A Review of The Defence Sector – Part 1

A Billion here, a billion there; soon you’re talking real money!

(Ronald Reagan after Sen Dirksen – Star Wars)

Between 2001 and 2010 we studied 58 major, Public/Private, UK Defence sector relationships valued at several £bn. This is the first of 7 posts where we will highlight the key features of these strategically important national programmes.

Although a third of these were good relationships and a third were average, a significant number were poor. What is concerning is the latter were the highest spending. It is common these days for public sector organisations to blame poor performance on lack of investment. However, we found that many systemic, management issues persisted over the years; in particular, the failure to embed collaborative working as an operating model.

Defence Engineering Maintenance and Support Services 2001 – 2004

Background

This report reviews 55 relationships between maintenance and support engineering companies and public sector programme management organisations who worked together on several projects of varying sizes. Many of these relationships were long-term (some more than 10 years), strategically important (few/no alternative suppliers) and technically highly specialised. Recently the customer had introduced a partnering initiative to improve efficiency and effectiveness in response to a political initiative to reduce budgets.

With the prospect of lower government spending, the industry began to concentrate and the companies felt that their stability was threatened by internal reorganisations and takeovers.

“Our efforts to improve this relationship are frustrated by continuous change and management initiatives within our environment.”

They also felt that they also were at the mercy of customer bureaucracy, budget instabilities and desire to make 20% savings at the expense of their profits.

“Our fear is the feast and famine situation of Defence spending. There are times when we must stop work, lay off experienced staff and then race to get back going again. I worry that we cannot respond fast enough and this adversely affects customer satisfaction.”

Managers on both sides felt their options were limited by the monopolistic nature of the business to business relationships, the need to maintain old products, unsettled staff and organisational upheavals, poor end-customer visibility and lack of investment in modern procedures and systems.

“We are maintaining 30 year old kit that’s used and abused. The spares are in short supply, there are obsolescence problems and we have difficulty finding people and sub-suppliers with the necessary skills. Thus neither of us is prepared for long-term service provision.”

The chart below shows the performance of each relationship in rank order – best on the left, worst on the right. Only a small proportion was considered to be Successful Collaborators.

Introduction

This research project took almost 2 years to complete. 758 people were surveyed, 150 managers were interviewed and over 700 expert comments were recorded. The findings are necessarily high-level and generalised but as usual, the honest, direct comments from managers are very revealing.

Traditional Working Practices

• High turnover of staff – This resulted in increased costs, inconsistent approaches, duplication and increased workload. It prevented the development of sound working practices, innovation and the accumulation of experience. Retaining good project managers and technical staff in a lethargic business, subject to unpredictable spending patterns was difficult.

“My experience of dealing with the customer is one of frustration. They are set in their ways, won’t take risks, have an adversarial mind set and they slow things down through time-consuming bureaucracy and regulatory requirements.”

“If we start a long term agreement for say 30 years, we must have top-level support to ensure we do not do the usual customer trick of cutting back the funding at little notice. If we have to spend the next three years under the threat of cancellation our key skill base will go elsewhere.”

“In engineering terms the equipment is old hat and our best people want to work on new projects. They don’t seem to realise that we have great difficulty in finding and retaining people with the right skills. If we do not receive orders we cannot afford to hang on to these people.”

• Old, stodgy relationships – Many of the companies were large, long-standing suppliers who had become complacent and used to arms-length relationships. Furthermore many of the customers had become accustomed to poor service and lack of innovation. This situation was making it difficult to adapt to a collaborative way of working.

“Despite all the good words industry is still hide-bound by an order book mentality and an inability to change commercial practices to meet, deliver and cost schedules.” “No one seems to own the problem. It’s always been the same with this company.”

“Our standard terms do not include the concept of increasing joint rewards.”

“The equipment is mature, I don’t want to invest any more effort; I am quite happy to have an adversarial relationship.”

“They do not take a long-term view of the relationship. Instead we appear to be trying to catch each other out and score points. They are still trying to punish us.”

“They seem to think the cheapest means Value for Money; their management is self-satisfied. We gave them a pukka solution. They said it was too expensive. We cut back and now we are all suffering.”

“We continue to be hounded by the customer to provide a level of technical performance which was not part of the original contract. They don’t seem to realise that a fixed price contract limits our ability to react flexibly to changes once work has started. Their end customer cannot even provide us with a specification.”

• ‘Monopoly’ – In a number of relationships there was only one buyer and one supplier for the product or service and the partners felt ‘locked in’. This could result in negative behaviours.

“We will never achieve a true business footing because there is no open market competition for this product and we are shackled to this supplier – and he knows it!”

“If we hadn’t been tied to the company by IPR we would have gone elsewhere.”

“We are particularly concerned about competition from their repair organisation; it has a protected order book.”

“There’s no point in exploiting our monopoly position because it prejudices our long-term business.”