FOREWORD - DEFENCE MANAGEMENT JOURNAL, September 2004

Professor Damien McDonnell OBE, Chief Executive, Defence Diversification Agency (DDA)

Defence business makes up a significant part of the UK economy. But in this ‘make anywhere, buy anywhere world’, British companies are experiencing marked changes in the sector’s traditional supply chain structure.

Increasingly, we are seeing defence Prime Contractors becoming multinational, migrating their businesses up the value chain, and developing into systems integrators and customer service providers. Underpinning technologies, components and sub-systems once provided by a host of home-grown subcontracting companies to the UK’s major defence suppliers are now more frequently being sourced at more competitive prices in the world marketplace.

Such business strategies do mean improved Return on Investment and lower costs of operation. But they also carry risks for the defence industry and the UK’s wider manufacturing base in the long term. Many of our businesses, particularly the smaller ones, are apt to feel vulnerable and isolated by such changes. But they can ensure their continued participation in this sector by enhancing their competitiveness and turn these changes into opportunities.

The companies best able to respond effectively in such an environment are ones that have recognised the need to innovate by harnessing technology and knowledge for the creation of added value. There is plenty of evidence that the defence sector in the UK has a wealth of the highly creative, agile and innovative companies that make for a supply chain that runs smoothly and efficiently. It is vital that such companies are nurtured for the future health of the sector.

Defence is a specialist arena and companies need access to central expertise to help them participate in the sector. At the DDA, we have seen that a focused effort to link business, academia and their support networks to the MOD and the wider defence community – a multi-sectoral approach – can help existing suppliers, as well as make for a pool of potential new ones to call on, strengthening our overall performance at global level.

Companies that need revitalised offerings for the global market can be helped through proactive technology transfer. Our experience is that virtually every business we have had dealings with has one or more opportunities for growth and innovation that an injection of technology can bring about. Surprisingly, to some perhaps, the source of that technology solution might well be defence. The Government recognised that its substantial investment in the MOD’s science and technology could be used to benefit UK business. In helping companies access such a wealth of knowledge, we can testify to its effectiveness in stimulating innovation, and giving our current and future defence industry competitive advantage.