UK Defence's Digital Transformation - Capturing Strategic Advantage for 'The Business of Defence'

Introduction

In 2020, the UK Government undertook the most extensive review of the UK Armed Forces (UKAF) since the end of the Cold War. The review's conclusions were published in 2021, titled "Global Britain in a Competitive Age: The Integrated Review (IR) of Security, Defence, Development and Foreign Policy" (Brown, 2023). The most significant trend was rapid technological change.

Rapid technological change will alter how humanity lives, works, and fights; this change has been described by the Executive Chairman of the World Economic Forum as the Fourth Industrial Revolution (Schwab, 2016). The UKAF's contribution to meeting the IR is in the paper "Defence in a Competitive Age" (Ministry of Defence, 2021b). The most prominent objective the UKAF has set to achieve the vision of the IR is sustaining strategic advantage through science and technology.

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The UK is a diminishing global power and has suffered diminished military capability, see Figure 1. ?However, contemporary research links power to a nation's ability to quickly commercialise, operationalise, exploit, and manage new technologies (Dear, 2021). If so, this would enable the UKAFs to maintain a strategic advantage if they can use new technologies quicker than their adversaries.

The Case Study: The British Military

The British Army is currently an 80,000-strong organisation, making up the land component of the UKAF. For this paper, it is considered a non-profit organisation, where the purpose of strategic advantage is not profit but value for money and the ability to achieve its objectives as efficiently as possible. Grant (2022, p.22) contends that the Army is semi-sheltered from the competition, instead having to compete for public funding from Government.

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Since 2012, it has steadily reduced from 104,000, see Figure 2. The reduction, however, has not been equal, with the vast majority being highly skilled (transferable skills) or highly experienced (pension eligible) personnel; 84% of the redundancies were voluntary (Ministry of Defence, 2013). UK Defence Secretary Ben Wallis announced that the Army would be leaner and nimbler to match future threats; this will see the Army further cut to 72,500 personnel (Brooke-Holland and Dempsey, 2021). However, the UKAF's biggest ally, the US, has received this poorly, with a senior US General communicating that the British Army is no longer a top-level fighting force (Haynes, 2023). Recently, in the wake of the Russo-Ukrainian conflict, the Defence Secretary has rejected calls to reverse his decision, which was predicated on new technology enabling a smaller force to deliver a more significant effect in line with the objectives of the IR (Fisher, 2023).

The British Army is a shrinking force and must carefully decide where it competes for its strategic advantage. It is no longer a hegemonic power able to be the best at everything – this mentality leads to arms races, as seen between the US and Russia in the Cold War. The IR emphasise the importance of stronger alliances and partnerships to combat the motto and the reality of being unable to achieve a strategic advantage across the full spectrum of military capability. Strategic partnerships, such as the North Atlantic Treaty Organisation (NATO), likely enable strategic differentiation between allies, complementing each other's specialities and enabling a more efficient investment strategy with their limited defence budgets.

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The British Army has decided that Artificial Intelligence (AI) is "essential to Defence modernisation" (Ministry of Defence, 2021b, p.42) and will be delivered through an extensive Digital Transformation (DT) programme, Programme THEIA. Programme THEIA – named after the Greek goddess of sight and vision – has the main goals of enabling the Army to (1) out-compete its adversaries, (2) integrate better with our partners, (3) enable the Army to operate with maximum efficiency (Ministry of Defence, 2021a). The premier deliverable through Programme THEIA is a defence cloud computing platform that fully exploits the Army's data (Ministry of Defence, 2023).

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However, the Army has a significant problem. A lack of skilled staff has limited its progress in delivering DT (Engineering and Technology, 2022). Using underqualified or inexperienced staff has led to catastrophic failures in providing effective defence programmes in the past five years, with project overspends projected in the ￡billions (West, 2023). The result is that the Army is overly reliant on consultants and contractors to deliver the ambitious DT programme, spending ￡200m between March 2022 and March 2023 (Allison, 2023).

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The UK Defence Secretary believes that technology will make up the deficit of almost 30,000 personnel since 2012, with a cloud computing solution enabling AI being the premier deliverable. In line with Porter’s views, Ben Wallis’s competitive strategy is choosing to be the most digitally advanced Army to deliver a unique mix of value (Porter, 1996).???The cost of not seizing this transformation and retaining strategic advantage has already been demonstrated in digital/cyber-attacks from our adversaries across Europe (most likely Russia and China), who are investing heavily in digital, cyber, and AI offensive capabilities, which they are happy to unleash to those unprepared (National Cyber Security Centre, 2020, 2022).

External Analysis – The Competitive Environment

To diagnose the British Army's competitive environment, a complete PESTEL analysis has been undertaken in Table 1, the outputs of which have been plotted on a trend radar for targeted strategy recommendations, Figure 3. Additionally, Porter's Five Forces analysis has been undertaken on Cloud Service Providers (CSPs) to determine the industry's attractiveness to them, Figure 4.

The PESTEL analysis plotted on the Trend Radar demonstrates significant clusters. The first are factors with a high probability of occurrence and a high/medium impact in which the British Army has a low/medium preparedness (E4-O, E5-T, S1-T, T2-T, T4-T, L2-T). Moving forward, effective strategy implementation initiatives should look to tackle culture (S1-T, T3-T), enabling functions to rapid adoption (T2-T, T4-T), training pipelines (E4-O), and strategic partnerships (E5-T, L2-T). Conversely, the Trend Radar identifies two factors with a high probability of occurrence and varying impacts for which the British Army has high preparedness (P1-O, E3-T). The advantage of these factors is that the Russo-Ukrainian war has provided a unifying focus amongst the UKAF, Government and public which can be leveraged.

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A Five Forces analysis of the UKAF industry for CSPs shows it to be moderately attractive. Rivalry is high, suggesting the scale of contracts would need to be significant to create value; this is one of the strengths of the UKAF contract. The threat of new entrants to the market is low due to the MEF and brand requirements. Although the size of the UKAF gives it a high bargaining power, the complexity of needs to satisfy regulatory requirements would require significant bespoke features, which would somewhat diminish its power. The threat of substitutes being low is a critical factor; using a CSP gives you access to the “… world-class data capabilities and access to the tools/services that Google (and others) have pumped $bn into” (Carroll, 2023).

Internal Analysis - A Resource-Based View

An internal analysis of the British Army’s resources is summarised in Table 2, which uses a VRIO framework (Barney, 1995). The study conducted by the author uses a subjective scale from a low of one to a high of five.

The VRIO resource matrix visualises the British Army’s resources/capabilities which can give an advantage. Five resources provide the British Army with a strategic advantage: Data Reserves (DR), Brand/Reputation (BR), Strategic Partnerships (SP), Trained Workforce (W), and Organisational Culture (OC). These factors must be central to strategic initiatives for DT, enabling the current advantage to be reinforced. Industry Partnerships (IP) and Research and Development (RD) are currently assessed to offer short-term advantages. Should CSPs be used instead of an in-house solution, then a targeted initiative to enhance the advantage of IP from a short-term into a strategic one is likely.

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Assessed as an entry resource (no advantage) is infrastructure (I); unless an in-house DT strategy is pursued, it is unlikely that a strategy aimed at increasing this to strategic advantage would be effective or efficient. Finally, leadership (L) and military experience (ME) are assessed as providing asymmetric advantage, yielding little value. There is value in targeting this resource to boost it into a strategic advantage.

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Implementation Initiatives

To ensure a successful strategy to capture advantage and value with DT, Matt, Hess and Benlian, (2015) recommend strategies which exploit the following: use of technology, change in value creation, structural change, and financial aspects, see Figure 6.

The author has suggested strategy initiative implementations which address the points raised by Matt, Hess and Benlian (2015) whilst also combining the outcomes of the external and internal analyses. The author can now recommend strategic initiatives that align with all previous analyses, Table 3. It is recommended that Strategy Initiative 3 is implemented within the British Army.

Strategy Initiative 1 – In-House Digital Transformation Strategy

Strategy Initiative 1, in which the Army funds and implements DT within, requires the most capital expenditure of the three proposed initiatives. In a semi-sheltered competitive environment, this would require additional public funding given that the MEF for a private cloud is approximately $1bn, seemingly delivering less value to the taxpayer.

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The technical skill required from a workforce to deliver DT is high. Therefore, the strategy would require substantial upskilling of the existing workforce to create the volume of KSE-B required. However, it is unlikely that upskilling will lead to the requisite levels of suitably qualified personnel. Therefore, a large recruitment drive for skilled personnel is required to accompany upskilling. The Army (like all public sector) struggles to hire top talent due to pay scales which are non-competitive with industry; this would make it highly unlikely to recruit the levels required.

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The organisational restructuring that would accompany Strategy 1 would require a pivot to setting conditions for creativity, as much of the resultant value generated from using technology would come from innovation (Grant, 2022). This would primarily be felt within management structures “…as big data and algorithms increasingly substitute for managers operational decision-making attention shifts toward the distinctly human characteristics of business leaders” (Grant, 2022 p.334).

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Any solutions created from Strategy 1 will likely be below industry standards due to the ￡bns in R&D that tech giants have available. However, it would result in a strong regime of appropriability, enabling as much value as generated from the resultant IP.

Strategy Initiative 2 – Outsourcing Functions to Industry

The operational complexity of managing DT and providing cloud solutions (incl AI) is exceptionally high. By creating relationships with key hyperscale agents (i.e., Microsoft, Amazon, Google, Oracle), the Army has effectively opened access to cutting-edge innovation and capabilities (Khnaser, 2023). Access to this level of R&D delivers the most efficient use of the data resources held within the Army and creates the most significant advantage.

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Unlike Strategy 1, partnering with a CSP requires Army personnel to learn how to use the deployed solutions; there is no requirement to understand how to maintain, upgrade, and troubleshoot. This reduction in upskilling (and recruitment) enables the most significant time delivering the effect and capturing value to the taxpayer. Additionally, this reduces the scale of organisational restructuring required, although management will still require a transformation to a people-centric style.

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The capital expenditure is significantly lower when outsourcing, creating transparency with open pricing models, which, due to high rivalry (Porter’s Five Forces), are competitive to prevent the customer from switching providers (low cost to switch).

Strategy Initiative 3 – Joint Venture

Strategy Initiative 3 increases the buying power of the Army by combining it with that of the Royal Navy and the Royal Air Force. Increasing buying power would enable more favourable pricing models from CSPs and gain the most value for the customer. Additionally, funding a single solution reduces some of the little competition for public funding.

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A joint venture would likely enable the most significant interoperability between services and across defence. Which, when extrapolated to international strategic alliances, simplifies data/intelligence sharing. Prioritising strategic interoperability, as the UK has done with its F-35 fighter jets, enables us to not compete with strategic advantage everywhere but entitles us to use another nation’s strategic assets when required (Swift and Breedlove, 2020). Furthermore, it would enable funding from international alliances (i.e., NATO) to improve leadership and feed into Initiative 5 (NATO, 2022).

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Summary

A shrinking British Army is looking toward technology to maintain a strategic advantage whilst national power wains on the global stage. An external analysis of the environment (PESTEL, Porter’s Five Forces) has demonstrated that the UKAF is a moderately attractive industry for CSP to operate within and would provide the British Army with many solutions to issues of a workforce lacking in digital skills and an organisation which struggles to deliver large programmes of change. Internally, a VRIO analysis has shown that strategic resources such as the Army’s Data Reserves (DR) and Strategic Partnerships (SP) offer a strong opportunity to grasp strategic advantage amongst nationally differentiated alliances, i.e., NATO. A Strategic Initiative which sees a collaboration of all UKAF increases the buying power of all and maximises interoperability to give the most optimum efficiency for mission success.

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