and delivering “Frugal Innovation” requires a certain skill set, which is not quite common in many R&D departments of companies across Europe. The starting point is to really understand the customer’s job a new product or service should try to get done. Doll recommends that observing the world, understanding contextual constraints, listening to customers to learn and finding the right blend of embedded value and reduced waste in the product or service to be designed, are all key activities in the “frugal” innovation process.

He explains that ‘a new (human) work culture is required to successfully design “Frugal Innovation”. Social prototyping, ethnography, realtime collaboration, co-creation, crowd-sourcing, running projects in 5 weeks rather than 5 months are just few examples of effective methods in this domain.’

Approached from this point of view, FI has similarities to another methodology which Nesta have developed and promoted this year – Radical Efficiency (RE) – which has been identified from a series of case studies.  RE has been developed in the UK public sector and aims to achieve a dramatic change in value for money in public services which face serious resource challenges. This is achieved by a ruthless focus on the core values of users and a dramatic reduction in cost mostly achieved through a complete overhaul of processes.

Savings are achieved by:

• Stopping services that have little or no impact
• Identifying and developing new resources especially through user energy and involvement
• Identifying and addressing core problems rather than simply tackling symptoms

The RE approach stresses the importance of building a multi-skilled team which may include ethnographers, a discipline which has also been of value in FI projects. To get a fresh perspective on the core challenge, a variety of tools may be used – horizon scanning, data mining and resource audits

The idea of improving the value stream is at the heart of most of the projects undertaken by Industry Forum. This core approach can be adapted to a wide variety of different contexts. IF Engineers are experts at generating improvement suggestions from right the way across an organisation, including from the basic operational level and customer-facing staff. We also have experience of applying these approaches on a global scale.

Further Information:

• enquires@if.wearecoal.work
• +44 (0)121 717 6600
• Download Article (pdf)