By Dave Smith, PA technology and innovation expert
In today’s tough economic climate, governments across the world are being forced to rein in defence spend.
PA’s work with international defence organisations tells us that both large and smaller spenders face significant challenges. Budget sequestration is having just as dramatic an impact on US defence spend as the cuts to defence spending in the Nordic region. It’s clear that the defence industry must look to new markets for their future revenue. And the biggest opportunities for firms in the UK and US is to take the expertise they have developed over years of supplying the UK Ministry of Defence and US Department of Defense and start selling it to overseas and adjacent markets. Or is it?
For many years, PA’s technology team has been developing products for public and private companies across multiple sectors. Our experience suggests that, while an idea may be excellent in principle, this does not mean it will be simple to execute. The problem for many firms is that their competitors have had exactly the same idea. And the customer market for defence is like any other – it is built on relationships. These relationships typically take more time and investment than many businesses have at their disposal.
Talking the talk of diversification is easy – delivery will be the challenge for traditionally conservative defence companies. To be successful in these new markets, defence companies really have to start thinking more like consumer goods companies. They must bear in mind that one of the most popular items of military equipment ever produced – the AK47 assault rifle – owes much of its success to the same marketing focus that helped the iPhone dominate the mobile phone market 60 years later.
PA works with defence companies both in the UK and abroad, and we know that they tend to work with a customer-led mindset. They develop technology to meet a rigid military specification and then explore whether they could then sell it on to other customers. However, the focus must shift if these companies want to break into new markets: they need to consider what a market-led consumer goods company would do in their position. This means investing in marketing to establish what local defence buyers want and then creating generic products, tailored to satisfy demand. And it means responding fast to high-quality consumer feedback to iterate the product through different versions until it is exactly right.
When defence companies developed technology to meet a specification, everything down to the paint would be agreed in advance. It is worth remembering, however, that neither the iPhone nor the AK47 were built using new technology. What differentiated them both is design. They are both designed to be simple and easy to use, first and foremost. They matched performance to people wants not engineering excellence or orthodoxy. The iPhone, in particular, is designed to be aesthetically pleasing. If similar technology to yours is already available in the market, consider investing in design worthy of Sony or Apple to set your product apart from the drab square boxes being produced by your competitors. The design-led thinking that we use to generate market leading products with our FMCG designs is inevitably absent in normal defence programmes.
If you are moving into overseas markets, you need to comply with government protocols. The government you are selling to may specify, for example, that your product is produced locally. There may be cost benefits to this, but there are also potential risks to your IP. This is something that fast-moving consumer goods companies have to deal with all the time. The answer may involve designing your product so the part of it with the most valuable IP is made securely and is then 'bolted on' locally to the finished product. Again, thinking about protection from piracy is a new approach for many in defence who excel at meeting security needs.
For defence companies, moving into markets overseas is less of a short-term fix and more of a complete change in mindset. As other companies have shown – notably engineering firms like Siemens Medical that completely reinvented themselves when they put customers first – the new mindset is within reach. Industries can adapt and thrive.
To find out more about how we can help you diversify and develop winning products, please contact us now./our-thinking/why-defence-companies-need-to-borrow-skills-from-the-consumer-goods-world/http://www.paconsulting.com/our-thinking/why-defence-companies-need-to-borrow-skills-from-the-consumer-goods-world/