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United States: Innovation in Challenging Markets


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United States: Innovation in Challenging Markets

  1. 1. May 31, 2012United States: Driving Growth andInnovation in Challenging MarketsBy Jon BarneyPartner, AvascentPrepared for:Aerospace Forum
  2. 2. Avascent is the leading strategy and management consulting firm advising clientsglobally in government-driven markets Avascent Client Industries & Sectors Aviation & Defense Systems Global Development Healthcare Intelligence Aerospace Logistics, Engineering Security & Public Information Space Outsourced Services & Operations Safety Technology Representative corporate and financial clients • Offices: Washington, Paris • 25 years experience and over 3000 assignments • Core Capabilities:  Strategy and growth  M&A  Avascent International  050 Data Product  Organizational  Capture Support • Global network in Asia, MENA, LatAm | AVASCENT | 2
  3. 3. A new reality…broader fiscal challenges, political gridlock, and drawdown of forces in Iraqand Afghanistan lead to a declining defense budget going forward U.S. Defense Budget Forecast through 2017 $800 $700 $600 $500 Actual $400 FY11 Presidents Budget Source: Avascent Analysis FY12 Presidents Budget $300 FY13 Presidents Budget BCA Sequestration Reductions $200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Avascent Analysis Conclusions:  New period of uncertainty caused by: 2012 elections, sequestration, political gridlock, geopolitical events  Budget declines, but is above early 2000s levels  There will be segments of growth | AVASCENT | 3
  4. 4. In response to this changing environment, five key drivers of the U.S. defense markethave emerged with important implications for future investments and technologies U.S. Defense Market Drivers Cost Focus • Due to budget, under-performing and/or high cost programs cancelled, delayed, reduced • Implication: Focus on effeciencies, cost savings, and low cost solutions Asia Pivot • As Iraq and Afghanistan wind down, shift of resources from Middle East & Europe to Asia • Implication: Shift $$$ away from ground forces to maritime, bombers, missiles, and ISR (Intelligence, Surveillance, Reconaissance) Changing Force Structure • Terrorist and irregular threats remain – but will be addressed by a smaller and more agile force with reduction in Army and Marine Corps - Force 2020 • Implication: Investment in Special Operations, unmanned systems, and ISR Cyber Priorities • Elevation of cyber by White House, Defense, Space, and Intelligence community • Implication: a significant area of growth, commercial/govt approaches, big data analysis Globalization • U.S. companies seeking more growth abroad; new competitors from outside U.S. • Implication: More complex operating environment presents large opportunities but risks | AVASCENT | 4
  5. 5. Innovation case study #1 – Cyber: U.S. spending on cyber will reach about $25B by2015, growing at nearly 10 percent annually with some sub-segments growing muchfaster Cyber Market Overview Federal Cyber Market Budget Overview Analysis 25 • Includes: Internet, telecom $ Billions networks, computer systems, and embedded 20 controllers in critical industries 15 • DoD: 15K networks; 7M computing devices 10 5 • Commercial market > $200B in 2010 0 • White House , DoD and Intel: cyber is priority 2010 2011 2012 2013 2014 2015 Source: Avascent Analysis • Large area for M&A – 70 deals in 5 years Large Systems COTS Providers that Pure-play Security Company Type Services Firms IT Service Providers Integrators Offer Services Product Companies Focus on high volume Thought leaders with Leverage broader IT focused trying to Market Commercial and IT security products; trusted brands – relationships with expand into Approach government leaders prefer sales through analytical services government government primes Leading Firms | AVASCENT | 5
  6. 6. Innovation case study #2 – Unmanned Vehicles and ISR: Due to operationaleffectiveness, cost savings, and Asia pivot, investment in UAV/UAS and ISR capabilities willcontinue Systems and ISR Market Overview Unmanned Market Trends Service Trends • Has been dominated by platform manufacturers… • Army – #1 small UAV user; Op-tempo impact • …but new opportunities in multiple mission areas: • Navy – expanding requirements; larger ISR cargo, longer endurance, ISR, training, payloads, civil missions and Broad Area Maritime Surveillance • Growth despite cancellation of Global Hawk Block 30 • Air Force – largest UAV customer and will continue to drive broad innovation • 50% lifecycle cost savings for unmanned airborne ISR missions (aircraft, personnel, training) - CSBA study • Marines – modest users of UAV; Army model Flight Control Ground ControlMarket Segment Air Platforms Payloads Communications Systems Systems High altitude/long Strong platform Push for Crowded market with endurance DoD demand for presence; important standardization sophisticated Trends (HALE), cargo, comba more capable ISR if migration to civil across platforms and technology and high t are areas of systems space services barriers innovation Small UAV - Raven Tactical- Shadow Leading Firms Tactical - Predator HALE – Global Hawk | AVASCENT | 6
  7. 7. How to move forward – a rapidly changing landscape requires a new approach 2001 - 2011 2012 and going forward Operating Environment Operating Environment  Heavy ground footprint with emphasis  Lighter ground footprint with more on Army and Marine Corps emphasis on maritime and unmanned  Middle East – Iraq, Afghanistan, GWOT  Asia pivot  Buy new, don’t re-use  Extend service life where possible  Deliver whatever the customer wants  Identify the most efficient solution to strategy the customer’s needs Strategic Implications Strategic Implications  A&D Sector – everyone is a winner  A&D sector – winners but also losers  No underperforming markets – limited  Underperforming markets but also need to identify new growth markets as growth markets – growth was universal cyber, ISR, missiles, missile defense, low cost solutions  Follow the herd as most companies succeed  Differentiate and innovate in a more competitive market  Company portfolios expand beyond core  Company portfolios evaluated for best fit The era we are leaving: “The last ten percent performance generates one third of the cost and two thirds of the problems.” – Norm Augustine, former CEO, Lockheed | AVASCENT | 7
  8. 8. Jon Barney AvascentPartner 1615 L Street, Twelfth Floor Washington, DC 200361 (202) 280-6812 (office) tel: (202) 452-69901 (202) 615-2497 (mobile) | AVASCENT | 8