Securing the Future: AI and San Diego's Cyber Cluster

Booz Allen Hamilton is honored to serve as the underwriter of a critical, compelling new report from the San Diego Regional Economic Development Corporation and the Cyber Center of Excellence. “Securing the Future: AI and San Diego’s Cyber Cluster” quantifies the economic impact of the region’s ongoing Cybersecurity ("Cyber") work, highlights the organizations driving momentum in San Diego’s Cyber cluster, and examines how technologies like Artificial Intelligence and Machine Learning (simply referred to as "AI" unless otherwise noted) can be applied to the Cyber domain to improve defensive posturing during a time when security is paramount.

At Booz Allen – the largest provider of Cyber and AI services for the U.S. government and longtime partner to the Department of Defense—we are encouraged by the report findings that reinforce San Diego’s role as a leader and model of what’s possible when implementing future-forward technologies like AI. Cyber is no longer simply an IT issue, as the increasing connectivity of Internet of Things (IoT) and physical systems has amplified the attack surface for increasingly sophisticated adversaries. We hope as you read this report, you too are encouraged by its findings and the many opportunities for economic growth; however, we are facing an unprecedented era of ever-worsening and highly sophisticated Cyber threats, and now, more than ever, industry and government must double down on data-driven Cyber to safeguard information, infrastructure and operational technology from emerging risk.

We’re excited to see San Diego’s Cyber cluster—and organizations across the region—taking the dive into emerging technologies to improve business practices, increase customer satisfaction, and attract and retain top local tech talent—and yes, based on the findings in this report and its  predecessor , AI is producing and enhancing jobs, not eliminating them. The role humans have to play is in fostering a culture of rigorous Cyber practices so these new technologies bring opportunity—not increased threat vectors and Cyber vulnerability. That’s why it’s imperative we bridge the talent gap and invest in training and upskilling programs focused on AI and Cyber so we ensure that our San Diego institutions and economic drivers can grow, not fall victim to a cyber attack. We believe in San Diego – its people, industries and forward thinkers.

Thank you,

Joe Rohner, Director of Artificial Intelligence and Analytics at Booz Allen Hamilton

San Diego County’s Cyber companies are significantly more engaged with AI than firms in other industries. Cyber firms are developing AI at a rate 2.5 to three times the regional average. Moreover, half of all Cyber companies implemented AI at least three years ago compared with 43 percent across all industries. Local firms are using AI to identify, escalate, and resolve Cyber threats while drastically reducing the amount of time that it takes.

AI has generated unparalleled productivity gains. Productivity in the Cyber cluster has grown 7.5 percent since 2018, nearly triple the average for all San Diego industries, thanks to the development and adoption of AI.

AI is producing jobs, not eliminating them. Some 61 percent of Cyber businesses plan to hire workers—including AI specialists—in the next year. Moreover, AI has helped to sidestep chronic labor shortages by automating tedious, repeatable tasks and allowing current workers to do more with their time.

Talent shortages are a key challenge. Despite Cyber employment growing by 7.4 percent since 2018, 80 to 90 percent of local Cyber companies cited difficulty sourcing qualified workers. The region’s colleges and universities are expanding their course offerings to bridge this gap, but some more work will need to be done to better draw students to these programs.

Proximity to the U.S. military is a huge asset. Nearly three in five local Cyber firms work directly or indirectly for the federal government, including the Department of Defense, and 32 percent focus exclusively on fulfilling federal contracts. Defense contracts are typically big, multiyear investments that provide stability to San Diego’s Cyber cluster.

The importance of and need for Cyber has grown exponentially as our digital and non-digital worlds become more integrated. While the term “Cyber” has become common household nomenclature only in the past decade or so, the cluster has been around for 50 years. Below is a brief timeline of some key milestones since 1971.

Very few of us can truthfully claim to have no personal data hosted on the web, and the emergence of cloud computing has accelerated the trend toward storing more of our personal information online. This has led companies in nearly every industry to more seriously consider how they protect that data.

– Navid Alipour, Managing Partner, Analytics Ventures

A  study by IBM  found that 80 percent of compromised data across a sample of 524 global companies involved the leak of personally identifiable information (PII). For context, theft of intellectual property was a distant second at 32 percent of all data breaches.

The stakes are high. U.S. companies in the IBM study lost an average of $8.6 million per cyberattack. Nearly 40 percent of those losses are tied to foregone business revenues from customer attrition and reputational damage, followed by detection and escalation (28.8 percent), and the ensuing response to the attack (25.6 percent).

AI is helping to the flip the script. AI is  being used  to improve a system’s capacity to self-regulate and self-heal during and after a Cyber breach, increase the ability of that system to withstand attacks, and, most germane to the above point, continuously scour and analyze millions upon millions of data points each second so Cyber professionals can detect and escalate threats in real time.

Cyber is an important and rapidly growing piece of the San Diego regional economy. Roughly 60,000 IT professionals call San Diego home, representing just more than four percent of total regional employment. While four percent may not sound like much, the concentration of IT professionals here in San Diego is marginally higher than the rest of California and 19 percent higher than the national average. In fact, outside of the Bay Area, San Diego boasts the largest concentration of IT specialists in California.

IT superhubs like the Bay Area and San Diego provide California with a large number of high-paying jobs. At nearly 730,000 IT workers, the Golden State is far and away the most plentiful place in the U.S. for tech talent. However, California's workforce is huge and the state economy is industrially diverse, which means that, despite the astronomical number of IT employees, the state still ranks seventh among states in terms of IT job concentration.

Of those 60,000 IT professionals, 12,407 are specifically engaged in Cyber work according to  a survey  deployed for this study. Cyber-specific employment has grown 7.4 percent since 2018, reflecting an impressive trend particularly in light of the COVID-19 pandemic and the damage it has done to the local job market.

Cyber employment growth has trounced that of the broader labor market, including those industries employing Cyber-adjacent and support workers, for at least the past seven years. This is notable because every Cyber job generates another job in other industries in the region.

All told, the Cyber cluster accounts for 24,349 San Diego jobs and contributes $3.5 billion to regional GDP each year. Put differently, the contribution of the Cyber cluster to the regional economy is about the same as nine Super Bowls or 23 Comic-Cons.

AI has deep roots within the region’s Cyber cluster. Local Cyber businesses are developing AI at a rate 2.5 to three times the  regional average , and half of Cyber firms have been engaged with AI for at least three years, compared with 43 percent of firms in other industries. In fact, AI is so deeply embedded within the industry that local companies see it less as a nascent or emerging technology and more as an essential tool of the trade.

The benefits of AI to local Cyber firms are widespread and far-reaching. A staggering 90 percent of surveyed firms stated that AI is supporting the development of new products and services while three in five agreed that AI is boosting productivity and efficiency. AI is also helping to increase business revenues and reduce costs.

Locally, the most common uses of AI include more accurate and timelier detection of Cyber threats and applications to reduce worker fatigue within the industry as caseloads grow. An example would be the use of AI and security orchestration automation response (SOAR). Industry has seen an emerging set of capabilities in the space of SOAR tools designed to reduce the fatigue associated with monitoring alerts. Security operators and analysts are inundated with alerts, and the data can be enriched by AI to assist them.

Another example relates to disruptions from COVID-19. Remote work arrangements broaden the network spaces that need to be protected as employees share files and data and hold meetings virtually. AI has been crucial in allowing local businesses to monitor these day-to-day activities more securely by virtue of the technologies’ ability to simultaneous monitor immense volumes of data and self-correct as needed.

-- Ion Nemteanu, Sr. Director of Data Science, Thermo Fisher Scientific

The lift to productivity is not trivial. As previously mentioned, Cyber-specific employment grew by a laudable 7.4 percent over the past three years, yet output grew by 14.9 percent during that time. This implies productivity grew by some 7.5 percent, nearly triple the average productivity growth across all San Diego industries. Looking exclusively at the private sector, productivity expanded by an even more remarkable 11 percent since 2018.

Cyber and the use of AI is expanding beyond its traditional boundaries in the San Diego region, too. The 7.4 percent growth in Cyber employment since 2018 was driven in large part by industries outside of the core Cyber cluster, which logged a head-spinning 13.5 percent expansion in Cyber payrolls. This has been particularly true for doctors’ and dentists’ offices as the COVID-19 pandemic led to an exponential increase in the number of patient records and information that must be protected. As a result, local developers have focused more on automating these tasks with AI.

The use of AI in Healthcare Cyber operations is critical. The IBM study cited above notes that it takes Healthcare companies an average of 96 more days to identify and contain a data breach than in the Finance industry. Given that one of the primary uses of AI locally is to reduce the amount of time required to identify and resolve data breaches, this will prove crucial to the industry’s ability to secure and protect patient information.

By incorporating AI, companies have taken repetitive and time-consuming tasks off workers’ plates, thereby allowing them to focus on items that require human expert judgment, experience less worker burnout, and do more with their time than they otherwise would have. However, this has not reduced the need for additional workers.

More than 40 percent of survey respondents in the region indicated that AI has boosted the demand for workers, and three in five say that they will need to hire additional Cyber workers—including AI specialists—in the next 12 months. It should also be noted that just 5.6 percent of respondents indicated they strongly believe AI has reduced the need for workers.

However, just because firms want to hire more workers doesn’t necessarily mean they will be able to. Demand for Cyber professionals has outstripped the supply of qualified job candidates for as long as data are available. To try and sidestep the shortage of local workers, companies are posting remote positions in order to hire workers from outside the region. Remote positions comprised just 3.3 percent of all Cyber job postings in September 2019, jumping to 9.3 percent by April 2021.

--Navid Alipour, Managing Partner, Analytics Ventures

The San Diego region’s colleges and universities are also helping to bridge the gap by offering a collective  118 degree-track programs  for occupations employing Cyber professionals—but there is still work to be done. Most program completions reflect Business Administration and Management programs and generalized Liberal Arts degrees.

This may be the result of firms seeking out candidates from non-Cyber programs to fill positions that have been open for an inordinate amount of time. Of the 22,273 program completions in 2019, the most recent year for which data are available, only 64 were from Cyber-specific programs and 917 were from Cyber-adjacent programs. Also of note, there were no degrees conferred to students studying AI. Now that these programs have been established, it will be critical for industry representatives and academic institutions to find ways to engage more students to complete coursework directly related to Cyber and AI.

Worker training is also an option that local Cyber companies are using to beef up their AI ranks. Seventy-two percent of Cyber firms have offered AI training to their employees, which could also help the industry to maintain its growth advantages.

The successes gained by the implementation of AI among San Diego Cyber firms could also be exported to a number of other U.S. regional markets.

The talent shortage for Cyber workers is not unique to San Diego. One obvious way to garner new business in other markets would be for San Diego Cyber AI developers to implement those technologies in other regional markets where employers are struggling the most to find qualified workers. In so doing, Cyber firms across the country could potentially reap the same benefits as local companies in expanding output even as companies continue to struggle to find Cyber employees.

Fifty-seven percent of San Diego Cyber companies either provide Cyber or IT solutions, develop or support development of new Cyber products and software to customers, or support other organizations with their Cyber needs. Local firms are most heavily engaged in developing or advancing AI, data protection and data layer security, resilient and secure computing, and the internet of things. However, many are yet to engage more heavily with encryption, risk-based authentication, or blockchain technology.

By looking at the number of unique job postings, the average duration for postings, and posting intensity (the number of times each unique job is posted) for Cyber jobs, it is relatively easy to determine where in the U.S. Cyber and AI firms in San Diego could drum up more business. It’s also important to note that, since San Diego-based Cyber AI solutions would be used to alleviate pressures associated with talent shortages, these technologies could be exported across the country without disrupting local job markets.

The below map indicates where local Cyber firms, including AI developers, could potentially acquire contracts based on the specializations of San Diego companies.

Having the largest concentration of military assets in the world right in our backyard has also helped local, private-sector Cyber firms to grow. In 2020 alone, the U.S. Navy’s Naval Information Warfare Systems Command (NAVWAR) set aside $7.1 billion for private-industry Cyber and AI contracts, $1.6 billion of which was specifically for the San Diego region. The benefits of these contracts cannot be overstated. That $1.6 billion is equal to 46 percent of the total economic contributions of San Diego’s Cyber cluster, presenting an enormous growth opportunity if taken advantage of.

Defense contracts tend to be big, multiyear investments insusceptible to short-term fluctuations in the business cycle. Nearly one in three regional Cyber firms are primarily engaged in fulfilling federal and defense contracts, and another 25 percent have at least some work tied to contracts originating in Washington, DC.

Navigate through the below for additional information on the role NAVWAR plays in the region’s Cyber ecosystem as well as several examples of recent Defense contracts, and the economic impacts of each.

The share of local firms that exclusively cater to Defense has risen from just 13 percent in 2016 to 32.1 percent in 2021. Increased engagement by the private sector is in large part due to the efforts of organizations with a San Diego presence, such as the  Defense Innovation Unit (DIU) ,  National Security Innovation Network (NSIN) , and  Booz Allen Hamilton , that have worked to break down some of the barriers preventing smaller private-sector Cyber firms from pursuing military contracts.

– Joe Rohner, Director of Analytics and AI, Booz Allen Hamilton

Read more about the efforts of these entities and how they promote greater synergies between Defense and the private sector below.

Moreover, as the geopolitical focus of the United States shifts to China, North Korea, and Asia more broadly, defense funding for California and the West Coast is likely to increase in the coming decades. This bodes especially well for San Diego, given the huge Defense footprint in the region. The stability of these contracts and increased engagement of private-sector Cyber firms with the Defense supercluster should propel solid industry growth for years to come.

A deep relationship with AI, close ties to Defense, and thriving base of IT professionals have afforded San Diego County’s Cyber cluster considerable growth advantages over the years. Three out of four survey respondents noted that they see San Diego as a good or great place to do business because of these regional assets. It will be important that firms do several things in order to continue this trend:

1. Continue to use AI as a tool to complement, and not substitute, workers. A  study  by MIT Sloan Management Review and Boston Consulting Group found that returns on investment for AI are highest when it is used as a tool by workers, not as a means to replace them. Whether intentionally or not, San Diego Cyber firms have stuck to this blueprint and should continue to do so in order to maximize the benefits of AI going forward.
2. Take advantage of local resources designed to integrate Cyber firms in the private sector with the military. Close proximity to the U.S. military presents a key advantage for Cyber firms in the region. Extending the trend toward greater integration will provide private sector firms with large, stable sources of revenue, thereby propelling growth and reducing employment volatility. Smaller, less established firms who do not have the personnel required to process and produce the associated documentation should use these services as a springboard to engage further with the military.
3. Until broader student engagement in Cyber and AI-specific programs is achieved, continue to upskill workers in the use of AI. Seventy-two percent of Cyber firms in the region have already offered worker training for AI.

Despite the numerous advantages summarized above, San Diego colleges and universities, along with industry leaders, will need to work to break down the barriers preventing more students from engaging more heavily in Cyber and AI degree programs. Despite the torrid pace of job growth in recent years, there are still about three open positions for every qualified Cyber worker across the San Diego region, and that number increases when discussing jobs for AI practitioners.

Finally, Cyber companies who are looking to fill open positions, including those in AI, should check out San Diego Workforce Partnership, CCOE, and EDC’s  CyberHire program . CyberHire San Diego provides training and covers certification exam costs to help local workers and students land a job and start a career in Cyber. By earning an industry-recognized credential, job seekers gain the experience necessary to help them in their career path. Thanks to a $1.5 million grant from the James Irvine Foundation, CyberHire aims to help more than 180 San Diegans secure Cyber jobs by 2023.

By utilizing the vast resources at their disposal, local Cyber firms can ensure continued strong growth in the years and decades ahead. The need for Cyber workers, products, and services shows no sign of abating anytime soon, and San Diego is uniquely positioned to lead the way.

This study was authored by San Diego Regional EDC, in partnership with CCOE, and underwritten by Booz Allen Hamilton with additional survey field work and research performed by BW Research Partnership. Learn more at sandiegobusiness.org/research.

Date of publishing: June 2021

Many thanks to the report sponsors and Advisory Committee, whose financial contributions and insights made this research possible.