Commentary: The DIS and the future of the UK defence industry

In December of this year it will be two years since the MOD issued for the first time its future Defence Industrial Strategy (DIS) and, whilst this has been welcomed by industry, it is worth evaluating what has really changed. Without doubt we have seen organisational change within the MOD, and the merging of the Defence Logistics Organisation (DLO) and Defence Procurement Agency (DPA) organisations into a single entity enabling an improved arrangement and contracting structure, particularly for through-life support. We have also seen a shift in relationships within the industry and MOD moving from competitiveness to partnering, with some large organisations being allocated specific technology leads – for example, BAE Systems for fixed-wing, AgustaWestland for rotary-wing and MBDA for smart weapons – creating almost a monopolistic position. This situation has motivated the primes and tier-one organisations to start to engage with their supply chain companies to identify opportunities for improved performance and to establish true long-term partnerships. This activity is providing better strategic direction, enabling the supply chain to make better informed business decisions in terms of investment and recruitment.

But fundamentally, what has really changed?

The Defence Technology Strategy (DTS) issued in 2006 indicates that in the future there will be fewer new platforms and a fundamental requirement for system upgrades, enabling improved interoperability with our international partners coupled with the technology to project power through integrated assets embracing air, land and sea capabilities.

This set of circumstances is requiring industry to develop new skills that will demand significantly higher levels of advanced systems engineering. The particular challenge is to adapt legacy systems with open systems architectures to provide new capabilities that are both affordable and can be delivered within substantially reduced timescales from those normally experienced within the defence industry. A current example is the large number of Urgent Operational Requirements (UORs) now being generated. These require a flexible, innovative and speedy response by industry. In addition to these technical skills, new arrangements in contracting processes between the MOD and industry must be established.

Furthermore, both the DIS and the DTS recognise that the threats facing the West, and the UK particularly, require vastly different capabilities from those anticipated over the past 50 years, where the threat was perceived to be from the Soviet Union and Eastern Europe. Consequently, there is now a desire and encouragement to find new disruptive, innovative technologies to meet the current threats and to ensure that the UK’s Armed Forces currently engaged in two major conflicts have the technological advantage over our enemies.

These disruptive technologies may not be found within the traditional sources of defence supply and, indeed, may be sought from other relatively new, highly innovative sectors. Characteristic of these sectors are small and medium-sized firms having significant intellectual property and the ability to provide solutions for large organisations, with better structures than the hierarchical arrangements that historically have been the models established in the defence industry. Indeed, it could be argued that the defence industry over the years has mirrored its structure on the Armed Forces, where historically the threat was predictable and incremental growth of capability was suited to the prevailing circumstances. Today the threat is very different and perhaps we now need an asymmetric industrial organisation to support our Armed Forces.

The DIS has expressed a desire for specific sovereign capabilities to be developed and retained within the UK, irrespective of parent company ownership or headquarters location. Indeed, over recent years, as traditional British companies have merged and internationalised in pursuit of business opportunities and better returns for their shareholders, the vacuums created in the UK supply chain have been filled by foreign-owned organisations – where investments in research are often made by overseas boards – at a time when, in real terms, the UK is reducing its investment in Research and Development (R&D) in the defence sector. Consequently, it is essential that we ensure that the UK is seen by overseas organisations as a premier location for inward investment and the development of innovative solutions to market needs. To achieve this will require a system within which research funding is targeted at the most effective source, rather than by size or company or past practice.

So, what are the solutions to some of these issues?

No one would disagree that the future UK aerospace and defence industry must embrace speed, agility and innovation and become an exciting industry that attracts the best engineers and scientists who can look forward to a stimulating and rewarding career. Therefore, in my opinion, the current environment provides an excellent opportunity for the creation of new business models, ones in which firms with complementary capability can work in partnership, close-coupled to research centres where the lead time from innovation to operational performance can be achieved in significantly reduced timescales and cost.

Anecdotally, such situations exist in the auto-sport industry where the culture is based on the pursuit of innovative solutions that are rapidly converted to operational capability, and success in this process is recognised as the competitive-edge differentiator. It is recognised that this process cannot be replicated in its entirety within the defence sector. However, given the global uncertainties, we can do infinitely better than the current lead times experienced, particularly in our sector where contractual process complexities and early funding constraints undermine the development of technology maturity in complex programmes; as we know, this leads to excessive timescales where often the capability required to counter the changes to the initial threat necessitates further investment to address these emerging threats.

Consequently, the proposed DIS 2.0 must recognise this situation and a new approach be adopted at a national level to ensure significant investment is made in developing sufficient resources, particularly with reference to systems, architects and engineers to meet future demands. It is evident in competitor nations that such an approach is now being taken. Failure to take the appropriate action must inevitably lead to the UK sourcing the capability from overseas.

Redesign of the supply chain to develop co-operative and complementary firms close-coupled to research establishments is unlikely to be achieved by the large international primes and is indeed out of the scope of the Supply Chain in the 21st Century (SC21) Programme. New vehicles need to be developed to enable these new models. Examples such as the newly formed Technology Strategy Board (TSB) could provide the direction to be taken at a national level where there is a structured approach. Initiatives such as the Grand Challenge within the DTS are to be encouraged, and the development of a UK version of DARPA would be catalytic in establishing the new defence business models required in the UK. An overriding requirement is that these vehicles must exhibit a responsive, flexible and non-bureaucratic way of working.

Finally, the UK defence industry in partnership with the MOD has historically been successful in securing export-driven revenues that have enabled reinvestment in new technological capabilities. It is therefore hoped that the recent decision by the government to merge the Defence Export Services Organisation (DESO) into UK Trade & Investment (UKT&I) will enable this success to continue.

Source: R. Bradley - RUSI

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