Changes in the Landscape

The European defence industry continues to experience consolidation and faces turmoil and change in order to meet the needs of major European defence projects and compete globally with the US behemoths of Lockheed Martin, Boeing, and cheaper Russian equivalents of Sokol. European companies have only recently begun consolidating in such grandiose terms as their American counterparts and have organised projects with joint government and company support from across Europe, usually France, Germany, Italy and the UK. These alliances have tended to encapsulate large-scale projects to create a new fighter plane or a helicopter. Such grandiose projects have resulted in spiralling costs and huge delivery delays. If the defence industry is to survive then more co-operation will need to take place, but a new approach is required.

Airbus has demonstrated, to a certain extent, how different companies can co-operate to form a profitable business across different nation states. Airbus has beaten Boeing 3 times out of the past ten years in terms of aircraft sold. Although Airbus is now a company in its own right, 80 percent by European Aeronautic Defence and Space Company and 20 percent by BAE Systems, it has developed through co-operation between companies over large distances and with different work cultures. In deed, Airbus won its first major defence deal at the end of 2001. Eight European governments have signed a deal worth E18bn to purchase A400m military transport vehicles for use in deploying Europe’s planned rapid reaction force. This has taken a long time for Airbus to achieve, processes have been built around the alliance companies based around projects.

As European defence companies continue to work over large distances and mould together work practices, new procedures, processes and management will need to be put in place to ensure budgets and delivery dates are met. This will enable European players to remain competitive in a consolidated market. Acquisitions will continue amongst European defence companies however co-operation and mergers between companies appear to remain the likeliest trend. In order to ensure that large-scale defence contracts are better managed and integrated some fundamental changes will need to occur in the industry. Better communications, real-time information and workflow are something the industry needs to introduce.

 

Restructuring?

Is it a question of restructuring operations? This is only part of the solution. This is not always easy when there is a number of companies locked in a large defence project. Even restructuring may not always be enough to ensure that costs are reduced and management is improved. Defence companies must move beyond reorganisation and put employees in control of projects through improved utilisation of IT and communications. We can see in the following example that reorganisation is not a simple process:

The European Aeronautic Defence and Space company and BAE Systems are currently changing the management structure at Astrium, their jointly-owned space subsidiary. There have been a number of problems that have hindered this process, namely national rivalries hindering integration and rationalisation of the group. An additional goal is to cut costs, through better integration, and streamlined management across France, Germany, the UK and Spain.Astrium was formed in 2000, a result of merger between Matra Marconi Space (owned jointly by BAE Systems and Aerospatiale Matra) and the space activities of DaimlerChrysler Aerospace.

Streamlining the number of people managing projects is a core requisite to achieve, something that has not taken place in many European defence projects and leading to debacles such as the Eurofighter. In addition, as indicated in the example above integration is another prerequisite to be achieved. In order to work towards better integration, responsibility must be divided more effectively and efficiently, people need to be in control of the information available to them, more so than at present. Once companies decide to co-operate on a project or merge operations they need to redefine information workflow and re-organise IT and IT processes. Utilising the Internet is one way to move to more dynamic management.

Most of the defence industry relies heavily on IT infrastructure to organise scheduling, production, distribution and supplies etc. but this has not been effectively used to manage huge defence projects or merged companies. Although companies have successfully used static, information sharing they are yet to use more dynamic and personalised content. Project managers have not been able to manage effectively because they have not been able to access up-to-date information, to make informed decisions to make plans or change plans. The use of the Internet could underpin many of the management and workflow needs required by the European defence industry. The flow of information needs to become more intelligent and reach recipients in a format that suits their needs and delivers information on demand. Workflow control should be put in parallel with project managers and each person in a team should be able to access information related to their goals and areas of responsibility.

The Extranet or Intranet used by a merged company or group of companies should enable each worker to enter a self-service screen where they are able to personalise content that is useful in organising their job, and those of others. In order for this system to work all operations must be able to operate in real-time for information accessed by users is current. This means all production processes, stock-control, distribution and work in progress etc information must be up to date, minute-to-minute to ensure people can gain an accurate picture of what is happening. Project managers will be able to set up personalised content that will automatically flag up problems before they become too serious, and be able to react to them and make a decision. In this way costs can be controlled more efficiently and schedules can hopefully be met. The greatest problems occur in the planning/development stages of projects, so driving the use of on-line access to all company operations will be important, such as R&D, and not just pre-production and supplies.

There is no reason why the defence industry cannot implement more of the workflow processes that companies such as Cisco, Ford, ABB and Babcock Borsig Power have introduced. This will enable them to better tackle huge European defence projects and become more competitive in an industry of few opportunities and huge competition.

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Ref: TP0045A02V01