In the past decade, departments and ministries of defense have shifted some of their attention to non-core defense industry vendors for hi-tech solutions. Technology firms now can deliver their products in a more efficient manner and with more agility than some legacy aerospace and defense companies.
In an article on aerospace and defense industry trends, defense companies have 3 strategic options when battling against nondefense technology firms to survive:
1. Maintain their current role as a defense contractor. Here they would have to rely on the U.S. & global markets for military spending to be high to continue to grow.
2. Build a growth plan around product lines adjacent to their primary markets involving digital technologies, like cybersecurity and invest to support the growth or grow through strategic acquisition.
3. Develop and invest in the information value chain, including the parts that are dominated by Silicon Valley companies. Pushing this strategy need to be done carefully as companies need to consider if they can out-develop Amazon in cloud services or hire more data science and analytics specialist than Google.
Three things defense contractors can do to compete with non-defense company disruptors:
1. Build a brand of innovation not just about new products but new applications of products or enhancement of existing products.
2. Attract the best talent by starting early. Some companies start with pre-k, yes that's right PRE-K!
3. Establish a partnership or acquire smaller nimble tech companies that will enhance a product or help you grow into an adjacent market. A great campaign around these partnerships or acquisition can help with your innovative brand position.
Recently, the Pentagon's Defense Innovation Experimental Unit (DIUx) awarded 25 contracts worth of a total of $48.4 million in the second quarter of 2017. The U.S. Defense Secretary James Mattis promoted the DIUx's efforts to commit to high-tech defense innovations. These companies are not your traditional global defense brands but small, agile tech companies that bring solutions to some of the military's most complex problems.
Innovative companies, especially in the defense industry, are highly valuable to not only potential shareholders - but to the country.
Innovation has become a necessity for survival. Forbes recently came out with an article talking about today's definition of 'innovative company'. This different approach in ranking innovation looks to identify companies that are expected to be innovative now AND in the future. Here are two summarized innovation measures:
- Innovation Premium: the difference between their market capitalization and the net present value of cash flows from existing businesses (based on a proprietary algorithm from Credit Suisse HOLT).
- Propensity to fade: A combination of the forward two-year consensus estimate of ROI level, a historical ROI volatility, and the company's reinvestment rate.
Whether you are a top global defense brand or a small innovative startup, it's critical to market your message on how your company has invested in innovation and can deliver products and services for the defense industry. To hear more about how to create a marketing strategy or to find out what other moves you can make to increase your brands visibility - click here.