Effective Market Intelligence Strategy in Aerospace, Defence & Security, by Frost & Sullivan


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This market insight will consider some of the key uses of market intelligence in the Defence and Security market, why organisations get it wrong and what they can do to maximise both internal and external investment on market intelligence.

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Effective Market Intelligence Strategy in Aerospace, Defence & Security, by Frost & Sullivan

  1. 1. October 2012Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Overcoming Challenges Creates Opportunities Steven Webb, Vice President, Aerospace & Defence Practice “We Accelerate Growth”
  2. 2. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market InsightIntroductionC4ISR is a term coined by the defence industry. Organisations develop state-of-the-art technology, systemsand processes to help defence forces communicate safely, follow well-planned operational procedures and gainnear-perfect situational awareness to deal with a multitude of eventualities. The best technologists and plannershave worked with government agencies for years to help collect, interpret, and disseminate sensitive intelligencedata. People’s lives are dependent on the systems. If we’re going to pin the tag “intelligence experts” to anyindustry, then it’s the defence and security community.Given that defence organisations are at the cutting edge of intelligence technologies and solutions, it mightsurprise industry outsiders that they are not as efficient at collating intelligence on their competitors,customers and the business environment as one might expect. Poor use of market intelligence can have anegative impact on both the top and bottom lines. This Market Insight will consider some of the key uses ofmarket intelligence in the Defence and Security market, why organisations get it wrong, and what they cando to maximise both internal and external investment on market intelligence.The Hunt for New Regions, Markets and AdjacenciesThe Aerospace, Defence and Security market is evolving rapidly. Defence organisations are seekingopportunities outside of traditional “Western” markets, developing new business models to satisfy thecost-conscious customer, whilst also assessing adjacent market opportunities such as security. The needto understand where to focus time and resource has never been more critical. With global defencebudgets only set to grow by 1.27 per cent from 2011 to 2020, system integrators and suppliers need tobe sure that they focus time and resource on the right opportunities. HIGH Emerging markets Security spending becoming the key Importance of TLCM outstrips defence target for expenditure New market entrants Modernisation US and EU industry (other industry) Requirements Technology Investment in COTS products Convergence Dealing with a new market increasingly become a cost conscious segments cost-effective option/increase customer INDUSTRY IMPACT power of lower tier suppliers Economic and Political Stability in APAC and LATAM Cost effective solutions Strong markets Smart, multi-purpose, Merger and Upgradable Platforms becoming opportunity Incentive to local Industry- Acquisitions hubs for smaller markets Green/Efficient (indirect access to Demand for technology know Platforms extended footprint) how through partnerships (JV, Industrialisation, M&A) Industry forces to share R & D Investment with other players Competition with a The rise of new face open innovation 2012-2021 perspective LOW CERTAINTY HIGH Source: Frost & Sullivan© 2012 Frost & Sullivan Page 2
  3. 3. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market InsightWhilst defence budgets are under pressure and the hunt for business in adjacent markets intensifies,organisations will continue to focus on understanding which aspects of the global security industry will offer astrong return on investment. Cities will continue to grow and local government will invest in new or upgradedtechnology solutions. Oil & Gas infrastructure protection and securing critical assets, often linked to a city,such as airports, water and energy, will also see strong investment. Organisations need to look at global trendsand markets. Whilst China and Russia offer limited or no defence opportunities for Western suppliers, providingcritical asset protection is a potential source of revenue. There is precedence with a number of Western firmsalready selling security solutions into these markets.Organisations also need to consider safety. Natural disasters will continue to be a theme of the 21st century,and governments and cities will invest in protecting their infrastructure from flooding, earthquakes and othernatural hazards. Providing solutions that can predict, warn and organise a response will be in demand. Beyondsecurity, integrators must look at how their capabilities can be applied to other industry segments, such astransportation and logistics. Security Growth Markets Global NA EU ME LA SEA China India Airports Mass Transit Oil & Gas First Responder Border & Maritime Border Control Energy & Utilities <1% 0-5% 5-10% 10-15% 15%+ Source: Frost & SullivanRelated to commercial aviation, passenger travel will continue to grow and commercial aviation order bookswill remain strong. Systems and technology providers need to continue to focus on improving the passengerexperience, which also applies to airports. No longer are airports reliant solely on aeronautical revenue.Increasingly, sophisticated IT systems and communications will help deliver a smoother passenger experience andhigher margins through driving more efficient processes and encouraging higher spend within the airport.The question for organisations is where to spend time and resource from a country, technology and applicationperspective? Mitigating risk and ensuring a successful new venture is a key challenge for all. Do we acquire thetechnology and expertise, or invest in building our own competency and proposition? How do we differentiatesolutions and create stand-out bids? With whom should we be partnering in new regions or industries?These are but a few of the critical questions the industry is asking itself, and gaining the right market, competitiveand customer insights will enable organisations to build a successful plan, or at least minimise the risk of it failing.© 2012 Frost & Sullivan Page 3
  4. 4. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market InsightMarket Intelligence Challenges – Finding a VoiceIn 2012, Frost & Sullivan conducted a survey with the Market Intelligence function of 168 leading globalorganisations to understand the day-to-day challenges they face and how they currently leverage different marketintelligence tools. The leading challenge for most Market Intelligence units was how to ensure that key internalstakeholders integrate research insights into their decision-making process. This resonates strongly in theAerospace and Defence industry, where Market Intelligence executives often lack an internal voice, are unable toinfluence business groups, or drive market-focused strategic planning processes. Too often communication is oneway with the Market Intelligence department struggling to pinpoint the needs of the internal customer. Whetherthe issue is one perceived only by the Market Intelligence executive or a view shared across the organisation,the result is the same. Market intelligence can struggle to be taken seriously and is often relegated to the statusof “nice to have.”One of the main reasons for an indifference to market research is that most organisations in this market are stillstuck in the slow lane of government decision-making. However, the environment is changing and this requiresorganisations to adapt to the faster lane of commercial decision-making. Shorter development and deploymentcycles require a continuous flow of real-time market intelligence to make informed decisions in what is now arapidly evolving business environment. To meet this need, Market Intelligence executives need to reposition bothinternally and externally, such that they are well-equipped to collate and analyse critical data, almost in real-time.Given that the Market Intelligence community can play an active role in mitigating costly R&D failures or providingcompetitive insights that make the difference to a successful bid, these internal issues must be overcome. However,it is not always the fault of the organisational structure or senior management indifference to market intelligencethat results in the ineffective use of insights. The Market Intelligence community can often improve its valuethrough stronger communication, better promotion of its services, and understanding the key issues and needs ofits internal customer. These needs should drive the market intelligence strategy and objectives.From a regional perspective, Aerospace and Defence organisations in the U.S. tend to have far moresophisticated Market Intelligence departments compared to Western Europe, with the rest of the worldtrailing further behind. Whilst Market Intelligence is a clearly defined function in the U.S. with significantresource and influence, in Europe the function is not always clearly defined, roles are hybrid, and processesnot always clear.© 2012 Frost & Sullivan Page 4
  5. 5. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market Insight 5 Key Market Intelligence Department Challenges and the Root Causes Problem Root Cause 1 Ensuring internal clients/stakeholders integrate research insights with their decision-making Strategic Alignment: Insufficient senior management support Engaging internal clients/stakeholders to 2 pinpoint their research needs Process: Ineffective process Integrating global, regional and local 3 customer/market information to generate insights Staff: Limited resources Demonstrating the ROI of market 4 research Process Lack of process Maintaining a portal for centralized 5 knowledge management Process: Inadequate communication Staff: Limited resources Source: Frost & SullivanCast the Net Wider - Delivering Value Across the OrganisationIn a Business-to-Business (B2B) context, both Market Intelligence and Competitive Intelligence cite the threefunctions they serve as marketing, sales/business development and strategy/planning. This is expected and, to alarge extent, mirrors the Aerospace and Defence industry.However, what is surprising is that the involvement of Market Intelligence in new product development andR&D is often so weak. A rigorous approach to understanding the potential customer needs and requirementsis often lacking and frequently validation comes after years of product development cost. Without a systematicapproach to establishing the market need and driver, R&D teams risk investment in projects that offer nolong-term business opportunities. From an unwanted technology to an overdeveloped product that deliversmore than the market needs and everything in between, this is a challenge that permeates throughout theindustry. The role of Market Intelligence can often be seen as stifling creative thinking but, whilst R&D certainlyneeds to be left to drive innovation, taking a market-driven approach can aid the idea generation process ratherthan suppressing the next big idea.It is interesting to note that in Business-to-Consumer (B2C) organizations, R&D often puts a higher value onMarket Intelligence. In a B2C environment, Market Intelligence still reports frequently to Marketing but can equallyreport into Corporate Planning and sometimes both. B2C Market Intelligence is also frequently accountableto R&D and Product Innovation, which is virtually unheard of in Aerospace & Defence. Whilst B2B and B2Cindustries are extremely different, with B2C product lifecycles short and new breakthrough technologies fromnew competitors emerging frequently, the close connection between Market Intelligence and R&D providesAerospace and Defence organisations with a blueprint into how market intelligence can be maximized.Perhaps the business function where market intelligence is most under-utilised is Procurement or, more specifically,Strategic Sourcing. The Oil & Gas industry provides a good case study and benchmark for illustrating how a goodunderstanding of the market environment for key commodities, and the impact on your suppliers, can support© 2012 Frost & Sullivan Page 5
  6. 6. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market Insightprocurement decisions and mitigate risk. Consider the financial consequences of a delay in gas turbines to anew oil field or a lack of replacement pumps for a gas pipeline. The downtime in production can have a hugeimpact on the production revenues for Oil & Gas organisations. Making sourcing decisions based on a solidunderstanding of your suppliers’ market dynamics, capacities, pricing pressures and sourcing challenges can helpalleviate potential supply bottlenecks and provide a stronger negotiating position on long-term contracts.In Frost & Sullivan’s view, the Aerospace and Defence industry rarely takes a similar approach, and certainlyexamples of a rigorous intelligence process to support sourcing decision-making are few and far between.In recent years, Aerospace and Defence organisations have more closely aligned their service and productoffering to end-user requirements. The end-user environment is often complex, and decision-makingprocesses lengthy and politically influenced. To that extent, challenges are not always clear, and investingin real-time market intelligence will enable a better understanding of the customer and help create aresponsive and efficient supply chain.Where is the Data?As stated earlier, one of the key challenges that Market Intelligence departments face is gathering intelligencefrom within their own organisation. It is not a challenge that is specific to Aerospace & Defence, but is perhaps amore significant issue due to complex organisational structures, ITAR restrictions and issues related to securityclearance. However, these issues aside, the Aerospace & Defence community can do better and should engagein more effective intelligence sharing. It is not uncommon for large organisations to have similar requirementsin different offices, but the lack of communication between departments or regions, poor processes and thelow-level visibility of Market Intelligence means they work on requirements in silos. Market Intelligence needsto develop a network of key stakeholders across the business, communicate regularly and market itself strongly.Developing an internal brand, communicating activities in newsletters and encouraging two-way communicationneeds to be a core part of the Market Intelligence department’s activities.Aside from collating intelligence from internal networks, a further tried-and-tested technique is gathering insightsfrom industry peers through conferences and tradeshows. Increasingly, social media is playing a role in connectingpeople, making networks easier to maintain and enhancing information sharing. Open-source intelligence fromthe Internet is a vital input and can provide insights that can confirm assumptions or beliefs about a competitor.However, it requires a sophisticated data capture process to collate the information and turn it into actionableintelligence for supporting bid processes or business planning.In the survey mentioned earlier, B2B organizations reported that they spent 61 per cent of their marketintelligence budget on services from market research and strategy vendors. The bulk of this was on customisedmarket research. The Aerospace and Defence industry relies heavily on syndicated research. Interestingly, inFrost & Sullivan’s experience, consulting work rarely comes through the market intelligence department; it’soften the strategic planning, business development or operating business that generates the need withoutinvolving Market Intelligence. It indicates that the internal links and processes between departments are notstrong, and this results in inefficiencies and poor information sharing across the group.© 2012 Frost & Sullivan Page 6
  7. 7. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market InsightStructuring and Building an Effective Market Intelligence CommunityThe market intelligence process need not be complicated, providing it is aligned with corporate objectives andstrong communication is fostered between departments. 5 Key Steps to Developing a Market Intelligence Strategy 1. Define Intelligence Requirement 2. Collate Data 5. Action 3. Analysis 4. Disseminate Source: Frost & SullivanMarket Intelligence needs a clearly defined role and objectives to help identify the return on investment.Most market intelligence tends to be reactive rather than proactive, indicating that organisations are respondingto ad hoc requirements rather than applying market intelligence to a long-term business strategy. The role ofmarket intelligence needs to serve the larger business objective, the growth engines (or operating businessunits) and the supporting functions.If we take the example of defence markets, it is clear that system integrators need to look beyond traditionalmarkets currently characterised by defence cuts, and into developing markets. India, Brazil, Middle East and someSouth East Asian markets tend to get the most focus.© 2012 Frost & Sullivan Page 7
  8. 8. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market Insight Emerging Market: 2011-2020 Cumulative Defence Budget Forecast/ Estimated % of Foreign Presence in Defence Procurement in 2020 Emerging Markets: Defence Emerging Markets: Defence Budget Forecast, 2011 ($billion) Budget Forecast, 2020 ($billion) 49 37 India 119 $429 bn 97 46% Middle East Latin America 72 58 $1,069 bn APAC 58% 328 260 63% $657 bn $2,907 bn 68% Source: Frost & SullivanIf the stated corporate objective is to increase revenues in these regions, then it is important to understandthe customer and competitor landscape prior to making sizable investments. However, this is rarely executedand results in different divisions taking vastly different approaches. There is significant risk in this approach.Information is weak and not shared, local offices are set up with unrealistic expectations, technology requirementsof the new markets are not fed back to R&D, local nuances are not understood and the opportunity is wasted.A strategic approach to a new market leveraging a strong market intelligence function and involving all keystakeholders can lead to a far more effective market entry strategy. Stakeholders are aligned, knowledge andbest practice is shared, customer needs are indentified and the long-term business opportunity is understood.Decisions about offices, local partners and technology investment are the result of an approach supported by solidmarket intelligence.Collation and analysis of data are the core skill sets of every Market Intelligence professional. Whilst thereis best practice around collating and analysing data, at Frost & Sullivan we believe a core challenge in theAerospace & Defence industry is the dissemination of information. Referring to the earlier survey, mostmarket intelligence professionals get stuck with trying to design a state-of-the-art knowledge repository thathas all the data the organisation needs. However, what use is a library if nobody knows where it is, has notime to visit, can’t find the book or looses their library card. Market Intelligence relies too heavily on creatingdatabases to “pull” users to the data rather than focussing on “push.” If Market Intelligence is plugged into thestrategic framework of organisations, then dissemination of data becomes easier. Requirements are known,stakeholders are identified, and both strategic and tactical intelligence becomes easier to distribute.Market Intelligence managers needs to be proactive and provide a valuable service rather than waiting forthe business to find them. This can be accomplished by regular reports on the state of the market, includingcompetitive, customer and geographic reports. The frequency of reports will depend on the business, buta monthly report on competitors will, for example, equip the sales team with up-to-date information oncompetitive threats and help them build an effective proposition. It’s important that Market Intelligence knowstheir internal customer and gets the right information to them in a structured and timely fashion.Although it is essential to “push” the information to relevant stakeholders, the intelligence database does need tobe usable and accessible. Creating a process and function that allows employees to deposit their insights in thedatabase helps capture internal intelligence and gains employee buy-in to the system.© 2012 Frost & Sullivan Page 8
  9. 9. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market InsightStrategic vs.Tactical“Customer retention,” “customer acquisition” and “brand building or awareness” are considered the key marketingaims for both the defence contractor and other service providers over the next 12 months. The most significantstrategy that suppliers plan to employ in 2012 is to “focus sales efforts on generating new business,” to “focus salesefforts on existing markets” and to “trial new and innovative products in the market” as identified by 53 per cent,44 per cent and 38 per cent of respondents, respectively. The focus on tactical information to help retain existingcustomers and identify new ones is top of mind for most organisations.The provision of strategic and tactical information is the role of Market Intelligence, but whilst most programsare designed to provide insights into future markets, few focus on delivering leads and opportunities to theclient-facing business.Many defence and security contractors have or are in the process of establishing the long-term opportunityprovided by the “Safe City” trend: integrated city security solutions and multi-agency collaboration. The marketoffers global opportunities for providers across the value chain from system integrators to technology providers,from communication organisations to those with strong analytical and IT capabilities. The key questions arewhere are these opportunities at a city level, who is the customer, and what technology is currently being used?Who are the incumbent suppliers? There are close to 3,000 cities with a population of more than 100,000that will all offer some level of opportunity. Whilst a filtration exercise (see Frost & Sullivan Market Insight onAdopting a Risk-Averse Approach to Achieve Global Business Growth) can help filter out the top 200 cities, theBusiness Development team needs more precise data. This tactical data can help turn market intelligence intosales opportunities. Understanding macro and micro trends, building a view of perceptions and budgets along withother relevant factors, will help filter opportunities and generate the total addressable market (see figure below). STEP 1: STEP 2: STEP 3: STEP 4:IDENTIFY PARAMETERS RESEARCH ANALYSIS DESIGN & IMPLEMENT FINALISE & VALIDATE OUTPUT FORECAST MODEL ECONOMIC R&D/ Innovation MACRO Corporate Sales GEO-POLITICAL Strategy Leadership AND MICRO TRENDS MARKET REGULATORY FORECAST MODEL Marketing SIZE Corporate ANALYSIS Development PERCEPTION TECHNOLOGY FORECASTCROSS INDUSTRY SUPPLY & DEMAND Investors/ Market Finance Research BUDGETS OBSOLESCENCE PRODUCTS & Competitive SERVICES Intelligence GLOBAL ECONOMY CAPACITY END-USER TRENDS CONSUMPTION Source: Frost & SullivanMarket Intelligence functions need to provide the strategic support for annual or quarterly planning processes andsupport the actions from business plans that might include acquisition searches or a new market entry strategy.Equally important, though, is providing the granular, opportunity-based opportunities. Striking a balance betweenstrategic support and tactical information is important for resource planning, but also building the credibility of theMarket Intelligence department within the organisation. Providing qualified leads, support on how best to tacklethose leads (proposition, local partners, key stakeholders, etc.) and supporting bid/no bid decisions will quicklyendear Market Intelligence to the Business Development function.© 2012 Frost & Sullivan Page 9
  10. 10. Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security Market Insight Conclusions & Recommendations With decreasing defence budgets in traditional markets, fiercer competition in security markets and pressures on the aviation supply chain, now more than ever Market Intelligence can provide a critical service to the business. Supporting long-term strategy development and providing tactical opportunities to generate near-term sales will make Market Intelligence a critical function within an organisation. Frost & Sullivan’s key recommendations and considerations include: 1. Executive Support. Executive Management needs to empower Market Intelligence and ensure it is firmly embedded in the strategic and business planning process. 2. Know Your Customer. Market Intelligence needs to provide a service across the business, encompassing both traditional internal customers, but also embracing and supporting the needs of other departments such as R&D and Procurement. Establish needs through questionnaires and face-to-face meetings. 3. Plan Your Resources. Market Intelligence needs to be flexible to accommodate planned and strategic requirements, and to support unforeseen and ad hoc requests. 4. Promote Internally. Market Intelligence needs to market itself and develop an internal stakeholder network. Branding, frequent market bulletins and regular competitor/customer and market snapshots will help raise the profile of Market Intelligence. 5. Encourage Open Communication. A culture of information exchange needs to be encouraged. Creating champions in the business that can relay internal knowledge, internal workshops and an interactive intelligence tool can help promote open dialogue. 6. Get the Balance Right. Providing the right mix of strategic and tactical support will provide greater support across the business, whilst tactical information is the best way of demonstrating a return on market intelligence investment. Frost & Sullivan has supported organisations with establishing effective Market Intelligence functions and frequently assesses best-practice models. If you would like to discuss market intelligence best practice or how best to develop a Market Intelligence function for your organisation, please contact steven.webb@frost.com or andrew.thorndyke@frost.com.About Frost & SullivanFrost & Sullivan, the Growth Consulting Company, partners with clients to accelerate their growth. The company’sGrowth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth-focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs morethan 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investmentcommunity from more than 40 offices on six continents. For more information about Frost & Sullivan’s GrowthPartnerships, visit http://www.frost.com.www.aerospace.frost.comCONTACT US 877.GoFrost (877.463.7678) • myfrost@frost.com • www.frost.com