Recent efforts at earmark reform raise a number of strategic questions for federal contractors and challenge them to create a more balanced portfolio of external and internal funding streams. What hard questions should firms that have benefited from earmarks be asking as they prepare for coming change?
In 2009, a long-awaited moderation in defense
spending began in earnest, coinciding
with a redirection of defense priorities away
from expenditure-heavy platform acquisition
and enhancement. A market that is steady
but not growing creates a new reality with
which corporations serving the defense community
will cope for some time to come. For
companies primarily focused on aerospace
and defense (A&D) in particular, this begs
the critical strategic question: How do we
hold our own, or even sustain growth, in a
down cycle?
Diversification into attractive adjacent markets provides an opportunity for traditional aerospace & defense (A&D) firms to offset potential declines in their core business in the face of defense spending reductions and/or declines in the highly cyclical commercial aerospace market. This presentation—given by The Avascent Group at the Wharton Aerospace 2010 Conference—considers key strategic questions faced by A&D industry leaders as they evaluate various paths for expanding into several potential adjacent markets, including cyber-security, health care information technology, energy, and “smart” power.
Despite major changes to the nation's aviation security system since September11, 2001, the United States remains vulnerable to large-scale terrorist attacks on civil aviation. These vulnerabilities are particularly disconcerting given continued terrorist fixation on civil aviation targets, as evidenced most recently by the foiled London based plot to destroy commercial airliners en route over the Atlantic Ocean.
Prime contractors, subsystem manufacturers and component suppliers have benefited from strong growth in the defense market over the past 11 years. Long-term development and procurement programs have grown side-by-side with urgent operational requirements coming out of Iraq and Afghanistan. This growth has not only benefited traditional defense contractors, it has also opened the door to non-traditional suppliers that have brought off-the-shelf competencies and technologies to bear on the complexities of military operations against insurgency threats. However, all segments of industry must now recognize that this period of growth is ending. Current strategic planning and business development processes should therefore be focused on how to succeed in this new funding environment.