The DSR is out – What does it mean for your business?

What exactly was released today?

A document called National Defence was publicly released today. The title is different to the one you’ve become accustomed to: the Defence Strategic Review (DSR). Much of the DSR is classified and may only ever be read by a small group of people inside Defence and Government. ?

The National Defence document is the unclassified version of the DSR – so it’s likely key information about the ‘Why’ i.e. the threats, warning times and risks are not fully explained. That’s hard for industry, because you’ll find yourself asking “why does Defence want that equipment/service in that timeframe and format? And “Why did they drop that Project?” You may never get a clear answer, making your innovation investments more challenging.?

What does this National Defence document say??

It’s primarily a document addressed at?Defence; 108 recommendations that change its mission, priorities, structure, posture, systems, and processes. Industry is a Fundamental Input to Capability (FIC) nowadays – so you would expect a set of messages targeting you and your business. There isn’t a tidy Chapter for Defence Industry to pull out and read, so this article is about extracting (what I believe) are the messages and opportunities you should be across.

Winners and Losers??

Wrong question. Yes, it’s true some programs like Land 400 Phase 3 will change, funds will adjust to match new priorities. But thinking that you need to move your business focus to Navy or Joint because you perceive they ‘have won more budget’ is a mistake.

Your Defence clients need your support to navigate these next 18 months – you won’t help them through abandonment. Loyal focus on your customers will put you in good stead for the next phase of investment – it may be different to what you expected – but investing in trusted relationships is almost always worth the effort.

Is this good news for Australian Defence Industry?

Yes, in the sense that its direction for Defence to act.

Typically, it’s the pause that most hurts industry. The release of a document of this ambition is inevitably better than extended waiting. But as a document it’s a peculiar mix of messages for industry – how ‘good’ it is for each business segment is (for me) surprisingly different.?

Global OEMs should be feeling good. Faster procurement, less competition when a sole provider is clear – good news.?

Infrastructure and ICT providers also good. Hardening bases should attract additional long-term investment, cyber capabilities and this new idea of 'integrated' forces are also opportunities – more good news. Fuel and energy providers will be skipping playfully around the office too.?

Services providers have been mulling over the 20% cut to budgets announced earlier – but this document gives hope that the workforce issues remain hard/unanswered and the sheer quantum of change will lead to new opportunities – again more good than bad for this segment.?

It’s the Industrial SMEs and Entrepreneurs and boutique service providers that might be feeling less assured. OEMs fighting to secure mandated SME content will surely ebb. the new ASCA Innovation Program ‘outside of Defence’ might read as good – but the hard part has always been getting Defence to lean-in and buy the final products – moving further away from your buyer is rarely a good idea in business. ??

So, your view on how good this is will depend on where you play. On the whole you should be?expecting to read mixed media reaction from industry.?

What will happen next?

The painful bit. There are 21 projects that need to be ‘rescoped’. $7.8B needs to be moved to new priorities, this isn’t a simple process because inevitably these budgets are connected and ethereal at the edges. Taking budget from Project X also impacts Project Y (a DSR Focus Program) so that saving isn’t as real as thought. And then Defence will discover the saving can’t be made – its already committed or previously harvested – this will all take time.

As well, the procurement processes your business is familiar with will be re-engineered. Sure, you may not have liked those old processes, but having none or more likely being subject to an extended set of consultations to uncover how those familiar processes could be sped up – this may be medicine you find hard to stomach. We all hope for a world where we have simple, low drag process generating excellent, fair outcomes that meet external value-for-money audits. Getting to that world from here may be hard.

Plus, we heard a range of “follow-on Reviews” will be launched. ?Innovation, Estate, Workforce, indigenous industry, the IIP, climate action, a Defence Industry Development Plan, even another Surface Ship Re-Plan; all need further work and analysis to proceed. This will drive a series of very different experiences for Australian Industry. Some businesses will feel extended delay or prevarication, others marked acceleration.?

A final thought on what this all means?

I think you need to time-box your future business strategy into 3 overlapping industrial horizons:?

Phase 1: Manage the Flux. From today until June 24. Adopt nimble business tactics to quickly identify and seize opportunities that pop-up with little notice, are tightly scheduled and therefore less likely to be widely competed for, and which may require a different risk appetite to successfully deliver i.e.?scope may be ill defined, or budget not yet fully secured. Being close-by and first with a solution wins in Phase 1.?

Phase 2: Prioritize Immediate Readiness. From Jan 23 to 2030. The DSR makes one message very clear. Ready now beats ready later. Like Defence, time to set out your stall with a very clear ‘fight tonight’ mindset. How are you improving maintenance response times, system updates and making FIC easier for Defence to manage? Having cost effective, quickly deployable, pre-canned warfighter advantage wins in Phase 2. ?

Phase 3: Position for the Next Cycle. From 2026 – 2040. There will be another Review (beyond the bi-annual check-ins announced today). There always is. History would suggest around 2027 the strategic environment will have again morphed materially – so think about that now. As Global Defence Primes and Defence Agencies often do, it’s important?to think beyond the current cycle to identify how you’ll compete and generate sustained shareholder value beyond the current horizon. ?