Eurosatory 2016

SECURITY - The future of the global defence/security industry [ES2016D4]

16 June 2016

Global security and defence industries are experiencing enduring and intersecting technological, competitive and market transitions that will affect both immediate and distant opportunities and risks. The intersection of five particularly powerful forces will necessitate new ways of thinking about and planning for uncertain and complex futures.

New actors:

Defence and security companies face increasingly competitive environments filled with new actors from emerging markets and adjacent industries applying disruptive business models. The entry of a variety of emerging market companies that maintain the flexibility to offer ‘good enough’ solutions, technology transfer and favourable financing terms has been a feature of export markets for several years.

In addition, demand for defence and security-focused solutions in cyber/information domain, new materials, wearable/ flexible electronics, unmanned systems, artificial intelligence, big data analytics, and navigation and communication technologies are driving convergence between security and defence and also generating more frequent and intense intersections with high-tech companies that specialise in commercial applications of these technologies.

The trajectory of this engagement is unlikely to be a steep and straight upward line. Low margins, intellectual property concerns, difficulty of doing business with government procurement agencies, long business development cycles, and ethical concerns will deter some high-tech companies from large defence and security plays.

US Secretary of Defence Ash Carter’s May 2016 decision to change leadership of the Defense Innovation Unit Experimental (DIUx) – an organisation established to facilitate US Department of Defense (DoD) engagement with Silicon Valley – and explicitly acknowledge slower than expected progress further highlighted some of the bureaucratic demand-side challenges associated with the early stages of this engagement.

However, the leadership change also demonstrated the commitment of the world’s largest and highest tech military to expand engagement with this sector – especially in light of the April 2016 $82 million US Air Force contract award to SpaceX to carry a GPS satellite into space, among other recent DoD/high-tech engagements.

Indeed, the May announcement formalised the establishment of a new DIUx hub in Boston and included acknowledgement of the need to accelerate procurement process reform.

Dismissing the potential effects of high-tech industry – as competitors, partners and mergers and acquisition targets – on the global defence and, especially, security market will leave traditional industry actors vulnerable to powerful disruptive market shifts.

New technologies:

Investment in and development, proliferation and clever use of a range of emerging technologies have the potential to rapidly transform end-user capability requirements and shatter assumptions about the types of models that will enable success for corporate activities.

New frameworks: The intersection of industry drivers with changing global economic and geopolitical frameworks and broad ‘megatrends’ related to demography, communication, population movement, new sovereignty models, data consumption, banking and commerce and transportation will have far-reaching implications for global defence and security.


Show New economic realities – especially related to global debt, slow growth and emerging market ‘mid-life crises’ – and the possible fracturing of longstanding geopolitical ‘clean lineups’ of allies and partners will change budget expectations and threat perceptions and priorities.

They will also produce novel and diverse industry relationships.

New rules:

Managing supply chains and business resilience amid increasing regulations focused on counterfeiting, cybersecurity, corruption, climate change and conflict materials will bring new risks and constraints on partner identification and even on the markets to which companies can sell.

In addition, innovation in defence and security products and services will require, and actually stimulate new laws and regulations to address legal, safety, security, business, infrastructure and ethical concerns. Shaping the “rules of the game” to facilitate easier adoption of specific products at both national and international levels will be a growing feature of future competition for global defence and security companies.

New budget and funding realities: The current environment of constrained procurement budgets will be matched by enduring spending crunches in research, development, testing and evaluation budgets across several regions later in this decade.

Innovation will occur more frequently through risk-burdened company-funded innovation initiatives that may never be selected for contracts.

Defence and security companies, then, are likely to seek means of sharing this risk through public private partnerships, cooperation with competitors, acquisition of niche providers of sought after technologies, or even partnership with other non-defence and security industries focused on different applications.

Incorporating uncertainty The evolution of these intersecting forces will drive industry and market dynamics along previously unexplored trajectories, generating new competitions that do not conform to existing assumptions about the future of the industry.

Uncertainty, complexity and vulnerability to disruption will be prominent and persistent.

Scenario planning is a powerful and increasingly relevant means of incorporating uncertainty, challenging assumptions, and expanding thinking about the future. By developing and examining pathways to and parameters of a series of alternative plausible (as opposed to merely likely) environments, decision-makers can better understand how drivers might evolve and/or intersect to create novel landscapes.

For example, the IHS Jane’s Defence Industry 20YY scenario planning product has developed three alternative visions for the future of the global defence and security industry (and analysis of these futures), each designed to isolate a particularly powerful driver or intersection of drivers: ‘Industry Insurgency’ (competitive environment and global economic and technology trends); ‘Divergent Disruptions’ (disruptive technological innovation and new competitors); and ‘Failing Frameworks’ (changed and changing geopolitical and economic contexts and relationships).

Analysis of individual scenarios seeks to identify challenges and opportunities of each alternative world; assess strategies, capabilities, relationships and actions required to effectively capitalise on opportunities and mitigate risks in each scenario; and identify signposts that one scenario is more or less likely to come to pass. Matching scenario-specific strategies with signpost identification allows decision-makers to design hedging strategies and also implement these strategies as challenges are unfolding rather than after they have matured.

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