How shared infrastructure collaboration will boost defence productivity

This is the single, biggest takeaway from this year’s Defence Connect AIC summit, which brought together representatives from primes Downer Defence, Saab Australia, EOS Defence Systems and with archTIS representing “team SME”. 

It was a stimulating, multifaceted discussion on Australian Industry Capability (AIC). Both sides of the defence industry openly discussed their experience of the pandemic, the barriers they face in securing contracts and their vision for the future. 

For defence as an industry, the pandemic has caused us to grow, not shrink. Of the top 55 companies in Australia’s defence industry, only seven decreased their workforce. Many are now on recruitment drives to help them meet demand.

All the representatives were optimistic about the future. Remote work is, in most cases, working. Massive issues with supply chain lead times were being overcome with coordinated effort. There were some grumbles about the Defence Department requiring “bums on seats” in Canberra, regardless of if that got them the best service or not. Disappointing, given the clear benefits of remote working, but there will always be some inertia to change.

What was particularly interesting, however, was when we discussed the industry landscape as a whole. Primes and SMEs, it was asserted, work best when the SMEs “stick to their knitting”, which means focusing on one or two solutions and making them world class.

This is largely true; it is the primary job of SMEs to know the value that they bring and make sure they deliver on it. However, this ultimately does run the risk of enforcing the status quo, which doesn’t include a lot of sovereign capability. When it comes to the balance between SMEs and primes, defence remains an “hourglass”-shaped industry. 

Let’s put some numbers to that assertion: Out of the AU$18 billion across the 23,000 contacts awarded last year, AU$8 billion went just to the top 10. The next 11-20 it was three billion, 21-30 netted $1.4 billion, and so on. For the remaining 3,500 other defence businesses, the SMEs across Australia, there is effectively six billion to fight over. That’s pretty slim pickings.

So, why is there a “missing middle”, and how can we encourage SMEs to scale and fill the gap?

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A key reason behind the hourglass shape is the nature of the defence industry. It requires extreme levels of compliance. This costs a lot of time and money to meet and maintain, presenting a high barrier to entry which prevents innovation and competition. DISP accreditation is an example of this, and something we’ve seen other SMEs come to us for help with in order to win defence business.

If we want innovation to come from Australian SMEs, we need to make it cost effective for them to enter the industry without compromising security standards. They also need a means to safely integrate, share and protect information across many industry partners on different opportunities. This is particularly important as more and more capability procurement activities are becoming sensitive and released at higher levels of classification for tendering and delivery.

Shared accredited industry infrastructure is the solution to this problem. This could be an industry-led initiative, where primes and the SMEs that provide innovative sovereign capability can interact with the department and each other cost effectively and securely.

This would rapidly and dramatically uplift our sovereign industry cyber security and resilience. It would also free up Defence resources who currently can only accredit industry on a one-by-one basis. All these at a time when cyber security skills are at a global shortage, and foreign state actors are more active than ever before, frustrating SMEs even more in their efforts to meet the compliance requirements.

If this infrastructure was then accessible at a low price point, many more SMEs could focus on their core business rather than worrying about the cost of compliance. The savings could be spent on innovating better products and taking them to market. It would dramatically speed up the ability for smaller organisations to start collaborating on projects and proposals and see where the “next step” for them as a business lies.

Most importantly it provides a shared repeatable platform for Defence to accelerate its capability outcomes while driving its Defence sovereign needs.

It sounds simple and it should be. With this in place, we will start to see SMEs begin to broaden their specialities and scale up their solutions. Still sticking to their knitting but facilitating a steady expansion of expertise thanks to the burden of compliance being somewhat alleviated. Critically, we will see a surge in productivity for Defence. We’ll then start to see sovereign capability grow, which is what AIC is all about.

Daniel Lai is the CEO of Canberra-based ASX listed cyber security company archTIS.