Aerospace B2B Initiatives Lag Behind as Rift Between Senior and Middle Managers Slows Implementation.

Business/Technology Editors

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NEW YORK--(BUSINESS WIRE)--Nov. 16, 2000

PRTM/Aviation Week & Space Technology Study Finds European Aerospace

Companies Far Behind US Counterparts in E-Commerce Integration

The aerospace and defense industry remains very cautious in developing B2B strategies, with European companies putting the lowest priority on Internet strategies, according to a study by management consulting firm PRTM in association with Aviation Week & Space Technology. Results from the study appear in the November 13 issue of Aviation Week & Space Technology, in an article written by senior information technology editor Michael Mecham, accessible at www.AviationNow.com.

Senior managers in the aerospace industry share more optimistic projections about how successful e-business initiatives will be compared to mid-level managers, according to the study. High expectations for e-business are held by 22% of the most senior company officials compared with only 8% of mid-level managers and non-managers.

"For aerospace manufacturers, the e-business revolution is still pretty new. They've heard the hype but are awaiting the results. Their view of what might actually be achieved is colored by how far up the food chain they are. Senior corporate managers, who are leading the revolution, hold the most confidence. Those at the mid-level feel a bit overwhelmed. They are skeptical of grand visions about B2B implementation," reports AW&ST's Mecham.

"Earlier this year when aerospace B2B exchanges began emerging, the industry's stock prices were at the bottom of the trough. Anxious to generate some excitement in the capital markets, aerospace company CEOs and CFOs were pointing to their B2B plans," observes Charles Leader, a PRTM director and the study lead. "Aerospace companies wanted to say to the markets `we own X percent of a dotcom company and our stock should be reflected in this' but they've found out that the market doesn't care, so they're not talking about it as much anymore. Yet, aerospace industry players still remain relatively conservative and controlling toward their B2B initiatives compared to other technology-intensive industries."

Study responses show the aerospace and defense sector fractured along three primary fault lines: between geographies, between senior and mid-level management, and between prime contractors and their suppliers. The primes are much more confident that e-business will strengthen the supply chain; their suppliers are more anxious that it will weaken the relationships they have worked to achieve.

The PRTM/Aviation Week & Space Technology study, titled "E-Business Implementation: Opportunities and Anxieties," uncovers the attitudes and expectations of senior managers who are making the industry's e-business policy and the mid-level managers who must carry it out. The survey found that financial considerations are also driving the industry's e-business initiatives: Specifically, 68% of respondents say the primary backing comes from corporate management, compared to only 17% from business unit managers.

"I was struck by how clearly the A&D sector's drive to use the Internet for B2B transactions is coming from corporate management. The survey reveals that the e-biz senior managers vision floats at the side or above whatever else the corporation is doing," observes PRTM's Charles Leader. "When you talk to those in the trenches, you get more pragmatic responses, such as `I had to give X million dollars to the project and didn't get any relief from my profit goals and won't see a return for a couple of years.'"

Low Savings, Access to New Markets Expected From B2B

Participants were asked whether using the Internet to increase corporate access to the buy-and-sell side of the market would show up on the bottom line. According to the study results, while most executives are confident that their e-business initiatives will be successful, they expect e-business savings to account for less than 1% of their gross revenues.

The advantages, instead, include reaching beyond the existing supplier base: An overwhelming number of respondents (84%) say they expect to find new sources of supply and 64% expect to locate new customers. Forty percent expect B2B exchanges to encourage departed suppliers to re-enter aerospace. Specifically, the majority of non-primes (64%) expect to reap expanded markets due to B2B exchanges, and 56% expect the net to open up opportunities beyond the sector. In contrast, only 33% of primes expect their business to expand because of the Internet.

Europeans Lack Confidence in Success of B2B Initiatives

The majority of North American respondents (60%) say they are motivated by a belief that in the future all of the industry's business will be conducted over the Internet, but only 29% of European respondents agree. In addition, only 20% of North American respondents expect B2B enterprises to require major changes to their company infrastructure, compared to 50% of European respondents.

Europeans are far more conservative about what they will put on a public exchange, with only 6% willing to host invoicing and production tracking, 12% pricing, and 29% warranty tracking. Correspondingly, 29% of North Americans are ready to host invoicing on the web, 38% production tracking, 21% pricing, and 44% warranty tracking.

"The findings may reflect the fact that North Americans seem more accustomed to using the Internet while their European counterparts seem to be working at a slower B2B pace," reports AW&ST's Mecham. "One indication is that the majority of North American respondents have involved customers in their Internet planning efforts, while few Europeans have."

"Given their current B2B skepticism, Europeans will find it increasingly difficult to sell to North American companies, because they won't be part of the same buy-sell side. This outcome will be especially dramatic in the commercial area since major players source parts from around the world," notes PRTM's Charles Leader. "While Europeans may learn about projects when they come to the RFP stage, since many RFPs will be Internet-based in the future, Europeans may find themselves at a disadvantage. Most likely a schism will result within Europe among the companies that will become net enabled, and those that won't."

Barriers

Overall, respondents saw legacy system integration, security, cost, and corporate culture as the most significant barriers to e-business.

The PRTM/Aviation Week & Space Technology study involves 62 participants from 48 companies, with revenues ranging from $100,000 to $40 billion. The study polled participants from around the world, with the heaviest concentration in North America (69%) and Europe (26%). Asia and South America accounted for the remainder of responses. The breakout of participants by industrial focus includes defense (38%), airlines (27%), and commercial (33%).

PRTM (Pittiglio Rabin Todd & McGrath) is the leading management consultancy to technology-intensive industry. PRTM helps companies structure their strategies, their organizations, and their core business processes for competitiveness, profitability, and growth, and gets them to eClass(R) performance. Since its inception in 1976, the firm has worked with over 1,100 companies in over 5,000 engagements worldwide. PRTM is internationally recognized for its leading methodologies and frameworks for continuous improvement, including PACE(R) (Product And Cycle-time Excellence(R)), Supply Chain Operations Reference-model(R) (SCOR(R)), and Channel Opportunity Analysis(R). PRTM has an alliance with Integrated Development Enterprise, Inc. (www.ide.com) to help companies develop an end-to-end web-enabled product development process. PRTM operates 13 offices around the world. Visit PRTM's web site at www.prtm.com.

With nearly 50 products and services and an audience of some one million professionals and enthusiasts, the Aviation Week division of The McGraw-Hill Companies is the world's leading multimedia information provider to the aviation and aerospace market. The cornerstone of the Aviation Week portfolio is Aviation Week & Space Technology, the world's leading aviation and aerospace industry magazine, covering the commercial, military and space markets for more than 440,000 readers in 130 countries. www.AviationNow.com expands the company's extensive Web presence by delivering the most comprehensive real-time news, professional information and e-business Internet portal in the global aviation/aerospace industry.

Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a global information services provider serving the financial services, education and business information markets through leading brands such as Standard & Poor's, Business Week and McGraw-Hill Education. The corporation has more than 400 offices in 32 countries. Sales in 1999 were $4.0 billion. Additional information is available at www.mcgraw-hill.com.

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