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Conversion of Defense Companies Not Likely

Commercialization of Defense Technology is Worthwhile, but Won't Help Conversion

December 1997 -- Anthony J. Marolda, President of The Winbridge Group, Inc., a Cambridge, Massachusetts based management consulting firm, wrote a chapter for the book Regional Resilience and Defense Conversion, published by JAI Press (now Elsevier) in December 1997.  In the chapter, Mr. Marolda concluded that the hoped for conversion of the defense industry by many Peace organizations did not and will not occur.   The reasons are clear to Mr. Marolda from many years of experience in working with defense firms as they struggled with the issue of how to deal with a declining defense budget.

Commercializing defense technology, Mr. Marolda concludes, is a worthwhile activity for defense companies.  There are many examples of successful projects that produced innovative solutions for customers in commercial markets.  There are also many examples of projects that were not successful.

As a result of two national surveys as well as twenty five years of experience in working with the managements of defense firms as they wrestled with commercialization projects, Mr. Marolda concluded that there are a set of Key Success Factors.   To be successful in commercializing technology, defense firms must have:

bullettechnologies and skills that have commercial potential as opposed to those with only military applications;
bulletstrong top management support for the commercialization program; otherwise projects tend to die on the vine;
bulleta well balanced (in skills) task force including some members who have commercial business understanding;  without an understanding of commercial business, a viable product will not be offered;
bulletthe resources, internal and external, to develop, manufacture and distribute a differentiated and/or low cost commercial product.

With these capabilities, 25% of our respondents to the latest survey of the U.S. defense industry that was conducted by the Winbridge Group indicated that the respondents produced successful commercial products.  We show, however, that large scale conversion of defense companies to non-defense businesses by commercializing technology is not likely.  This is because even successful projects are too small and take too long to have a meaningful impact on large defense firms.  Small firms, of less than $50 million, are in a better position to convert their operations to primarily non-defense products and markets if they meet the Key Success Factors.  There are, however, only a few examples of even this form of "conversion".

There are a small number of large firms that, over a long period of time, went from almost all aerospace/defense to a majority of non-defense businesses.  E.G.& G, Inc. and Rockwell, for example, made the conversion over decades by acquiring non-defense businesses and divesting and/or closing down defense operations.  The most common route for the large defense firms to deal with the downturn in defense spending has been to acquire or merge with other large defense firms.  The industry is now down to three major players, Lockheed-Martin, Boeing and Raytheon.  There are, of course, numerous smaller firms that have survived and will continue to support the major suppliers with components and subsystems. 


For More Information Contact:

The Winbridge Group, Inc.
Blanchard House, 249 Ayer Road, Suite 203, Harvard, MA 01451

Internet: info@winbridgegroup.com


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