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Budget Watch 

In a Tough Defense Market, Executives Seek Winning Edge 

11  2,013 

By Sandra I. Erwin 



As the Defense Department continues to cut spending, contractors must rethink how they work with customers, how they partner with other companies and how they market their products, industry executives said.

It is a basic tenet of the corporate world that companies that seek growth must focus on “business development.” In the defense sector, however, many of the traditional rules for developing new business no longer apply, and companies ought to rethink their strategies, said Bantz J. “John” Craddock, a retired Army general and senior vice president for strategic relations at Engility, in Chantilly, Va.

“It is a very confusing time now in Washington. … And it will continue to be a very confusing time,” Craddock told a group of executives at a business development workshop in Leesburg, Va., hosted by the National Defense Industrial Association and MBDi Mastering Business Development Inc.

Craddock suggested that, as the market becomes increasingly competitive and opportunities more scarce, companies need a deeper understanding of customer requirements and how procurement decisions are made in the Defense Department.

Executives in the industry have spent years developing “customer intimacy,” Craddock said. In the current environment, though, the traditional relationships might not work as they used to, he said.

“In my judgment, customer intimacy started changing five to six years ago,” he said.

As they position themselves to compete for future contracts, companies need greater awareness of who really is the customer and who makes the buying decisions, said Craddock.

The military is a complex customer because there are multiple chains of command that have some degree of power over buying decisions, and it not always clear who makes the final call. “Who is ‘the’ customer? Is it the ‘using’ customer or the ‘buying’ customer?” asked Craddock.

This is a key question that companies must answer, he said. The users of a piece of equipment — troops in the field, for instance — might favor a product whereas the procurement authority might have a different opinion. In general, users tend to go for performance and quality while buyers are biased toward the lowest price, Craddock said.

A company that lacks a “differentiator” — a unique technology or skill that nobody else has — will face a “dog-eat-dog kind of world,” said Craddock.

“What we have seen in the last several years, and we continue to see, is that the using customer has his own perspective,” said Craddock. The risk for industry is that a user will commit to supporting a product, but it turns out that there is no funding for it. “Business developers get close to the using customers who understand what they want” but that alone may not help the company win the contract, he said.

Contractors also need a close relationship to the “buying” customer to ensure that proposals reflect other priorities such as cost, he added. “Is it a value proposition, or what I can afford?” Another challenge for business executives is figuring out whether the programs they are pursuing have “real money” behind them.

These are questions that must be answered before a company embarks on a contract opportunity, said Craddock. “What we are seeing is more tension between the buying and using customer,” he said. “That also is manifested in our companies” as the business development executives might not see eye to eye with management or operations officials. Balancing these pressures, he said, “is indeed a tough proposition.”

The business environment is only becoming more difficult to grasp, said Craddock. “It’s like a Harry Potter staircase: Every time you look at it, it’s different.”

One tool that companies should learn to employ more effectively in today’s market is partnering with small businesses, said Craddock. Government agencies will continue to be under pressure to meet small-business set-aside quotas, he said.

Lee Cooper, a consultant at MBDi, said contractors should “use small businesses to their advantage” in setting up partnerships. Organizations such as the Small Business Administration and the U.S. Chamber of Commerce are expected to step up pressure on agencies to ensure small businesses get their fair share, Cooper said.

Companies, additionally, must cope with a political landscape where it is not always clear who are the allies and who are the enemies, Craddock said. Defense budgets historically have gone up and down, but the industry has, up until now, been able to count on its supporters on Capitol Hill.

“There has always been politically a champion for the security needs of the country,” he said. Typically those have been Republican lawmakers and conservative, so-called Blue Dog Democrats. That was the coalition on which the Defense Department could rely when it was under budget pressure. “Today, that situation has evaporated,” Craddock said. The old pro-defense caucus is now deeply divided not just along party lines but also on issues such as how to deal with the federal deficit and the role of the military in U.S. foreign policy.

“The Defense Department has no champion to go to on the Hill, no one to talk to who has the votes collectively to carry the mail,” said Craddock. “This is unprecedented.”

The industry will have to get used to this, he said. “I believe it will continue until there is a security crisis, or until the economy grows and government revenue goes up.”

It will be at least 2015 before government contractors see any stability in the budgets of the Defense Department, the State Department or the Department of Homeland Security, said Craddock. “It may well be 2016 before there is long-term predictability.”

Photo Credit: Thinkstock
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