Yvonne Hofstetter: In all the cases mentioned, humans are exposed to a complex dynamic environment, even if decisions on the financial and commodity markets cannot be compared in their scope to those in defence. In real time, humans are challenged to make trade-offs under uncertainty, based on ambiguous information in a highly volatile environment. Next-generation AI gives them more confidence in this regard. For defence systems, this raises serious societal, legal, and ethical issues. Defence is where our roots lie, and where we have returned to by founding 21strategies. After all, we developed our early AI technologies in the military research labs of the late 1990s.

Celia Pelaz: We have been dealing with technologies that are today incorporated under this term for many years – even at the time when HENSOLDT was not yet an independent company. With AI, we can no longer differentiate ourselves from the competition only by how well a sensor solution perceives a situation. Today, we are increasingly differentiating ourselves by how intelligently the sensor processes what it perceives, interprets it, analyzes it, and, amid all this, how it can build information from data.

Celia Pelaz: AI first helps a radar or optronics device to increase detection performance, for example, when image stability leaves something to be desired. Then AI assists in the task of correctly classifying objects – for instance, as a bird or as a drone – and tracking them accordingly. At the next level, the object data and contextual knowledge are combined via AI in such a way that tactically relevant information is generated from them, such as whether the object is an enemy platform. Here, AI is also important in what is known as multisensor data fusion – when it comes to combining and analyzing data from an increasing number of sensor sources distributed across networked platforms. This also increasingly applies to publicly available data from the Internet, so-called open-source intelligence. All of this results in a comprehensive, consistent, and up-to-date situation report. AI thus relieves the soldier, supporting them with options for action so that they can make the right decisions. And AI enables systems such as radars or jammers to learn for themselves and adapt to unknown situations. This is what we call cognitive systems.

Celia Pelaz: A very central one. The ability to extract relevant information from data is becoming an increasingly important factor in determining whether someone is superior or inferior in a conflict. It’s a tiny needle in a huge haystack. Modern defence applications produce so much data that we very quickly reach the point of human overload. In the public debate, we often discuss AI as a potential source of error. In reality, the error rate of AI, especially in routine tasks, is lower than that of humans. AI is acting with increasingly more performance. It is therefore becoming relevant at more and more levels of weapon systems. At HENSOLDT, we recently bundled our competencies in a central AI hub to more closely integrate expertise from the various domains and projects. And we are thus facilitating collaboration with partners, because AI is also a driver for more cooperation: There are many highly interesting players with extremely specialized know‑how at times. So the potential that AI holds for our industry is enormous. All the more reason for me to call for a realistic, responsible AI debate. Some of what is being suggested out there in the market is too much hype for me instead of serious innovation.

Celia Pelaz: Giving the impression that AI is the solution to all problems simply misses the reality. Even the momentum we see in deep learning and neural networks does not relieve us of the task of developing and funding other, innovative core technologies for the defence of security and freedom. Realistically, AI is an important lever for achieving higher levels of performance for defence systems. But the technological foundation – like the one we are laying with leading sensor and optronic solutions – remains essential.

Yvonne Hofstetter: I can only emphasize that. AI is nothing more than a toolbox of mathematical theories and information techniques. And above all, there is no one artificial intelligence: Depending on the problem you are facing, you have to select certain techniques from this toolbox and use them for the specific purpose. Machine learning, for example, is only the best solution in certain cases. For many problems, especially all those where you don’t have to estimate anything at all, direct calculations are much better suited, much more accurate, and above all comprehensible.

Celia Pelaz: And that is precisely why, as a defence solutions provider, we must also master the full range of AI, either through our own capabilities or partnerships. The basis is always our application know‑how – the deep knowledge of our customers’ mission requirements and doctrines.

Yvonne Hofstetter: The third wave of AI revolves around training the tactical behavior of machines, among other things. Instead of simply processing mass data, such as that generated by radars, a machine selects the decision from a large number of possible options in order to achieve a specific goal. Such machines are already known from somewhere else – from the gaming community. There, intelligent machines have the task of defeating humans in games like Starcraft. Battlegrounds are much more complex than the most complicated game. In our joint “GhostPlay” project, we are investigating which tactics intelligent machines develop in the battlefield and what human soldiers can learn from them. To do this, we are modeling a digital twin of the battlefield and available sensors and effectors with their physical properties. We then present these models to the tech stack and pit AI against AI. One example is so-called SEAD missions with the goal of taking out air defence systems. Here we observe, on the one hand, how AI manages the tactical interplay of the individual components of the defence system and, on the other hand, guides the sensor-effector network of the attacking swarm of unmanned systems.

Celia Pelaz: For HENSOLDT, early and open-ended engagement with such AI-based decision-making processes is a logical consequence. After all, we have long since moved beyond developing the five senses and are increasingly developing the central nervous system of defence applications. With edge computing, data-driven intelligence is moving even closer to sensors and is already often embedded in them. Using integrated systems to perceive external impressions, process them, and convert them into reactions is our core business today.

Celia Pelaz: We must also conduct the discussion in this direction in a factual and nuanced manner. The “killer robots” often cited in the argument against AI have little to do with reality. The first question to be asked here is basically banal: Are we really talking about autonomous systems or systems remotely controlled by humans after all? Or about AI that primarily processes, fuses, and analyzes data? If we are dealing with autonomy in the narrower sense, the crucial question is that of what we call the “system of interest.” What is the intention behind the action? How does the system that I want to enhance with AI work? In which situation and in which context? Based on this, we should define what AI may and may not do. In critical applications, the principle of “human-in-the-loop” must always apply. In other words, humans remain responsible and make the final decision; AI supports them.

Yvonne Hofstetter: Just as it is not ethical per se to act as soon as people are involved, technology is not unethical per se. Values can certainly be integrated into technology. The only question is how and which values we prioritize and translate into system functions. GhostPlay takes an important step here. It is the first AI system in Germany designed for military users that follows the new standard for value-based technology ¹.

Yvonne Hofstetter: It describes process steps and test criteria for the development of value-driven technology – without itself prescribing a specific set of values. Many legal and ethical demands have already been made on AI, for example by NATO or the EU. But how do I get from these imprecise claims to a technology that implements values? This is where the IEEE 7000TM‑2021 standard, introduced at the end of 2021 by the World Electrical Engineers Association, comes in. It is the first standard that addresses technology but calls for ethics. For the first time, engineers are called upon to follow a standard to translate values into technology. For this purpose, IEEE 7000TM‑2021 even introduces a new profession, the so-called “Value Leads.” They are trained in ethics and have to channel a “system of interest” through the standardized process, measure it against ethical criteria, and ensure appropriate technical precautions. ISO standardization has already followed suit. That’s another reason why I think it’s fundamentally important for tech companies to build up expertise in this area.

Celia Pelaz: I see this as a great opportunity for us Europeans in particular. In the energy sector, we are currently experiencing very painfully what it means to become geopolitically dependent. We must do everything we can to ensure that we do not experience a similar development in the tech sector. A central key to this is social acceptance. And we can only achieve this if we can transparently explain how we anchor our moral compass in our technologies. From a purely technological point of view, we in Europe are in a really good position in global competition in many areas, including AI. But we often encounter social reservations that inhibit innovation and lead to technologies being regulated before they have even been developed. Ultimately, the question is whether we will succeed in establishing a sovereign digital infrastructure in Europe.

Yvonne Hofstetter: First of all, the political will. In this millennium, Europe has deliberately dispensed with digital sovereignty and made itself comfortable as a free rider of Silicon Valley. We let the Americans do their thing, imported their values along with the algorithms, and failed to build up or maintain our own capabilities in many areas. For example, in search engine algorithms or cloud infrastructures, I now consider it unrealistic that Europe will be able to come up to par in the foreseeable future. We need to find our gap to fill with other issues. In my view, we in Europe are strong in the development of concepts, for example. That is, in complex digital solutions that are specifically designed to meet the particular requirements and needs of a specific sector or area of application, such as defence. In this respect, we are also further ahead in our approach than many IT companies from Silicon Valley, which rely solely on knowledge gained from data and believe that experts are no longer needed.

Celia Pelaz: We must confidently and resolutely define which capabilities we in Europe absolutely want and need to master ourselves. That is the central first step. Perhaps we as Europe cannot achieve digital sovereignty everywhere, but we cannot be dependent on others in core areas. Because we don’t know exactly what we’re buying as a black box, or whether we’ll even get it tomorrow. This is precisely why we need to develop AI for our defence in Europe ourselves, for example. It is a key technology for Europe’s digital sovereignty, and we must ensure that it is in line with our values and thus finds social acceptance. This also requires implementation strength – otherwise concepts will remain just concepts in the end. We need a strong innovation ecosystem, especially in the defence sector.

Yvonne Hofstetter: This is not only, but also a question of money. In recent years, the German defence sector has suffered from image problems. Money has not been invested in building up the capabilities of the Bundeswehr, but has been handed out to society as a peace dividend. But the smaller the defence budget, the more the few industry players can secure that budget against direct competition. Today, we are confronted with a largely closed sector in which new players are hardly able to gain a foothold. As a result, research institutes, many of which are doing excellent work, have little incentive to spin off companies. Innovations thus remain stuck as studies in the institutes and do not transform into products, such that some research investments are not really effectively invested.

Celia Pelaz: In addition to financial resources, we can also achieve a great deal by changing processes, especially in procurement. Significantly faster and simpler procurement cycles would not only ensure that innovations reach customers more quickly. In this way, we would also prevent startups from having to hold out for years until their work can pay off economically, possibly being crushed by bureaucracy beforehand. In our industry, the public sector will always be the most important customer. In this respect, investments in disruptive technologies will always remain a gamble for young companies with the uncertainty of whether they will be commissioned by the public sector. Public-private partnerships are the right way to provide planning security and incentives for innovation. Without NASA, SpaceX would not even exist! We can learn a lot from such examples when we look beyond our own backyard.

Yvonne Hofstetter: When it comes to building bridges to the start-up world, I think the concept of DARPA as an agency of the U.S. Department of Defense is very interesting. It awards contracts solely on the basis of technological innovation, without regard to the person. If something is technologically groundbreaking, then a contract can go to a one-man company. This has worked very successfully for decades.

Celia Pelaz: With the DIANA Accelerator, NATO recently sent out the right signal, and the same applies at another level to the Bundeswehr’s “Cyber Innovation Hub”. The example of Israel shows just how innovative close cooperation between the military, society, and the defence industry can be. There, every industry representative, whether start-up or large corporation, was in the military in his youth. They know and understand each other, and together they are fighting a threat to which the population does not turn a blind eye. In the US, we see that innovation also thrives on being able to tap into a huge market through a single point of contact. In Europe today, the opposite is often still the case. We have to change that. More European cooperation in politics and industry means more technological progress and more security!

During my time as an officer, the cohesion and sense of community in the Bundeswehr were the most formative experience for me: this unconditional team spirit of achieving things together and standing closely together when challenges seem insurmountable. I found it again at HENSOLDT – in an almost familial atmosphere that the company has preserved as it has grown strongly and become increasingly international. You have to set an example of this kind of corporate culture and, as a member of the Management Board, I see this as one of my most important tasks.

The range of topics has once again become much wider, and at the same time the focus is on the concrete need for decisions. For me, the focus is now on how we on the Management Board strategically lead the company into the future. Seeing how well what was long my job is now being done by others has made it very easy for me to let go of a lot. In return, I now invest significantly more time in communication – with investors, analysts, and journalists, but also within the company with our finance team. Our project teams who are close to the product in development or production have an incredibly strong group dynamic and justifiable pride in what we have achieved together. In the same way, we want to create even more of a common home base for our experts from Accounting, Treasury, Investor Relations, and IT in their local areas. This is also important for our performance as a finance team. Because we have big tasks ahead of us.

We can already foresee today, before the concrete effects of the Zeitenwende become apparent, that we will grow sustainably in the coming years. The Zeitenwende will provide additional impetus in this direction, but we have laid the foundation with the many long-term, multiyear projects for which HENSOLDT has been commissioned. This is both the result and the beginning of hard work. Because growth must be managed and cleverly designed. We don’t just want to get bigger with our business, we want to become even more customer-focused, more powerful, faster, and more efficient. The aim is to further improve our value creation and generate more value. In the finance division, we have strong levers to do this.

First, it is our task to create the economic leeway for our strategy and to make innovation financially possible. Innovation has always been the central asset of our company, crucial for success with our customers and driving value on the capital market. Secondly, with our holistic view of the company, we are also a driver of efficient processes that are stringent from start to finish. With the HENSOLDT GO! programme for operational excellence, we have driven these end-to-end processes in recent years and will also roll them out globally in 2023. The focus on processes will accompany us in the long term so that we can grow intelligently and offer integrated solutions across divisions and countries. And third, I see finance as a catalyst for the digital transformation of the company. We want to be able to make data-based decisions on any topic at any time. To this end, we are working intensively on our data governance and system landscape with the aim of transforming HENSOLDT into a real-time company. All of these tasks have become more urgent because of the Zeitenwende. It is therefore also an accelerator for the financial system of the future.

Step by step, we are becoming the navigator and “enabler” for the company. Twenty years ago, the focus of finance was still very much on reporting – in other words, looking back. Today, we are also casting our gaze much more strongly into the future and making a strategic contribution. To do this, we need powerful tools and new competencies. We therefore also need to transform ourselves, and to this end we have set up the Vision Finance programme on three pillars: data-driven corporate financial management, a high-performance finance community organization, and talent development.

Without question, we live in times of high uncertainty. As HENSOLDT, our long-term project business, in which compensation for price increases is usually contractually agreed, means that we are affected by inflation to a lesser extent than others and are therefore more robust. But of course, we also have to be vigilant and act with foresight. We have secured our refinancing on attractive long-lasting terms. In the supply chains, we take precautions at an early stage wherever we see potential problems. In this way, we have succeeded in keeping the challenges well under control and have started 2023 with a manageable risk situation. The motto here is that we must be even closer to our business and environment in volatile times. That’s why Vision Finance also provides end-to-end transparency for operational, non financial key performance indicators, such as parts availability, delivery reliability, and adherence to technical milestones. Because as a company, we are like our customers: If we have a clear situation report, we are able to act.

Our philosophy has not changed as a result of the Zeitenwende. We will continue to look at options for targeted acquisitions. However, for us this is always linked to very clear criteria: Only if the acquisition is clearly value-enhancing and the partner fits us technologically, entrepreneurially, and in terms of their geographical presence will we become active. We also regularly look at potential strategic investments for technology partnerships. In innovation fields that are becoming increasingly relevant for us, such as artificial intelligence, there are many startups and young companies with strong tech expertise. They often need a financial boost and benefit from cooperation with an established technology company, but rely on great freedom in their entrepreneurship. In these cases, strategic investments can be a win-win solution to jointly advance promising technologies.

During the past months, I have had the opportunity to talk to many investors and analysts, most recently in the UK and the US. Non-European market players in particular are keeping a very close eye on whether Germany keeps its word and reliably implements its announcements. It is very clear that Germany’s cautious, hesitant role over the past decades in the area of security and defence has left its mark. Generalist analysts who have not yet been more intensively involved with defence are much more impatient and understandably much quicker to ask the question of confidence. Others, who know our sector well, know that it can take a very long time after a political declaration of intent before a contract is awarded. And that it is part of our entrepreneurial expertise to optimally shape this business with long lead times in order to be ready with the right product at the right moment.

The central currency on the capital market is trust. That is why we are being rewarded for the fact that HENSOLDT reliably implements what we promise. This applies both to our corporate strategy and to our medium-term plans, such as those we announced at our IPO and then consistently delivered. And it applies to the fact that we are disciplined in converting our record order backlog into highly profitable results, because we process major projects in a structured manner and deliver them to the customer on time, within budget, and in the agreed quality framework. HENSOLDT is a reliable partner for customers and investors: For us, it is absolutely central to live up to this status 100 percent, even in times of the Zeitenwende. This is because the valuation of our company also shows that the importance of security and defence for our society has increased significantly since February 24, 2022. This also includes the fact that the proportion of investors with a clear ESG focus in our free float has grown from around 6 percent at the end of 2021 to over 20 percent now. The capital market is therefore increasingly appreciating that security is the basic prerequisite for sustainability. The view of our industry and our company has evolved. We also want to confirm this trust and show that we can do even more.

Definitely the company’s unique spirit! The strong culture and identification of the employees is immediately noticeable. This is amazing for a young company that emerged from predecessor organizations steeped in tradition. The fact that HENSOLDTians enjoy working here is also shown by the ranking “Most Wanted Employer 2022” by ZEIT and the employer rating portal Kununu: We are ranked second in the entire electronics sector! Now HENSOLDT is moving from a kind of startup phase to a stage in which we are shaping the company of the future in order to realize further growth and high ambitions. I am very much looking forward to helping shape this continuous change.

Thanks to the growth of recent years, we are already in a good position to take on more responsibility. We will continue to strengthen ourselves in the future, but we are proceeding responsibly with a sense of proportion. After all, you also have to handle rapid growth sensibly on the personnel side in order to be able to work well together. And of course, we first have to be able to assess what specific requirements and orders will result from the Zeitenwende. That’s not just a mere political declaration of intent. In some places, we are also making advance payments – for example, with the decision to produce a significant tranche of our TRML‑4D high-performance radar for air defence in order to keep delivery times as short as possible. To this end, we are immediately bringing new employees on board in production. Above all, however, our task in the foreseeable future will be to monitor very closely how our personnel requirements might change. This is not just a quantitative question, but one of the right structure in terms of skills and qualifications. For us, of course, it is primarily a matter of building up the right competencies in the right places. Together with focused structures and processes, this is the key to operating efficiently and growing sustainably in times of rising costs.

Even though HENSOLDT is very well positioned, we also of course feel that there are simply too few applicants in many areas, especially among the highly trained specialists in high-tech professions. Today, we are increasingly hiring more in the IT area and are therefore not only competing within our own industry, but also with e‑commerce providers and many other industries. This makes strategic skills management all the more crucial for us. We need to be able to better anticipate which profiles and qualifications we will need in the future. This applies to several years in advance and just as much to the medium-term perspective. Because if I only start recruiting the employees I need as soon as we’ve secured the major project, it’s far too late. We have to get there much earlier and understand very precisely how the geopolitical context, technological trends, and the needs of our customers are developing. This is a challenging but crucial task in order to attract top people with the technology profiles that are our focus: systems engineers, software developers, and IT professionals. We are also increasingly recruiting experts in programme and project management, as the implementation of complex large-scale projects is increasingly shaping our business. With all these qualifications, I have to think of the bon mot “The battle for talent is over. It’s the talents who have won.”

Of course, we have to position ourselves in all areas so that our claim to be the employer of choice is fulfilled. But for the defence industry in particular, we also need to talk more about what we do and why we do it. Today, we see a much greater openness in society to appreciate our contribution to the defence of democracy and freedom. But we also need to engage in this debate when the war in Europe hopefully ends soon and society’s perception may change again. In addition, two aspects come up far too short for me in the discussion about the shortage of skilled workers: On the one hand, we have the task and the opportunity to help young people grow into the talents of tomorrow through proper training. That’s why we have once again significantly expanded our commitment to training and dual study programmes and are helping to shape the concept of courses such as Embedded Systems in order to get young people more excited about technology again. On the other hand, the further development of our own talent, which we already have on board, is enormously important to me. Particularly in our industry, with long project durations but short innovation cycles, the balance of experience and young, fresh impulses is essential.

The change in awareness of defence is also clearly reflected in the applicant market. At the same time, the Zeitenwende has further intensified competition in our industry for the best minds. It’s therefore truer than ever: We need to go to the talent and be closer to the people. This starts with such simple things as having more person-to-person dialog on platforms like LinkedIn to give more insight into which personalities work for us. But it also includes broader issues: Should we offer the ability to work entirely from home for certain jobs and profiles? Do we need hubs in regions with strong talent pools? Can we secure particularly sought-after skills through partnerships? We need to find answers to these questions.

Many of our employees and applicants are motivated above all by making a tangible contribution to the defence of peace and freedom. They develop the best possible equipment for people who risk their lives for our society. In addition, it’s also very much about the fascination of high technology. At HENSOLDT, employees can help shape progress in specialized fields that few other industries can match, from sensor data fusion to aerospace. The personal security offered by a job in a comparatively crisis-resistant industry is also seen as attractive again. Conversely, as an industry leader on the topic of sustainability, we fulfill a basic requirement to convince the applicants we want in favor of HENSOLDT. Together with the team, my predecessor Peter Fieser set up a sound ESG strategy that we are consistently implementing. In doing so, we are pursuing ambitious goals such as carbon neutrality by 2035, which is a tough job and requires significant investments. But this is also money very well spent from an HR perspective.

On the one hand, we will continue to work on our great strength, our corporate culture. For any company, this is an ongoing task that is crucial to success, especially in growth organizations. I want us to translate what guides and shapes us in a very comprehensible way and to carry it into every corner of the company. This also applies to the international subsidiaries that have joined the HENSOLDT family through acquisitions in recent years. We will certainly not impose this cultural process from above and define it in PowerPoint presentations, but we can and must create the right platforms for employees. This brings us to a second point, leadership culture: Many outsiders still think of the defence industry in terms of “command and obedience.” However, that’s not the reality at HENSOLDT. When employees go to the Management with their idea that our technologies could also be suitable for protecting wildlife, that’s great. But here, too, we can’t simply put a check mark on it; we have to permanently promote an inclusive leadership culture of open doors. Teams rightly and increasingly expect transparency, participation, and flexibility. This is accompanied by new leadership challenges, especially when we collaborate remotely. These cultural issues lead directly to two other very tangible focus topics that we are working on.