Is It Time to Kill the Defence Industrial Strategy

On the MoD’s web site its opening line on the page that details the Defence Industrial Strategy 2.0  is;

The DIS was widely regarded as a success

mmm, perhaps by the people that wrote it, perhaps by BAe but not by the taxpayer and certainly not by anyone feeling the harsh wind of budgetary restraint in the armed forces, which would be everyone.

Quite apart from the MoD trying to appear trendy by hijacking the 2.0 theme from the web 2.0 the page in question sets out three themes, in no doubt the most expensively obtained management speak.

Speed through decisiveness – by placing a premium on agility and ensuring rigorous prioritisation, greater standardisation and a clarity of processes; captured in our target of a 50% reduction in the acquisition cycle;

Closer and more demanding industry relationships - by being up front with industry about our requirements, by recognising the economic reality of the defence industry, and by working in partnership with industry to deliver to the front line; and,

Breaking down barriers to innovation – by encouraging entrepreneurship throughout our supply network, by maintaining our technology edge, and by harnessing innovation wherever we find it

All fine words but the MoD, the authors of the DIS, is presiding over a series of major equipment programmes, all of which are late and all of which are over budget to the tune of several billion pounds and that is before we take into account the massaging of figures and reductions in numbers/capabilities in order to reduce costs.

These starve the armed forces of funding at a time when funding is scarce and likely to get even scarcer.

Reading the document, one cannot help be impressed, we should be world leaders in buying, sustaining and disposing of military equipment, but we very clearly are not. No Strategic Partnering Arrangements, transformation or paradigm shifts can change that.

Can we relate our DIS with this shockingly poor performance, now that is an interesting question?

The oft quoted Blackhawk helicopter is a typical example of where people put two and two together and get twelve; thinking that buying off the shelf is the answer.

Sometimes it is, sometimes it isn’t.

The problems with the UK defence market are as follows

• There is only one customer
• That customer has a range of budgetary, competence and other issues (the MoD is certainly not the last word in procurement/acquisition)
• We have artificial market influences in the form of requirements to have UK sovereign design, manufacture and support capabilities across a number functional areas
• To gain or maintain a military advantage equipments must often push the boundaries of technology

We are not alone either, in fact no country in the world who has a defence industry and serious strategic position has found the answer. We fool ourselves in a big way if we think that everything with a Made in the USA badge is either cheap or good. Quite often they are neither.

The net result of the strategy is an effective monopoly and enterprise will react to that, they have a fiduciary responsibility to their shareholders to drive profitability through everything they do, so you can’t you blame them for making a profit at Tommy’s expense. BAe isn’t a charity, it isn’t the soldier’s friend, it isn’t patriotic force for good; it is a business, pure and simple.

A dominant supplier will seek to strengthen its position, BAe have purchased the last remaining VT shipbuilding interests in the UK so we are now in a position where we only have one supplier of warships to the MoD. BAe have reinforced their dominant position and there is nothing the MoD can do about it.

In a market where suppliers are consolidating choice becomes very difficult to achieve, looking at the Defence Analytical Services and Advice website the number of private sector organisations that the MoD paid more than £50million is a grand total of 48 and that number includes the phone, gas and fuel bills.

If non military suppliers are removed it comes down considerably, less than 25.

This is a graphic from the DIS itself showing how a few suppliers dominate the MoD’s purchasing.

MoD Top 10 Suppliers

Ah, but what about British jobs for British workers and our defence export successes

After DIS was published BAe aired a veiled threat to take their manufacturing and design capabilities outside the UK should strategy not be published, a strategy that more or less confirmed their dominant position.

The MoD has clearly been bent over the desk and given a very big lesson in power.

What is it that drives this monopoly?

The DIS describes the areas in which the goal is the retention of sovereign capabilities and these are wide ranging, everything from high level crytography to complex munitions to submarines.

Whilst the UK defence industry might export a lot, the UK is one of the world’s biggest arms suppliers if you take out those UK subsidiary companies that are not based in the UK the figures reveal a different picture.

Taking a look at the last 20 years of major projects very few of them has been an export success although the technology might have contributed to others that have, granted, but you cant ignore the fact that the vast majority of the arms buying nations of the world haven’t bought what we are selling, unless they are part of the manufacturing consortium or the deal is part of a wider trade agreement.

The conventional argument states that in order to achieve the best, there must be competition. It’s hard not to have some sympathy with this argument, it is what has resulted in flat screen TV’s that cost less to make than the disposal costs of an old CRT one.

Competition does result in a better outcome for the buyer, the lack of competition means we would all be driving around in Model T’s

But is the defence of the realm the same as the market for TV’s or cars though?

The MoD and Defence industry would argue not, of course they would do, wouldn’t they!

If we do ditch the DIS and just simply buy the best/cheapest on the market we will no doubt achieve better value for money in the short to medium term but long term, our inability to generate our own means of defence will have serious strategic and industrial consequences which might put the cost savings into the shade by a long way.

Perhaps a scaling back of the list of things we must be able to manufacture ourselves, perhaps a better approach to acquisition or perhaps something more radical.

Or do we simply accept that if we want to maintain the means of our own defence we have to accept some financial pain.

I don’t know the answer to the question, in truth I don’t think anyone does.