Aerospace and defense companies already know they face a yawning talent gap that has been building for years. It's a problem that is tough to solve, and easy to defer—but unless addressed soon, it will undermine industry growth. Based on current retirement, recruitment and attrition rates, the number of aerospace engineers in the U.S. alone will fall short of industry needs by 100,000 over the next several years. More than half of the industry's employees are now over 45. A dearth of hiring in the 1990s is showing up today as a huge shortage of seasoned veterans. Meanwhile, competition with other industries for technical talent, especially in software engineering, has intensified, just as a broader set of skills is required to meet a wider range of capabilities. According to our analysis at Bain & Co., over the next 2-4 years, A&D companies could fall, on average, 15% short of the engineers they will need to serve current programs and sustain growth.

Most A&D companies recognize this looming problem. Industry executives talk earnestly about steps they are taking to increase recruitment and retention, such as partnerships with schools and changes to benefits. But a gap this large cannot be filled solely by efforts to boost the supply of talent. Companies need to take a fresh look at how they are deploying scarce engineering resources to make the best use of their critical skills. In Bain's experience, such demand management has four major components that, if managed effectively, can create significant capacity for growth:

Increase engineering utilization. In the zeal to squeeze out overhead costs, some A&D companies burden their engineers with administrative responsibilities and other tasks that distract them from higher-value design work. Increasing development time for each engineer is the most direct approach for companies to expand their growth potential.

Boost operating efficiency. Look for ways to lower the number of hours engineers spend on each design task. Techniques that work best will differ from company to company, but several are worth trying. These include reducing engineering rework, especially downstream in the development cycle; reusing proven designs, particularly for standard or commodity parts; and using integrated tools and common design processes that allow for greater collaboration and 24-hr. design cycles. It takes time for the benefits of these efficiency measures to show up but, with persistence, the payoffs are substantial.

Get your talent-management structure right. In a world of scarce engineers, it no longer makes sense for each business unit or program to have sole ownership of technical talent. Companies need staffing processes and skills data that make it easier to assign engineers across programs and business units. Some companies are creating organizational centers of excellence that get the most out of scarce, high-value technical talent. Other firms are outsourcing less critical technical skills to create structural capacity in other areas.

Treat engineers like the strategic asset they are. Manage engineering talent as you would any scarce resource, deploying them to ensure the highest business return—just as R&D outlays and capital spending have been managed for decades. Companies should ask: Where do we unleash our engineers to be sure they are serving our most strategic businesses? What business will we no longer support with new technical developments because we don't have sufficient capacity?

How to begin? Because most companies lack the data they need to decide where to focus first, they should start by building a detailed baseline knowledge of their engineering assets and forecasting their needs—by skill set, geography and market segment. In parallel, they can dissect their engineering operations data and practices. For example, if a company's utilization rate of engineering capabilities is running around 50%, taking measures that lift it above 90% will have a bigger impact and pay off faster than efforts to make processes more efficient. And if utilization and engineering efficiency are already high, outsourcing less-specialized technical tasks may be the next step.

The supply pipeline simply is not wide enough to make up for the natural forces that are draining away the industry's technical talent. Retooling the organization to better manage engineering demand will not be easy, but the new revenue growth potential will make it well worth the effort.

Michael Goldberg is a partner with Bain & Co. in Los Angeles and leader of the firm's global aerospace and defense practice.