10 Jun 2022

Towards a more effective market in Defence

Towards a more effective market in Defence
Chris Deverell

General Sir Chris Deverell questions the level of spend with SMEs for the Defence sector, and how the industry can move towards a more effective market.

99.9% of businesses in the UK are small or medium-sized yet in Financial Year 19/20 the UK Ministry of Defence spent only 5.1% of its procurement budget directly with such companies (and another 16.2% indirectly, through the supply chain). This was an improvement: in 16/17 these figures were 3.7% and 9.4% respectively. But is it enough?

 

It would be if you think it likely that the 7,700 large business in the UK[1] have cornered the market for talent and ideas to the detriment of the 41,100 businesses[2] that are small or medium-sized. But thinking in this way would not only be counter-intuitive, it would also be wrong. I do most of my work now with Academia, Venture Capital, Accelerators, and Start-Ups, and I can confidently say that, if anything, the balance of advantage in talent and ideas lies with small new businesses. These days, for example, there are large numbers of enormously capable individuals with great ideas being spun out of Universities to form new businesses. And this isn’t just the case in the UK, by the way. This trend is at least as strong in the US and elsewhere. Moreover, this is not just about start-ups: there are manifestly also some highly talented people in long established small and medium-sized businesses.

 

Small businesses are not just relatively well-placed in the war for talent and the generation of ideas. They are also, by their very nature, massively more agile than large businesses, and therefore able to respond much faster to customer demand. In the case of start-ups, this is not just a function of their size, but also of their mindset. They face an existential challenge: if they don’t achieve their milestones before the next round of funding is due they die. So their model is iteratively to develop their technology through close collaboration with end users, pivoting as necessary to new business ideas and models if the situation demands it or opportunities present themselves. As a general rule, start-ups are also efficient users of capital, and their access to capital can be easier than is the case for many large businesses.   

 

It follows that the UK Government and large UK businesses are likely missing opportunities to the degree that they are unable (or unwilling) to source capability from SMEs. Of course some of these SMEs are acquired by large companies or, go on to be large in their own right, but waiting for this to happen before engaging with them would be a sub-optimal strategy, leading to delay or worse. There are plenty of examples of promising SMEs being bought by large companies who were then unable to maximise their potential.      

 

The UK Government knows all this. As a result, the major spending Departments have SME Action Plans. Her Majesty’s Treasury Action Plan has declared the aim of spending £1 in every £3 with SMEs, directly or through the supply chain, by 2022[3]. (The MOD target is lower, at 25%)[4]

 

In the Foreword to the MOD’s 2022 SME Action Plan, Jeremy Quinn MP, the Minister for Defence Procurement, says “we recognise that Small and Medium-sized Enterprises (SMEs) are at the heart of the vibrant and flexible UK Defence Industry supporting a wide variety of high quality jobs across the four nations of the United Kingdom.” And this view of the importance of SMEs is not confined to Government. It is shared by the large businesses that supply the MOD (aka the Defence Primes). BAE Systems, the largest UK Defence Prime declares on its website that “BAE Systems relationships with SMEs is extremely significant. We have a strong interest in supporting the vibrant SME sector and promoting innovation through investment, which supports the Government’s objective of ensuring a healthy, agile and vibrant supply chain.”[5]  

 

However, setting these laudable aims and targets does not ensure that they are achieved. As Minister Quinn also observed in his Foreword, “we also recognise that these smaller businesses face unique challenges and barriers preventing them from fulfilling their potential of delivering both Defence capability and contributing to UK prosperity.”[6] As a result, the Action Plan sets out how MOD will improve the engagement it has with SMEs, focusing on procurement models that are easier to navigate, a recognition of the role the MOD and its major suppliers play in supporting the whole of the Defence supply chain and understanding how best to support innovation and exports for UK suppliers.

 

I have spent 20 years in MOD capability development roles; as either requirements setter, planner, fleet manager, or in procurement, constantly faced with the challenge of finding ways to accelerate the delivery of capability into the hands of servicemen and women. As Director Equipment Capability for Ground Manouevre (2007-2009), the vehicle for achieving this was the Urgent Operation Requirement (UOR). We spent over £1bn on UORs to protect soldiers against Improvised Explosive Devices and other threats in Iraq and Afghanistan; for example fielding MASTIFF, RIDGEBACK, WOLFHOUND, HUSKY, JACKAL, COYOTE, and WARTHOG vehicles at a pace not seen since World War 2. Most of these platforms were designed by SMEs, rather than by Defence Primes. Later as Commander Joint Forces Command (2016-2019,) I established the jHub, an innovation system which has successfully taken advantage of the technology available in the start-up community to equip users at speed in a model that has now been widely replicated across UK Defence. My experience has therefore shown me the vital importance of finding ways to tap the talent, ingenuity, and agility of the SME community.  

 

One of the easiest ways for SMEs to access Defence spending is through R&D, to which MOD has committed a minimum of £6.6bn over the next four years[7]. This is welcome, as is the activity of the Defence and Security Accelerator (DASA) which has spent £103m on innovative projects with industry and academia over the last 3 years, over 60% of which has gone to SMEs.[8] But the remainder of the MOD’s spend on equipment and support (c£78bn over the next four years[9], hereinafter described as the core programme) dwarfs the R&D spend. (And the c£78bn figure does not include other substantial categories of MOD expenditure, such as personnel support and infrastructure.) Moreover, valuable though non-dilutive funding is to SMEs, the problem with R&D spend is that it is at the margin, and does not automatically translate into enduring spend from the core programme. R&D (or invention) is not the same as innovation. For an innovation to have occurred, a new capability or functionality must have been placed in the hands of a User on an ongoing, rather than a one-time, basis. This requires funding from the core programme, which is much harder for an SME to secure.

 

Crossing what is commonly known as ‘the valley of death” between R&D and successful innovation requires, amongst other things, an exchange of information between the MOD and the Defence Primes, on the one hand, and SMEs, on the other. Through this exchange each party can understand the opportunity presented by the other. This is about much more than the advertising of contracts as they come to market. It is about the MOD and the Primes identifying promising SMEs from the thousands that are operating, many of whom have expressed no special interest in Defence, but who may have products that are very suitable. And it is about the SMEs knowing who to talk to in the MOD and/or Prime that might have an interest in the capability they offer. Both of these avenues are currently overly dependent on serendipity or who you know, with the result that many opportunities are likely being missed.

 

Put another way, we need a more effective market in Defence, with better information flows. SMEs need a means to access procurement decision-makers and influencers and, particularly for newcomers to the market, a better understanding of the Defence landscape and how to navigate it. Decision-makers need a means to filter approaching SMEs, quickly assess them against requirements or uncover new technologies or techniques previously unknown or unconsidered.

 

Defence Engage sets out to meet these needs, enabling a network of procurement and supply chain professionals, procurement influencers, marketers, and lead generators, and sales and business developers. Defence Engage is set to offer a level playing field of opportunity to SMEs and a sourcing hub of diverse suppliers for decision-makers. Its secure environment allows for an exchange of information that can more easily identify relevant supplier matches to requirements or ideas for future programmes. Defence Engage will thereby enhance the capability of our Armed Forces, which is why I am excited to be supporting it.

 

About General Sir Chris Deverell

General Sir Chris Deverell has more than 40 years in public service, the last 15 years of which have entailed leading large organisations through fundamental and constant change. Uniquely he has served at a senior level in all the major parts of the MOD’s acquisition system, latterly as Commander of Joint Forces Command during which time he set up jHub, the innovation centre for what is now Strategic Command.

 

Currently Deverell supports SMEs and Senior Management teams in various roles as venture partner, advisor, accelerator programme mentor and external member of the Council of Oxford University.

 

 

 

 

[1] https://www.gov.uk/government/statistics/business-population-estimates-2021/business-population-estimates-for-the-uk-and-regions-2021-statistical-release-html

[2] ibid

[3] https://www.gov.uk/government/publications/small-and-medium-enterprise-action-plan

[4] https://www.gov.uk/government/publications/opportunity-and-innovation-the-defence-small-and-medium-sized-enterprise-action-plan

[5] https://www.baesystems.com/en-uk/what-we-do/suppliers/united-kingdom#:~:text=%22BAE%20Systems%20relationships%20with%20Small,agile%20and%20vibrant%20supply%20chain.%22

[6] https://www.gov.uk/government/publications/opportunity-and-innovation-the-defence-small-and-medium-sized-enterprise-action-plan

[7] ibid

[8] ibid

[9] ibid

 

Defence Engage supports knowledge development to help SMEs navigate the Defence sector. This includes industry trends, insights, developments and guides to doing business in Defence.

 

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