CRA publishes Grundman and Roncka on “Defense-21: Drivers of Change in the 21st Century”
It has become a conventional wisdom that the defense industry is crossing an inflection point, which is changing its business in fundamental ways. CRA set out to test that proposition by examining what has changed and how, as well as the significance any inflection may hold for companies. To perform this test, we first surveyed macroscopic drivers of change on the landscape that forms the strategic context for the business of defense. Then we examined the microeconomic dynamics of the market for defense products and services. From these tests, we conclude that the industry has indeed crossed a threshold that is resetting the business of defense.
In this new, post-Iraq War era, a globalized landscape of macroscopic drivers is reshaping the precepts of the strategic context. Inflection along these dimensions will not tend to change the business of defense overnight, but it does have the effect over time of reshaping the foundations of customer demand and the infrastructure of resources on which companies rely. The significance for corporate strategy of inflections on this landscape, therefore, is not their urgency but the large magnitude and reach of their effects, and the corresponding adaptations of strategic postures which they compel.
At the same time, mature industry dynamics are recalibrating customer requirements and the bases of competition among suppliers. Inflection-point change in the market dimensions of defense holds the potential to reset customer needs and expectations and to instigate innovative competitor conduct. For corporate strategy, therefore, the key significance of changes in the dynamics of the market is their immediacy and the corresponding urgency for action to shape these evolutions, where possible, or otherwise quickly adjust strategic postures to their imperatives.
The implications of these changes should prompt a reconsideration of the key tenets of strategic posture in defense companies: In which markets to participate? What portfolio of products and services to offer? How to gain competitive advantage? How best to structure assets?