Natural selection: Defense contractors must adapt to survive

Whether it is developing new command and control systems, addressing cybersecurity issues or fielding new unmanned aerial vehicles, Defense Department customers and contractors alike are obsessing about the need for agility.

“A big problem for the Defense Department has been these large, five- to eight-year programs — big-ticket items that take forever to develop” and test, said Keith Alphonso, chief technology officer at Geocent LLC, of Metairie, La., which provides network and software engineering support to defense and aerospace customers. “So they’re trying to figure a way to get more agile, and there’s a movement going right now: agile development.”

The pervasive focus on agility underscores the heightened military and industry response to DOD’s shifting spending priorities as outlined in April 2009 by Defense Secretary Robert Gates. Beginning in fiscal 2010, DOD wants to reduce or eliminate funding for gargantuan, so-called exquisite weapons systems meant for large-scale conventional wars and instead spend billions of dollars more in areas such as security, including cybersecurity, intelligence gathering and surveillance, to fight what Gates termed “a constantly changing adversary.”

In the information technology arena, budgeted at $30 billion for fiscal 2010, Gates stressed the need for more investment in agile systems — speedy development of technology, on-the-move communications and unmanned aerial vehicles to meet the demands of irregular warfare and support warfighters in the field.

Strategic Adjustments

Many IT contractors and systems integrators are gearing up to pursue business in those areas and adjusting their marketing strategies accordingly. For example, Geocent is building more agility into its software development programs.

“We’re taking a more iterative approach,” Alphonso said. “We’re delivering things in shorter cycles, even as small as two weeks to a month. You’re able to get closer to what the customer really needs. As priorities shift and change, you’re able to handle those changes.”

DOD’s emphasis on intelligence is a good fit for Geocent. “A lot of the intelligence work for C2 systems is shifting to Web-based systems because deployment costs are so expensive,” Alphonso said. “If you develop it for the Web, you don’t have to ship out the disks, and you don’t have all the support infrastructure requirements.”

Increased spending in new priority areas, such as faster development, will help get technologies into the field much more quickly, said Chris Marzilli, president of General Dynamics C4 Systems. “Instead of drawing [programs] out over a long, transformational development cycle…[DOD’s] budgets are [being] formulated to drive technology to the fight quicker,” he added.

To be sure, industry insiders are eyeing a wide range of potential business in the defense market. “There will be a lot of opportunities in the intelligence, surveillance and reconnaissance (ISR) world,” said John Hillen, president and chief executive officer of Global Defense Technology and Systems Inc. With fewer big platforms, the military will need to deliver “more effect with less stuff,” he said. “When you think of that life cycle of information, all three parts of the life cycle — gathering the data, putting it in formats so it can be manipulated and used, and finally pulling it in customized packages for the user — I think there’s a lot of work for people within that.”

“In effects-based warfare, the things that connect stuff — to tanks, ships and planes, basically — have to be a lot better,” added Hillen, a former assistant secretary of Defense. “So [companies] that are in the business of connecting what platforms are left, doing it more intelligently and getting more effect from fewer platforms are going to do well.”

Companies also will find business opportunities in applying high-speed wireless networking at the tactical edge by supplying voice communications, data and video — particularly high-definition video — to warfighters where they need it.

“It’s about producing what the warfighter needs now,” said Doug Smith, president and CEO of Ericsson Federal Inc. “That’s been lacking. These big programs that were defined so long ago and don’t deliver capabilities for many years…never envisioned the type of conflicts we’re in. They didn’t envision the use of UAVs and the need for video feeds.”

Among the heavy-hitting defense contractors, Northrop Grumman Corp. officials say DOD’s areas of greater emphasis, including ISR, correlate well with the company’s expertise, said Linda Mills, corporate vice president and president of Northrop Grumman Information Systems.

“Many of DOD’s spending priorities are in our sweet spot, and we are prepared to support our customer’s evolving mission needs and requirements,” Mills said. They include sensor-to-shooter links in irregular conflict, command and control systems that provide situational awareness and understanding, and secure systems and cybersecurity.

Brooke Smith, senior vice president of corporate strategy at QinetiQ North America, said new markets will open for vendors that can furnish effective and efficient new technologies with roots in the commercial space — such as cloud computing, open-source software and virtualization technologies — to upgrade the systems warfighters use. QinetiQ North America’s three operating groups provide defense, homeland security, intelligence services and aerospace technology to federal customers.

“All those technologies allow you to take legacy applications and rehost them in these new environments that are more secure, less expensive to operate and maintain over the life cycle, and provide new capabilities with respect to leveraging all of this IT infrastructure that [DOD] has so heavily invested in over the last couple of decades,” Smith said. “We see a lot of that. It’s the cornerstone of a lot of the dialogues we are having with our customers.”

Vendors also can speed development by adapting commercial technologies to warfighting requirements — by improving situational awareness on the battlefield, for example.

“The holy grail is the kind of systems that my kids use — the handheld [device], the ubiquitous contact they have with their desktops, the ability to move around and stay connected at all times,” said Jeremy Wensinger, president of Cobham Defense Electronic Systems Corp., based in Bolton, Mass. “We would like to give warfighters the same opportunity to use those tools that they can use so freely at home by providing a secure environment where they can be assured that information is getting to the right user at the right time on the device of their choice.”

Unmanned Systems Take Flight

Substantially increased spending on unmanned systems and the information technologies that support them will also give contractors new avenues to defense money. The fiscal 2010 Defense Appropriations bill, which President Barack Obama signed in December, fully funds DOD’s $5.4 billion budget request for UAVs, which the military uses extensively for reconnaissance in Afghanistan and Iraq. That’s $1.5 billion more than the fiscal 2008 funding level for UAVs.

“You’ve got this increasing focus on unmanned systems, and now [DOD officials] are talking about long-range unmanned systems,” said Dov Zakheim, a senior vice president at Booz Allen Hamilton Inc. and a leader of the firm’s global defense business. “The IT opportunities for continuing to upgrade these unmanned aerial systems as well as unmanned underwater systems and even ones on land seem almost endless.”

In that case, Zakheim added, “it’s not so much that [DOD officials are] moving away from old systems so much as redefining how they want to use them, and that definition involves, of course, cutting-edge IT capability.”

Opportunities abound for companies at the forefront of next-generation unmanned vehicles, said David Kriegman, president of TechTeam Government Solutions of Chantilly, Va. The company is helping to develop smaller UAVs that can be sent in swarms to monitor large geographical areas. Indeed, wider use of UAVs not only opens the door to technological innovation but also generates changes in unexpected ways, he added.

“It changes training — there are whole new sets of skills you have to train pilots on the ground in,” Kriegman said. “It changes doctrine, perhaps in terms of how we fight and when we fight. It may even change our thinking on force structure in years to come. UAVs are an area where organizational change management becomes important.”

He also noted that cybersecurity has emerged as a major issue for UAVs, as illustrated recently when Iraqi militants used simple commercial software to intercept live video feeds from U.S. Predator drones.

“You’re seeing the vulnerabilities in UAV feeds,” Marzilli said. “If [the enemy] can see what you’re seeing, it really neutralizes the advantage that UAVs have.” As a result, “we’re seeing significant opportunities [in cybersecurity for industry] across the board.”

Kriegman agreed. “Everybody in our industry is creating cybersecurity offerings, and that’s important,” he said. “Cybersecurity has to be a part of everything.”

Many industry players in the defense sector are adjusting their marketing strategies and positioning themselves in different ways to tap into DOD’s shifting spending priorities. For example, Global Defense Technology and Systems recently went public and will use the proceeds to acquire companies that will add expertise to the parent firm’s portfolio of capabilities, Hillen said.

At Northrop Grumman, Mills said, officials are capitalizing on their new Cyber Security Operations Center, a comprehensive center focused on detecting and responding to cyber threats so the company can protect customers’ networks and data worldwide. Northrop Grumman also recently collaborated with three universities to launch the Cybersecurity Research Consortium to help counter growing threats to the nation’s infrastructure.

Smart corporate acquisitions are also helping vendors better position themselves in defense markets. For instance, last year, British firm Cobham PLC acquired Sparta Inc., of Huntsville, Ala., maneuvering the parent company into the high-growth U.S. intelligence and defense markets, Wensinger said. The company also is investing more money in research and development to explore ways of getting “device-agnostic, pipe-agnostic and platform-agnostic” content into the hands of warfighters, he said.

Customer Dialogue

Other companies will intensify their interactions with DOD officials to gauge the department’s evolving IT needs. “You can’t be disconnected and just wait” for a request for proposals, Kriegman said. “We have to stay engaged with the department, with the different services and agencies, to make sure we’re focusing our efforts back in the office on those problems so we have a solution to help them with.”

But defense contractors are doing more than looking at the short-term potential of DOD’s shifting spending priorities.

“The trick isn’t to react to today’s headlines,” Zakheim said. “The real challenge is to see not the mountain that confronts you but the mountain just beyond that one. We try to be at the leading edge of information technologies writ large.”