Arming the Bug Hunt: our view on military-industrial markets in 2009

We are dispatching to a distribution list throughout the business our particular viewpoint on what lies ahead for the industry in 2009. This paper goes by the title

ARMING THE BUG HUNT
Why the economics of the JDAM and the MRAP are changing customer demand, and how contractors can adapt to succeed.

As we put it, there stands a widespread assertion that spending on existing military programs in the United States will remain constant for the next several years, perhaps trending downward only later on. We, however, remain unconvinced by this conventional wisdom. Rather, we anticipate that financial constraints, conventional overmatch, and constabulary impulses may combine to significantly reorder military spending priorities throughout the western world. Robert Gates’ reappointment as defense secretary and his article in the January issue of Foreign Affairs signal that the shift in emphasis towards preparation for small wars will be ongoing.

Appropriate procurements for these wars follow the economics of their decisive weapons—the Predator, the JDAM, and the MRAP. Revolutionary improvements will generally be sought only under what we term JDAM economics: where they are based on a small set of advances so inexpensive and compelling that they suppress old ideas about quality constraints. More common will be MRAP economics: evolutionary improvements that are both relatively inexpensive and essential, and based on the selective relaxation of old constraints. Many systems, like the Predator, will show hallmarks of both paradigms.

Preparing for what could be a structural break with the industry’s past requires at least three steps: an intense, practical analysis of the market; applied corporate development that tailors your corporate architecture to the emerging, dominant product architectures; and execution that demands mastery of the business on the order of the industry’s mastery of its engineering.

If you are interested in reading more, read the eleven-page analysis that you can download here. As always, please let us know what you think.