The Avascent Group

Defense & National Security

After years of rapid growth in military and intelligence spending, the defense industry is entering a period of uncertainty that will force industry leaders to rethink their strategies for growth. While the US government’s desire to sustain spending in the face of a continuing economic downturn will delay reductions until after 2010, the US defense climate will become increasingly tight. The Obama administration’s aim to curtail supplemental appropriations will further compress investment budgets and new start programs will become increasingly rare. Patience for poorly performing programs will be short as customers’ tolerance for technical and cost risk decline sharply. Modernization priorities are also shifting as the Pentagon’s leadership seeks to reorient the Department toward irregular and hybrid warfare, and high-end asymmetric threats. Within a more constrained environment, industry will see greater interest in alternative solutions to vexing operational problems, potentially at the cost of sidelining some current programs.  

Key Defense Sector trends

  • Increasing pressure on the topline defense budget is inevitable as operations in Iraq scale back and the government addresses domestic priorities and deficit reduction.
  • Emphasis on irregular warfare will lead to an ongoing revision of investment plans and priorities.
  • Scrutiny of program cost and schedule will increase as OSD looks for high profile examples of excess when making cuts.

Segment Developments

  • Having grown sharply in response to operational demands in Iraq and Afghanistan, ground combat systems face tremendous uncertainty. Insurgency-driven programs, like MRAP and M-ATV, will wind down and the land forces will need to make hard decisions about priorities.
  • Air Force and naval aviation will see increased emphasis on unmanned aircraft and legacy upgrade programs , with advanced manned aircraft as the bill payer. Unmanned systems will see even more emphasis in the QDR and future budgets at the expense of 5th generation fighters.
  • The curtailment of DDG-1000, restart of DDG-51, and cost of LCS have disrupted Navy force structure plans. At the same time, the Navy, Army, and USMC are increasingly investigating ship and boat concepts that are relevant to littoral, riverine, and logistics roles.
  • Support for C4ISR programs will remain robust, but DoD will favor a more evolutionary approach to innovation. Competitors able to adapt commercial technologies in networking, information management, and information assurance may gain market share even outside of formal programs of record.
  • Concern over DoD’s ability to manage complex systems acquisition efforts, and loss of control over “inherently governmental” functions is driving a broad move to identify how and where contracted services can be “insourced.” This is creating uncertainty for support services providers, particularly those associated with acquisition support and program management.
  • DoD will continue looking for savings via logistics innovation, creating opportunities for providers of hardware, IT and management systems, autonomic logistics solutions, and countless others. Exploring alternative business models may yield advantages for both customer and competitor.

Industry Trends

  • Defense spending constraints will drive consolidation with emphasis on repositioning portfolios toward areas most likely to gain from shifts in DoD priorities. At the same time, competition for increasingly rare new-start programs will become more intense.
  •  As DoD institutionalizes a more conservative approach to program risk, industry will need to invest more in competitive prototyping and independent R&D. With DoD likely to experiment with fixed price development contracts, firms will have to analyze carefully where to place their bets and take the necessary risks to succeed.
  • Reset and sustainment activities will become extremely competitive. Firms’ lock on OEM roles will become increasingly vulnerable to low-cost competitors. Government depots looking to sustain workloads in the wake of Iraq requirements will become increasingly aggressive.
  • Companies facing rising pressure in core markets will push harder into adjacencies. They will apply core competencies in logistics, IT, and training among non-DoD agencies. New areas of priority, like cyber and energy, will be the focus of heavy industry investment, including both IR&D and M&A.    

Avascent’s Experience Serving the Defense & National Security Sector

In these turbulent times, razor sharp analysis and insight are more critical than ever. The Avascent Group can provide senior executives with an incisive understanding of the dynamics shaping tomorrow’s defense and national security markets and help them design effective growth strategies in increasingly challenging times. Avascent’s experienced consultants can assist clients as they develop practical and effective strategies to preserve core program businesses, meet emerging customer needs, and thwart competitive challenges.

Avascent’s work allows clients to position themselves for continued success by extending their reach across the defense value chain and into new adjacencies, rethinking customer-facing strategies, and seeking new opportunities for internal and acquisitive growth. Avascent supports these efforts with the timely, independent, and fact-based analysis and consulting expertise needed to develop market-based strategies and capitalize on emerging opportunities.

Serving the unique needs of the defense sector has long been core to Avascent’s management consulting work for over 20 years. Our experience and expertise in the US and international defense markets is unmatched, enabling us to provide clients with focused, results-oriented analysis quickly and efficiently.