A strategy for the defense industry: Realizing benefits through coherence

Countries seek to improve the capabilities of their armed forces over time. They also want to grow their economies and increase their citizens’ standard of living. There are significant benefits from developing these two policies in parallel. A country that can allocate a greater proportion of defense funding to domestic contractors will be able to create and retain valuable intellectual property, knowledge, and wealth — making it more internally resilient and less reliant on overseas suppliers.

Despite these opportunities, countries continually struggle to develop a successful strategy for their defense industry. Competing armed forces interests, organization structures, security concerns, distrust of industry, relatively modest national industrial performance, and the isolation of defense departments lead to haphazard development.

Our experience suggests this situation can be transformed through military-industrial coherence, which turns a vicious circle into a virtuous circle.

Several key strategy design principles will help create the required coherence between industrial capabilities and military needs:

  • Industry Boundary — Analyze the ideal boundary between the two entities, to determine the tasks that need to be conducted by armed forces and which industry represents the best fit
  • Sector Approach — Assess the industrial strategy and capabilities within agreed sectors (e.g., maritime, ordnance, medical, etc.)
  • Effective Governance — Link the planning for future capabilities across various armed forces to defense funding allocations and national industry development
  • Model for International Companies — Determine an optimum model for relationships between national and international industries
  • Industry Partnering — Develop closer relationships with selected companies, allowing shared support of objectives and understanding of constraints
  • R&D — Align R&D vision and funding among armed forces, academia, and industry
  • Incentivization and Selected Investment — Design commercial models and contracts that reward improved performance and provide an environment for strategic investment by industry

In Strategy&’s experience, countries that can effectively translate these principles into a practical strategy can realize early benefits, by generating greater coherence between industrial capabilities and the needs of their armed forces.

Exhibit 1: The New Logistics Paradigm

The New Logistics Paradigm