Incumbent companies in the aerospace and defense (A&D) sector are often known for their program-centric operating models, functional process discipline, and adherence to customer requirements. When it comes to technology talent, however, these strengths can also be weaknesses. As software and digital solutions become ever more pervasive, the core characteristics of the sector have become a barrier to attracting and retaining the technology talent it needs—which will ultimately inhibit performance.
The technical skills traditionally required at A&D companies focused on engineering and building hardware. Now, however, hardware is often secondary to, or on par with, the software that controls almost every aspect of its operations. The complexity of the software in aerospace systems is becoming increasingly exponential, too: it is almost doubling every four years—and has been for at least five decades.1 Over the past two years, this rebalancing accelerated as the impact of COVID-19 required companies to do more with less, and more quickly.
This growing importance of software is evident across the sector, and the Pentagon is taking notice. For example, the director of electronic warfare for the Office of the Secretary of Defense recently marveled at how quickly and effectively software fixes on Starlink terminals defeated hostile jamming attempts.2 These examples are increasing in frequency and bring with them an entirely new set of software talent needs in traditional hardware industries. In the game of catch-up, the biggest A&D companies, we estimate, currently hire two software engineers for every hardware engineer. But even then, amid significant outflows, few have secured all the talent they need (Exhibit 1).
In the battle for talent, many A&D companies face a range of challenges. These include unprecedented competition, the impact of recent attrition, and the need for a cultural reset that often goes against the grain. Across the sector, about 50,000 positions remain unfilled—and the overwhelming majority are in technology.3
To accelerate and sustain the recruitment of tech talent, companies need to think differently. That means looking beyond the simple mechanics of hiring, by formulating strategies that will create more fundamental change. In addition, these companies need to replace the linear career paths of the past with a more flexible and facilitating approach. Young tech-savvy employees want more latitude in their roles, as well as the ability to work remotely and choose their own hours. They care more about balance and purpose than previous generations did. And in a world of open-source coding and habitual transparency, they find the locked environments of security-focused organizations difficult to swallow.
It’s a truism of workplace transformations that the process is rarely simple. In fact, McKinsey research shows that less than a third of transformations across all sectors are successful, and our initial research suggests that the proportion is even lower in A&D. One reason is that effective transformations require deep-rooted change and new approaches to decision making and innovation. These current orthodoxies are hard to reconcile with the long-term planning embedded in most A&D organizational processes. A&D leaders therefore need to be bold and see talent recruitment as a lens they can use to modernize across the organization. To inform that journey, four key principles can make a difference:
1. Rethink the employee value proposition. Although the national-security mission matters greatly, there is a significant gap between supply and demand in talent. Our Great Attrition research, conducted in 2021, showed that as many as 46 percent of A&D employees were at least somewhat likely to leave their jobs in the next three to six months. A&D is losing talent primarily to other sectors and tech players—and at potentially unsustainable rates: technology talent outflows are twice the rate of inflows. This statistic alone is a material threat to the required hardware-to-software transition. In fact, leading A&D start-ups have succeeded in the product market by filling the software talent void that challenges the incumbents. To attract talent, these start-ups use a combined mission-first, software-centric proposition.
In response, traditional companies need to offer younger talent a fundamentally different employee value proposition, with an emphasis on purpose, flexibility, collaboration, and inclusion. There is a significant opportunity to embed this proposition in the end-to-end employee life cycle to focus recruitment and selection and guide development and engagement. It may also make the company more appealing to external talent.
2. Take a tailored approach to technology talent. The transition to a software-focused operating model brings with it a whole host of norms that are hard to reconcile with the culture and working environment of the average A&D player. Customers’ contractual requirements for open architectures, for example, require fail-fast, iterative, collaborative, and cross-functional mindsets. These are often absent in legacy hardware-centric environments. New, agile ways of working have no need for traditional hierarchies, so a fundamental culture change is required.
Companies also need to rethink their employment terms. Technology talent is significantly more expensive and notoriously more demanding than other categories. However, A&D companies pay entry-level software engineers only half as much as the technology giants do.4 In addition, they rely almost exclusively on base salaries rather than supplementing them with performance-based bonuses or stock awards. Moreover, benefits such as remote work are more difficult to organize in security-critical set-ups.
Although the mission may provide some compensation and a sense of purpose, the onus is on companies to find alternative ways of transforming their workplace culture and ways of working. This transformation may include providing access to technologies that make work easier, opportunities to learn at work, or higher total compensation (Exhibit 2). In short, companies need to redesign both the technology talent life cycle and their workplace culture. Tremendous strides are required in both to catch up with the competition.
3. Bring more people into the national-security mission. As the transition to software continues, A&D companies have a significant opportunity to enlarge the national-security tech talent pool. Employers can use the mission’s call to service to increase the number of people not only from historically represented populations but also from traditionally underrepresented ones. Prioritizing this opportunity has been shown to improve business performance: McKinsey’s Women in the Workplace 2021 report, coauthored with LeanIn.Org, finds that diverse profiles are underrepresented at all levels of North American engineering-, industrial-, and manufacturing-heavy organizations, including those in the A&D sector.
This is especially true at the entry level, where women are a third more underrepresented than they are in other sectors (Exhibit 3), and women of color make up just 10 percent of entry-level employees. Although the sector as a whole is making progress, A&D companies can accelerate the impact by celebrating their mission focus.
4. Improve retention by building a healthier organization. Across sectors, organizational health continues to be a predictor of performance. However, A&D players are playing catch-up (Exhibit 4): 64 percent of global companies have better organizational-health scores than the median A&D company does. That is a problem because healthy organizations outperform others as much as threefold in total shareholder returns.
At A&D companies, two-thirds of the behaviors that improve organizational health fall below the benchmark level. The shortfalls in role clarity and employee involvement are particularly notable. Our research shows that employees who report having a positive employee experience have 16 times the engagement level of employees with a negative one and that they are eight times more likely to want to stay at a company.5
The manager’s role in strengthening organizational health and the overall employee experience is paramount. Managers can help create inclusive, high-trust, and psychologically safe team environments by modeling behaviors that encourage individuality, value the inputs of all team members, and allow them to experiment without fear of negative consequences. A good first step to remediating the organizational-health challenges in A&D would be to understand the underlying mindsets that prevent employees from feeling that their roles are clear and that they are sufficiently involved with the organization.
As the A&D sector continues to be transformed, it will probably continue to face a substantial talent challenge. It must act now to stem unprecedented levels of attrition that could put performance at risk. Furthermore, the hardware-to-software transition is changing role requirements across the sector and requires a robust response. The experience of the COVID-19 pandemic shows that an organizationwide approach to disruption is possible—and in a very short time frame. By innovating their approach, leaders can embrace the challenge and meet the changing needs of the current workforce and the workforce of the future.