Thursday, January 1, 2015

Australian defence industry policy - some suggestions

In order to escape the many elephants in the Australian defence industry’s living room I have been doing some research into the technical history of two iconic aircraft, the Vickers Supermarine Spitfire and Hawker Hurricane.  Earlier posts describe some of the design decisions that were made in both projects, and how these were arrived at.

I’ve taken the liberty of rendering down some of the insights from this research into a dozen industry policy lessons for the monopsony customer who shapes and directs Australia’s defence market. 

  1. Industry capability (including R&D capability) cannot be sustained without a constant flow of work. (This was true in the 1930s and it remains true today)
  2. If industry capability gets run down it will take a long time to restore. (A lesson learned the hard way in the 1930s, and now confronting in the 21st century a customer who possibly doesn’t understand the level of control he exerts over the shape, size and capability of the industry.)
  3. If a nation’s industry capability is deemed to be sufficiently important then, in the absence of an efficient market of sufficient scale, it will be necessary for the government to make certain strategic investments or adopt certain policy settings in order to maintain it. (Nobody is suggesting that Australia’s defence industry needs or deserves direct financial support. At present, however, Defence industry policy seems designed to shield the Department and the ADF from any responsibility for the industry that sustains them – Defence’s policy priority is the defence of the realm, naturally enough, not the needs of industry; a wider, more mature debate on the role and importance of industry, not just to the defence sector but nationally, is essential, and long overdue.)
  4. Capacity and expertise in one industry sector are not automatically relevant in other industry sectors. (Look what happened in the 1930s when Lord Nuffield’s car people tried to build Spitfires; look what happens  today when construction and general sheet metal workers try to weld warship modules together. It takes time to develop skills and expertise, particularly in specialist fields.)
  5. A group of people in overalls and a factory building with some machinery inside it do not an industry capability make unless and until they embody the technical, design and management skills and equipment necessary to design, develop and manufacture the product (or service) the market requires. (See above; also, this reflects a tendency in public discussion to ‘commodify’ industry capabilities, to treat skill, quality and innovation as implicit and imperishable and that therefore the only measure that matters is raw numbers.)
  6. Customers shape the industry that supplies them. In a  technology driven monopsony a smart customer doesn’t allow his industry base to fall into a technical rut or to fall behind in a technology sense.  (This ought to be a truth universally acknowledged, but is not.)
  7. A smart customer must be able to strike the appropriate balance between setting requirements that push suppliers towards technology over-reach, on the one hand, and the fulfilment of disappointingly low expectations on the other. (One could discuss this endlessly – briefly, however, the Spitfire and Hurricane projects emerged from an RAF operational requirement, F7/30, that didn’t push the industry far enough. Once challenged properly, they responded well. Mastery of this balancing act will be essential if Australia is to get what it needs from the Future Submarine Project, Sea 1000, and the Future Frigate project, Sea 5000. There is a corollary to this rule: if the customer is ambitious then he needs an acquisition strategy that recognises the risk and unknowns and is sufficiently flexible to work its way around the inevitable difficulties without becoming bogged down in arguments over contracts and contractual process.)
  8. The risk appetite of an innovating company will be conditioned substantially by its existing capability (including its R&D capability).  (The Hawker Hurricane was built in the same way, in the same place, by the same people, using the same tools, processes and materials as its biplane predecessor. This was a very low-risk approach that enabled Hawker to meet the letter of the requirement with a very conservative design, but inherently self-limiting as the Hurricane had little performance growth potential. The Spitfire was designed from a clean sheet by a company that had never built an all-metal monoplane fighter before – the company’s risk appetite was very high, but it needed to be. More recently, Boeing and Northrop Grumman had a pretty healthy appetite for technical risk when they began the Wedgetail AEW&C project because they had developed similar systems before; but there was no point in them doing it unless they could improve measurably on what was already in service elsewhere and available for the RAAF to buy. They needed to take risks.)
  9. The innovator’s view of what is needed to meet the customer’s needs will be shaped by the company’s existing capability. (The Hurricane took Hawker’s then-current technology base to its limits, but was considered by its manufacturer sufficient for the RAF’s needs without forcing the company to adopt a new technological trajectory. Vickers Supermarine had no relevant technology base so considered the RAF’s requirements in a more fundamental way and designed the Spitfire from a clean sheet. As a result, it was a better performer with a much longer and broader development path. One might compare the US family of MRAP vehicles developed during the 1990s and early noughties with the Australian Bushmaster. The latter was a clean-sheet design by a company that hadn't built armoured vehicles before. It pre-dated the Coalition involvement in Iraq and Afghanistan and required time-consuming development, but was an outstanding performer once in service. The MRAPs were generally crude, compromised and in some cases deeply flawed, but they were designed and built quickly and in large numbers by the existing US heavy automotive industry, in response to a rapidly emerging threat, and were good enough for the job they had to do.)
  10. A company’s technological development course should be steered by its market knowledge as well as by its current technical expertise. (Another topic for endless discussion. Hawker illustrates the opposite case – to maintain its close relationship with the RAF and UK Air Ministry, it mirrored the RAF’s technological conservatism during the early-1930s and so never pushed too far ahead of its customer in technology terms. Conversely, CEA Technologies in Canberra understood the market's needs very well when it set out on the development path leading to the current Ceafar and Ceamount radars. Although treated initially with extreme suspicion by the RAN and DMO, these are the best of their kind in the world and now in service, after a lengthy, cautious development program which convinced the RAN and DMO that CEA Technologies had the correct solution.)
  11. If a company lacks capability and capacity in an area required by a customer, two outcomes are possible:  a timid, incremental approach that avoids undue risk, or a ‘clean sheet’ approach that drives the company into new areas of technology and capability - and risk. (Vickers Supermarine responded to Air Ministry specification  Target F7/30 with a monstrosity called the Supermarine Type 224. It was an inelegant, timid approach to a problem the customer still hadn’t come to grips with; Hawker, for its part, offered what it called a ‘High-speed Fury’ biplane (as if there could be such a thing as a high-speed biplane!). Both companies thought again (as did the customer!); Hawker followed an incremental development path to the Hurricane, Supermarine made the giant leap to the Spitfire.)
  12. The more a company depends upon technology development for its prosperity and growth, the more important it is for its management to understand that technology, not to be ignorant or dismissive of it, and not to be blinded by it. (That’s not so obvious, or widely acknowledged, that it doesn’t need to be repeated here. It applies in equal measure to the defence customer.)

So what do these lessons mean for Australia? Firstly, that Australia’s defence industry faces the prospect of a decline in both overall capability and size unless it can secure for itself more work, both at home and abroad. Secondly, that the industry needs to take a much wider view of what constitutes its market – the Australian Department of Defence alone won’t be a big enough market to sustain the industry.

Thirdly, the Australian government (and not just the Department of Defence) needs to decide whether or not this country needs a manufacturing industry and, if so, what policy settings, on the one hand, and attributes of a smart customer, on the other, are required to facilitate this economically and eficiently. At present, there’s a paucity of mature, reasoned debate and both government and industry are disadvantaged as a result.


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