Editorial: The three Cs – competition, collaboration and consolidation | ADM September 2012

With our focus this month on sustainment and skilling, the three Cs of competition, collaboration and consolidation are key for industry.

Rarely are there cases now where a company goes it alone on a program. Under a teaming arrangement, partnership, alliance or whichever framework you care to name, collaboration is the way to go it seems. In virtually every story that you read in this edition, this collaborative approach is evidenced.

But with all the collaboration in the air, what does this do for competition? At what point does it make more business sense for companies to collaborate rather than compete? There are already anecdotal cases where companies have declined to compete, as there is no business case to be made. The time and costs involved are not worth it when a clear winner is already favoured and the company resources can be better spent elsewhere in this tight market.

This also leads into the third C of consolidation. Barely a week goes by without the announcement of a defence company being bought by another or even closing down. This consolidation has obvious consequences for competition and collaboration; fewer players mean less of both.

The space where smaller companies would once compete, minor programs of projects $20 million or less, has shrunk considerably in recent times. The latest download of unclassified programs sees a list of barely a dozen programs for each of the services. Hardly a dazzling sight for small to medium businesses trying to keep their cash flow going between subcontracting to a prime on larger programs.

As always, the cyclical nature of defence work is a major issue for both sustainment and skilling in our community. The ups and downs of programs is a challenge for business planning in that the lack of stability can be difficult for long term and expensive investment to be made. Defence had tried to manage this issue and provide more certainty with the group batch maintenance approach for ship sustainment, longer support contract terms with rolling extension options for various platforms and looking at different contracting frameworks based on performance. Rolling out the lumps is a difficult business but the DMO is moving in the right direction on many fronts and should be congratulated on such efforts.

On the skilling front, the timescale can also be an issue. Imagine the following conversation between a one star officer leaving their service and considering a career in industry. The person in question is about 50 years old, has great experience in their domain and an enviable network of contacts. For the purposes of this conversation they shall be known as Innocent.

“I’m thinking that a career in BD and your eminent prime might a be good contender when I retire from Defence,” Innocent mentions to the CEO of a prime at a networking function.

“That sounds excellent,” the CEO says. “How old are you again?”

“Only 50ish,” Innocent replies.

“That means you’ll want to work for another 10 to 15 years I assume,” the CEO ponders. “That means you’ve got one major project in you from woe to go. How does program X sound to you?”

“One program?! That’s it?” Innocent exclaims.

“That’s right. It takes roughly that long for a major program to appear in the Defence Capability Plan, go through all the passes, be built and make it into the hands of the end user. Usually. Barring floods, famines and disasters,” the CEO says, much too cheerfully.

“Oh,” Innocent ponders dejectedly. “I guess.”

Innocent has been posted every three to five years for an entire military career and the scenario outlined has never really applied before. The CEO on the other hand has a completely different dynamic to deal with. The bottom line really is a line that matters when reporting to a parent company overseas. The time scale based on analysis from previous DCPs and performance data shows some alarming curves that skew that bottom line (more than they would like) and who knows what the political landscape will be in the markets they deal with on any given day.

Competition, collaboration and consolidation are the three Cs that rule defence industry and, by extension, its customer. As I’ve mentioned previously, the upcoming White Paper is not an industry policy and nor should it be. But there still needs to be the understanding that capability, for both defence and the industry that supports it, is not a tap to be turned on and off as needed. It’s a skilled part of the wider Australian landscape that needs time and effort invested in it to be effective when most needed.