So, you’re in the defence industry. That means you’re unique, right? Wrong!
It’s easy to assume the defence industry is unique: you’ve got sexy, high-tech equipment that only government employees are allowed to operate (legally, at least); wicked operational requirements; (almost) impossibly high standards for quality and precision; and stuff that’s not only dangerous in itself, it’s actually designed to kill other people.
Wait a moment, though: we’re talking about high-technology engineered products and services. What’s so different about the design and engineering processes that deliver, say, a jet fighter and an airliner? Or a main battle tank and a high-performance sports car? Or a mine-hunting submersible and a remotely operated container terminal?
When you look at the hardware, the services and the organisations that create and deliver them, the defence industry isn’t actually that different from any other high-technology sector, whether it’s bio-technology, software, AI, machine tools, offshore oil and gas, advanced manufacturing or cyber security. It’s not the technologies that are different – it’s the markets, and the way they operate.
Is that a good or a bad thing? Actually, in some ways it’s a good thing. It means the defence sector, which is surprisingly poorly studied and documented, can learn from the non-defence sector, which has been studied and analysed exhaustively.
If you want to be a successful defence equipment manufacturer, you need to embody the attributes and behaviours of successful manufacturers of machine tools, or medical equipment, or airliners, or ATMs.
And that applies to innovation, as well: the drive to innovate, the techniques for unlocking the innovativeness in your organisation and the tools you use to make your innovations relevant and effective are just the same. Google ‘industrial innovation’: you’ll learn lots about non-defence companies that you can apply directly to your work in the defence sector.
Adjacent Markets
That market thing’s a bit of a killer, though, isn’t it? What exactly are the differences between Defence and just about all of the other markets, and do they matter?
The obvious difference is that Defence is a monopsony – it’s the only domestic customer for your goods and services, so its acquisition and sustainment budgets and policies absolutely define the size and behaviour of the market, including its appetite for Innovation, and the barriers to entry. It's not like Australia Post is going to buy Land 400 vehicles.
Defence is also monopolistic. It’s reasonable to talk about a 30% or 50% or 70% share of the national market for MRI machines, or 3-axis milling machines, or diabetes blood testers. And there’s usually constant demand to stimulate the incremental and disruptive innovation that keeps products and companies competitive.
But when you’re talking advanced jet trainers or infantry fighting vehicles your market share is typically either 100 per cent, or zero. And you won’t get a chance to re-compete for 30 years, by which time user requirements and technology will have changed beyond recognition – both you and the customer are forced to think disruptively.
Thirdly, Defence does anything really important in secret. Defence’s need and appetite for innovation is determined by a community of expert practitioners whose perceptions of threats, opportunities and needs are based partially on knowledge and assumptions that aren’t necessarily made public. Hypersonics is a good example.
None of this really matters if you have privileged access to your allies’ equipment and intelligence, and can afford not to worry about the local industry base. But now that the health and innovativeness of our industry base is an issue for Defence, industry policy needs to address both the quantity and quality of work cycling through Australian industry.
Local firms must innovate to satisfy a demanding and choosy customer and Defence industry policy needs to help create a business environment and culture in which innovation flourishes.
This train of logic has led us to where we are today. Our defence industry policy now embraces innovation, and Defence and the ADF are trying to create an innovation culture that can both meet the ADF’s needs and help industry and the research sector.
The big challenge is to overlay this innovation culture on a conservative, risk-averse acquisition and enterprise management system. At its core, when billions of dollars are at stake, that system probably won’t change much – innovators need to understand that, and how the system works. Why? Because that’s how this market works.
For all that Defence is trying to close the gap that’s traditionally existed between itself and industry, it’s still up to industry to understand better how Defence works, both in acquisition and innovation, in order to prosper in this market. And to apply the abundant lessons from the non-defence market.
