Frost & Sullivan on Soldier Modernisation Market: Adopting Alternative Procurement Strategies to March Forward


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In this Market Insight, Frost and Sullivan discusses the pitfalls of the Total System Approach and analyses the potential benefits that other modernization strategies – such as ‘Incremental’ and ‘Hybrid’ approaches – can do to help MoDs and Industry to make Soldier Modernisation truly happen.

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Frost & Sullivan on Soldier Modernisation Market: Adopting Alternative Procurement Strategies to March Forward

  1. 1. Market Insight: Soldier Modernization Market: Adopting Alternative Procurement Strategies to March Forward Mahendran Arjunraja, Senior Research Analyst – Aerospace, Defence & Security
  2. 2. Introduction With declining defence budgets, reducing troop strength and slow advancement of modernization programs, there is a great level of uncertainty among stakeholders in the soldier modernization market. Due to changing trends in the way wars areSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers fought, the economic downturn and a cost conscious military, most countries are reorganising their Armed Forces with the objective of relying on a small, efficient, highly deployable and professional force. These changes are increasing the need to adopt the most effective soldier modernization strategy. In reality, most countries have now understood that their respective soldier modernization programmes were too ambitious and are now considering different procurement models. The much hyped programme-based modernization model, here defined as the ‘Total System Approach’, seems to clash with the new reality surrounding military procurement dynamics. If anything, this approach proved to be ineffective for most Armed Forces with a focused Soldier Modernisation Programme. In this Market Insight, Frost and Sullivan will discuss the pitfalls of the Total System Approach and analyse the potential benefits that other modernization strategies – such as ‘Incremental’ and ‘Hybrid’ approaches – can do to help MoDs and Industry to make Soldier Modernisation truly happen. Total System Approach - Modern equipment is acquired as a single kit Incremental Approach - Modernization is conducted in phases Hybrid Approach - Mix of both the total system and incremental approaches Why is the Total System approach not effective? The inherent difficulties associated with the programme-based approach make it the least effective strategy. Some restraining factors such as lack of flexibility, high complexity of programme phases as well as a lack of clarity and technology readiness have together delayed and reshaped Soldier Modernisation plans. Lack of Flexibility and High Complexity The programme based approach is more rigid than any other approach. Due to the high complexity, both industry and end-users struggle to comply when changes are made in the programme. The recent economic downturn has 2
  3. 3. forced the major NATO nations to curtail their defence budgets. The rate of increase in US defence spending had slowed down to 2.8 percent in 2010. In Europe, defence spending in 2010 fell by 2.8 percent. At this time of austerity, a bigger army is increasingly considered a needless extravagance. Also dueSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers to the increasing trend of asymmetric conflicts, countries including the United States and the United Kingdom felt that a large military is not necessary to combat the present day threats. Hence it was decided to reduce the troop strength, which in turn impacted the soldier modernization numbers. For example, the Land Warrior program in the United States, after investing resources close to $500 Million since its commencement in the 1990s, the decision was taken to cut down funding for this program. Similar is the case in France and the UK. France initially had plans to procure 32,000 soldier kits for its FELIN program later reduced to 22,588. The UK had plans to procure 35,000 kits under its Future Integrated Soldier Technology (FIST) program, but it appears that the final numbers will be much lower than this. These reductions have created widespread ripples in the industry and impacted the soldier modernization market. Figure 1: Trends in Troop size Country Troop Size United States Decreasing Canada Expected to be Stable Brazil Expected to be Stable The United Kingdom Decreasing France Decreasing Germany Decreasing Spain Decreasing Italy Decreasing Sweden Expected to be Stable The Netherlands Decreasing UAE Expected to be Stable Iraq Expected to be Stable India Increasing South Korea Decreasing Australia Expected to be Stable 3
  4. 4. Lack of Clarity and Technology Readiness This challenge not only applies to end-users, but also industry. Fundamentally, technology is time evolving and must have the ability to cope up with the futureSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers challenges. Ideally, technology acquisitions must be done in a phased manner and replacements must be quick if required. This provision for quick changes in technology is minimal in the total system acquisition model. Without a clear technology strategy, the soldier modernization programme might fail to achieve its objective Today, not all countries have the clarity of what is chieve objectives. required. Also there is a gap between what is expected in terms of technology and what is available. This lack of technological readiness has impacted the progress of soldier modernization programs, which had adopted the total system modernization approach. Figure 2 Soldier Modernization Program Stages 2: 4
  5. 5. Very few initiatives involving close collaboration between military and industry have succeeded in this domain. FELIN, the French Soldier Modernisation Programme, is the most successful programme among the countries that had adopted the total system approach. This success can be attributed to the approach.Soldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers effectiveness of the supplier to meet the needs of the end user. Except France, end-user. other countries which adopted this strategy found it difficult to manage. Most untries European programs, which have followed the total system approach, have suffered significant delays and were forced to reconsider thei acquisition plans. their This is due to low clarity with respect to their long-term requirements as well as term lack of availability for the technology expected Industry, on the other hand, sees expected. , total system acquisition as a favourable strategy as it signals the government’s level of commitment to the program. Figure 3 : Countries adopting Total system approach gure Figure 4: Countries adopting Incremental / Hybrid approach : Upcoming soldier modernisation programmes in India, South Korea, and Brazil are in their initial stages, but all seem to have acknowledged the challenges that stages, first adopters of Soldier Modernisation have faced. MoDs in these countries have opted for the incremental and/or hybrid approaches to guarantee a sustained procurement process as well as to avoid ext extended delays in modernising their 5
  6. 6. soldiers. This is not to say that emerging defence markets are being smarter; their alternative approach simply follows a common pattern in procurement strategies, since end-users are not usually able to secure large budge for a long -users budget period of time given potential political interference, lack of budget planning andSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers cohesion in procurement commitment. In other words, emerging markets are naturally adopting a more flexible approach that suits them, and this now seems to fit the difficulties that modern Armed Forces now face. No assurance of Success The risk associated with the total system approach is high. After investing time and resources, if the programme fails to achieve the targeted goal, the resulting capability gap would be much higher than the incremental approach, where modernization is done in a phased style and the course of the program could be altered to make the gap as small as possible. In this case, ex possible. existing technologies can be optimally used to field a basic level capability and this could be increased as the project advances. Figure 5: Comparison of Total System and Incremental Approaches : Changing Approaches towards Soldier Modernization dier Availability of Commercial Off the Shelf Products (COTS) and Budget issues driving Incremental approach: The availability of COTS products in the soldier he 6
  7. 7. market is playing an important role in the definition of requirements and acquisition strategies. In addition, as defence budgets cuts start hitting major markets, it is expected that some countries will cut down their expenditures on research and development, driving the need to leverage on availableSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers commercial products as much as possible. Need for Modularity: Increased emphasis is being placed on modular soldier systems. Modularity allows the army to field multiple configurations based on tailored hardware for specific missions. Here the Incremental Approach seems more attractive. Need for quick replacements: Evolving technology means that the equipment must be replaced or upgraded continuously. The Incremental Approach provides the flexibility of quick and relatively easy upgrades. Conclusion and Recommendations The Global Soldier Modernization market has, without doubt, been negatively affected by slow growth caused by due factors like technological and budgetary issues. Questions over the level of ambition of some programmes have been made, and in most cases the development of a soldier system has been considered the most professional option. Yet, military customers have shown increasing frustration over the development of its programmes at the same time Industry has shown their disappointment over funding commitments, budget cuts and requirement incoherence. Now, this negative vicious circle impacting Soldier Modernization aspirations is entering a new era, as countries reduce their troop size and make changes to the force structure. A few insights and considerations for industry and military include: • Acquiring modern equipment as a single kit does might not be the best approach for all countries. A successful total system acquisition program all heavily dependent on the combination of three key factors: full clarity in requirements, industry readiness and technology 7
  8. 8. availability that suits the end-user aspirations. A contingency plan is also important given the risk of the project. • As budget issues become a potential restraint, one option to modernize the infantry forces is to adopt the Incremental / Hybrid Approach andSoldier Modernization Market: Incremental is the Smart Approach to Modernize Soldiers conduct modernization in small and effective steps. Due to higher flexibility, less risks and quick cycles, an Incremental Approach offers significant benefits to both industry and military end-users. This strategy requires more involvement from both industry and procuring agencies, however it can provide significant cost advantages, as long as procuring agencies ensure faster increments that guarantee their commitment to the industry and programmes. • There is one key point that supplier need to acknowledge: future soldier modernization opportunities will no longer be based on volumes. The end users will focus on a smaller force and are seeking premium solutions. COTS products are becoming an attractive option not only in terms of technology capability but also playing a role in ‘filling programme gaps’, and will come with a cost-effective offer. However, the reality is that ‘personalising’ COTS to specific end-user demands might inflict a premium to the end-user. On top of it, as military customers learn about the financial impact of programme delays and multiple technology cycles – as seen in many of the ongoing examples – we shall see a greater willingness to pay a premium price for proven, ready-to-go solutions that can be tested and deployed in combat in shorter development phases. Frost & Sullivan’s new report on Global Soldier Modernization Market Assessment is available now. To know more about this report please contacts or About Frost & Sullivan Frost & Sullivan, the Growth Consulting Company, partners with clients to accelerate their growth. The companys Growth 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 over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 30 offices on six continents. For more information about Frost & Sullivan’s 8 Growth Partnerships, visit