The Blind Spots of Forecasting: Why Defence SMEs Miss the Mark on Future Opportunities
SMEs are often touted as the backbone of innovation (often by me!). Their agility, inherent risk tolerance, and ability to innovate make them indispensable players, especially in sectors that require cutting-edge technology like defence. However, when it comes to forecasting future opportunities for their products, they seem unusually out of their depth. Why do we so often fail to see what lies ahead? Here are my thoughts and a few words on how we can all do better.
The Scourge of Complacency
According to the Ministry of Defence's SME Action Plan 2019-2022, about 15% of the department's spending goes to SMEs, totalling over ￡2.1 billion. This indicates a seemingly favourable environment for small businesses. However, a dangerous paradox emerges. The initial success in securing contracts can lead to complacency, blinding firms to evolving market dynamics. These enterprises assume that their pioneering technology will eternally be in demand, a notion that history disputes. Take, for example, the downfall of Kodak, which failed to adapt to the digital revolution. This issue is particularly acute in companies that gain a disproportionate amount of their income from government innovation grants. The supply of “oxygen” without ever having to secure a customer can lead to a dangerous sense of over confidence.
Lost in Translation: Military Jargon vs. Market Needs
The language of the defence sector is replete with acronyms and specific terminologies. Sometimes SMEs, in their drive to adhere to specifications and win contracts, design products that are excessively tailored to current needs, sacrificing versatility. A report from ADS Group in 2020 noted that 42% of defence SMEs face barriers due to a lack of understanding of their customers' future needs. In essence, they become so entrenched in current military jargon and requirements that they fail to translate them into broader market opportunities. If you don’t know what I mean just go and look up “Effects Based Operations” …
Regulatory Rigmarole
The highly regulated nature of the defence sector adds another layer of complexity. SMEs often have limited resources to navigate intricate procurement rules and compliance mandates. The Defence and Security Public Contracts Regulations 2011, for instance, imposes various requirements, from intellectual property rights to confidentiality clauses, which can be daunting for smaller players. This leaves little bandwidth for these firms to think about long-term market trends, let alone plan for them.
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Data Dearth
While Fortune 500 companies have analytics teams parsing through terabytes of data to understand consumer behaviour, SMEs in defence often operate in a data vacuum. According to a study by McKinsey & Company, 67% of SMEs admit to not using data effectively to make future business decisions. Without the right data, any forecasting is akin to navigating through fog.
Tackling the Issue
Some forward-looking initiatives offer a glimmer of hope. The Defence and Security Accelerator , for instance, aims to bridge the gap between innovation and real-world application (and no I’m not paid to say that). It offers SMEs not just funding but also the crucial feedback loop to adapt and forecast better.
The Final Salvo
Forecasting is as much an art as it is a science. While SMEs can be adept at engineering marvels that protect us all, they must engineer strategies that safeguard their future. With shifting geopolitical landscapes and rapid technological advances, resting on laurels is not an option. It's high time for these SMEs to look beyond the horizon and navigate the murky waters of defence innovation with foresight and agility.
?After all, as the adage goes, "fail to plan, plan to fail." And in the realm of defence, failure is not an option we can afford.
I'll be at DSEI UK all next week, drop me a line if you'd like to catch up to discuss this and all the other challenges we face.
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1 年Interesting article Alex and some of your observations tally with our experience in scoping, building and deploying Durden into UK Strategic Command. When you come to the FCAS SME Ecosystem Summit on October 2nd let's get these points surfaced as I think they will be useful in triggering group discussion from both sides of the coin.
MD at Scanna MSC Ltd
1 年Alex be great to catch up at Dsei . We re on hall 2 pls pop by if you’re free
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1 年Thank you for a thought provoking article. In my experience Defence is not always clear or honest about future needs in part because they are also unsure but also they are constrained financially. I know when we introduced a new Helicopter which was procured on a supported basis the deployment profile was totally untrue. When the new Aircraft Carriers were introduced there was much discussion about aircraft launch methods and luckily it was the manufacturer who left in the ability to change in a future date as it would be hugely expensive to do so later. I think the MOD need to reward adaptability and innovation around this when choosing future contracts and products.
Founding Partner at MBDi
1 年Appreciate your perspective. How about SMEs asking their clients what they are seeing as their next needs?
President/Owner
1 年Great perspective!