Table of Contents
Deepening Before Broadening Will Increase the Likelihood of Success in the Future
This study focuses on defence business and defence contractors, while also considering the non-defence activities of these companies. Globalisation and the blurring of boundaries between commercial and defence companies are likely to significantly impact the long-term strategy of both defence business and defence contractors. Now and in the future, defence contractors face, and will increasingly face, several challenges which they need to overcome for their survival and success.
- Deepening in Core Markets is the Foundation for Diversification.
o Defence companies must not just implement a strategy to lessen their position in defence, but also implement a strategy to deepen in core markets as a platform for increased diversification.
o This also provides a platform for broadening market penetration, reaching new geographic and commercial markets as well as concurrently optimizing performance at all stages.
- Future Success will Rely on Innovation.
o In the highly technological defence industry, investment in research and development (R&D) is expected to remain crucial, although the investment varies greatly across companies. In fact, some companies have been spending less than % of their revenue on R&D, while others spend more than % (at present, the average is %). With innovation coming increasingly from commercial technology companies and defence customers demanding more high-tech solutions (including exploitation of wearable technology, social media, cloud services, etc,) acquisition of “technology” companies and partnership between “defence” and “technology” companies are expected to grow.
- Operational Efficiency and Short-term Profitability Goals Should not be the Only Answer.
o The average operating margin across the companies profiled is about %. Achieving a % operating margin is the strategic objective of many top companies. Improving margins, without harming innovation and jeopardising the sustainability of future growth (weakening the strategic position), remains a major challenge.
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