Gwen Shapira

RECONnomics: Integrate. Innovate. Grow.

Next Generation Business Practices Fuel Growth for Aerospace and Defense Industry

by Sasha Banks, July 2012

As the United States and Europe struggle to recover from one of the most crippling financial crises in history, aggressive deficit reduction policies have been instituted as a strategy to strengthen these economies. However, these policies have slashed Department of Defense budgets and forced deferrals (if not cancellations) of formerly approved programs. Exacerbating these cuts are nascent changes in political and military leadership—such as Leon Panetta’s appointment as head of the U.S. Department of Defense [DoD] to lead the drawdown efforts in Iraq and Afghanistan—creating further uncertainty for defense program growth. 

Despite these constraints, the A&D industry continues to push the envelope of mission critical technologies that promote national security, civil liberty and world peace. However, as revenue from the DoD declines, private sector programs are opening the windows of opportunity for revenue and margin growth through the creation of next generation business and consumer applications.

For many defense firms, this transition could be extremely difficult. Underscoring this difficulty is the fact that DoD-funded program development has already been kicked off and budget cuts have undermined forecasts that defense companies will continue to realize significant margin growth. To this end, defense workers are beginning to rally in protest of further budget cuts to the industry.

This is precisely the kind of profound sentiment that inspires change and encourages companies to create new business models that leverage existing innovation, recover sunk development costs and provide real, short-term ROI.  But creating next generation business models requires companies to make significant changes — in attitudes, behaviors and performance objectives.

Modernizing the A&D Enterprise

With DoD budgets in decline, many defense firms are re-balancing their portfolios of offerings across existing, new, and adjacent markets. Yet, the number one priority within the industry remains program performance; how contracts are executed and customers are satisfied defines how most defense firms differentiate and create value. Yet with affordability mandates, company mergers, and international expansion efforts, execution is rife with complexity. Each acquired company and local operation brings with it its own set of systems, technologies and cultures. In order to surmount these complexities, it is essential for companies to integrate the vast numbers of silos that hold massive amounts of company information in every functional area across the entire global enterprise.

“Our number one priority is to create a global standard for business information management,” explains Carol Johnson, Vice President of Enterprise Applications, DRS Technologies, Integrated Defense Systems and Services. “By integrating all of the company business data from across our entire enterprise and then mapping that data to the strategic objectives of the business, we expect to significantly improve strategic alignment and execution—integral components for driving exceptional customer quality, affordability, and compliance.”

Creating an Integrated Global Workforce

Whether the balance of resources tips toward supporting existing programs or identifying next generation adjacencies, the future of the defense industry depends greatly on how well companies tap into the flow of talent across the corporation. That may mean a move away from traditional classifications of “roles” and “responsibilities” that can thwart optimal workforce utilization, innovation and growth. Rather, by classifying employee profiles in terms of “capabilities,” “accomplishments” and “interests,” managers can deploy their staff across a range of projects and into new markets that can greatly contribute to differentiation and competitive advantage.

According to Alan Maxwell, Vice President of Human Resources at Lockheed, moving a company’s work closer to staffers will allow management to respond swiftly to changing requirements, effectively harnessing human intellectual capital and inspiring new thinking. This new thinking, according to Maxwell, is the key to innovation, differentiation and growth. “The next generation of organizational thinking involves seeing beyond the constraints to create real and sustainable value,” Maxwell says. “Leadership is becoming more intra-preneurial and culture is shifting from a risk adverse orientation to one that just embraces the risks associated with a zero tolerance for failure business model. This shift is the driving force that is spurring innovation in the most profound ways.”

Transitioning from Programs to Portfolios

Unlike traditional program-driven supply chains, management at pioneering A&D businesses are beginning to expand their supply networks and redesign their planning and execution processes to accommodate their extended portfolios of capabilities for both defense and commercial applications. One such pioneer is John Olson, Director-Strategic Analysis and Integration in NASA’s Human Exploration and Operations Mission Directorate. According to Mr. Olson, public sector budget cuts demand innovative and lean solutions and may provide an opportunity to rebalance the defense portfolio and find new ways to deliver exceptional value for military, civilian and commercial applications. 

“NASA is currently working with both “traditional” and “non-traditional” A&D companies, including Apple, Google and General Motors, on a number of new applications that could leverage current defense technologies to support the challenging space exploration and operations mission areas as well as applications that benefit humanity here on Earth,” says Olson. 

Like NASA, satellite and digital communications provider, ViaSat is experiencing tremendous growth in the private sector.  In contrast to traditional defense companies, ViaSat began producing equipment primarily for commercial applications—and then augmented its revenue with offerings for military use. 

“We are continually segmenting our target markets to provide the most exceptional customer experiences, lowest design and delivery costs and highest return on our investments,” reports ViaSat Chief Financial Officer, Ron Wangerin.

But navigating the intricate complexities of entering new markets — or applying new methods of execution for existing ones can be exceedingly difficult. It often requires organizational realignment to promote the next generation of growth inspired business practices and cultures. For the A&D industry, this involves a deliberate transition from purely program-driven behaviors to those that are becoming more project-driven.

While program performance remains a critically important metric, management at forward-looking A&D firms are more deeply evaluating their entire portfolio of capabilities and identifying best fit adjacencies to augment program revenues and ensure continued growth. But this exercise is not for the weak. It requires careful analysis of a company’s existing asset platforms, employee skill sets and performance objectives. It also requires a modern business and IT infrastructure to support the new requirements.

According to Carol Johnson, Vice President of Enterprise Applications, DRS Technologies, Integrated Defense Systems and Services , successful firms will move toward more integrated program management platforms and practices for earned value management, resource capacity planning, management and forecasting. But important IT work needs to be done before the benefits are fully realized. “Our execution of these practices begins by integrating data across all phases of the product lifecycle, defining ways to measure success with standards, and using tools that help drive compliance and consistency. Aligning our operations in this way will result in our ability to grow as a business,” says Johnson.

Quantifying the Impact of Next Generation Project Performance

As the A&D industry undergoes profound transformational changes, the ability to track and measure the impact of these changes is fundamental for A&D companies to realize short-term performance objectives while positioning for long-term growth opportunities.

In order to sustain its leadership position in the midst of radical industry transformation, General Dynamics Information Technology (GDIT) has become laser focused on Enterprise Performance Management and Business Intelligence across the entire portfolio of all its service offerings.

John Monczewski, Director Business Intelligence & Enterprise Planning and Reporting, General Dynamics (GDIT)says the commitment of GDIT’s management to centralizing disparate data sources and integrating critical information assets has given the company a platform that can optimize strategic and operational planning and reporting capabilities. He says management has reinvented project finance planning, management of rates and allocations, and how analysts model plans against financial statements to generate insightful and actionable reports. “As a result, we have substantially decreased the time to deliver deep insight into rate variances, actuals vs. budgets, as well as labor and fringe metrics,” says Monczewski. “The speed at which we can analyze this information and make adjustments to rates, budgets and labor utilization not only satisfies external compliance requirements, but enables us to optimize business performance overall.”

Sasha Banks is senior director of industry strategy and marketing at Oracle.