Royal United Services Institute (RUSI) - 12 September 2005
Minister for Defence Procurement, Lord Drayson, addresses the Royal United Services Institute (RUSI)
Lord Drayson
Military Capabilities in the 21st Century
Ladies and gentlemen, I am very pleased to be able to address this conference, with its expert audience, in my first keynote speech.
I regret having been unable to attend what I am sure has been a lively and thought-provoking conference, but I am struck by how much of the agenda has been devoted to both exploiting new technology, and systems integration – themes to which I will return.
Any consideration of military capabilities in the 21st century starts, naturally enough, with questions about why and how they should differ from the previous century's. At the highest level, I suspect we all would come up with a fairly similar list of drivers. They would include the end of the Soviet Union, the changing situation in the Asia Pacific and the emergence of weak and failing states. We would all include the rise of internationalised and nihilistic Islamic terrorism. But a common recognition of the changed strategic environment does not mean that either industry or the UK government has adjusted fully to its implications.
Some of the reasons are entirely understandable. In the UK defence budget now, nearly as much is spent on maintaining the existing inventory as on acquiring or upgrading new equipment. The planners of today have inherited equipment that may have had its Staff Requirement written, with detailed specifications, in the 1970s. For instance, The Tornado has its origins from feasibility studies conducted in 1968. The RAF brought in the GR Mk1 in 1982. Since then it has been heavily modernised, most recently with the Mid-Life upgrade, GR Mk4, completed in 2003. And it has worked very well, combat proven from the first Gulf War and most recently during Operation Telic, where it carried and launched Storm Shadow. It will remain in the RAF inventory into the second decade of this century. This example simply illustrates that in equipment procurement, the timelines we are dealing with can be very long.
However, the technological aspect of today's environment is fast moving, increasingly because of developments in the civil sphere. One MOD civil servant told me that, in his current appointment, he had the slightly strange experience of deleting a programme whose Requirement he had endorsed as a desk officer. When I asked him why, the answer was that it was a programme designed to destroy enemy tanks. It was not so much that tanks were a lesser threat, he said; but at the time, technology only allowed for a limited number of ways of 'killing' them, with varying effectiveness. Advances in guided weapons' accuracy and lethality, in rotorcraft, in lightweight portable systems and in surveillance and information technology had rapidly increased the number and effectiveness of the alternatives. But it had taken a long time to work out the best balance of investment – and that balance will keep changing.
And as technology changes ever more quickly, and the security environment is less stable, without the relative certainties of the Cold War, our service men and women continue to need top-of-the-range equipment as soon as possible – because we know that there is a real chance that their individual lives will rely on it.
If your aim is primarily to deter aggression, then of course you worry that your adversary may break the paradigm and fundamentally change the military balance. But otherwise, it may not matter too much if equipment arrives a little late. Nor is it quite so important if it looks good in the box but doesn't perform quite so well on the battlefield; the whole point is to avoid having to fight in the first place. But our Defence Aim includes strengthening international peace and security more actively, being a force for good in the world, so we have different challenges. Conflict prevention, though improving, is not a perfect science. And when we have to intervene, this can be against forces which may not be deterred by traditional threats. In that situation, the equipment had better be good, available when it's needed, adaptable to all the different situations it might face – and good value, so we can afford all the equipment we need.
I said earlier that neither MOD nor industry has fully addressed these challenges yet, notwithstanding real and tangible progress since the Strategic Defence Review. Those from industry in the audience will no doubt say that suppliers reflect what their customers ask of them, though I think the relationship is more dynamic than that. But given the complexities, MOD needs to be open about what we want, when we want it – and how much, in broad terms, we are prepared to pay. And to inform industry's investments - decisions on which businesses to expand, which to run down, and which competitions to enter - we should also be more open about how we make the final decisions on projects.
It is in that context that I have been asked by John Reid to produce a Defence Industrial Strategy. Let me be clear, this is not a fundamental rewriting of the Defence Industrial Policy. It will build on that Policy, addressing some of the difficult questions surrounding the future shape of the defence industrial base, and explaining, in some detail, how Government has been and continues to apply the Policy in practice. Not least, I intend it to develop a clearer joint understanding across Government and with industry of the technologies and industrial capabilities which are essential for us to retain on shore.
I intend the Strategy to be published before Christmas. That might seem almost indecent haste for a Minister new to Government. But I not only think that the public and industry deserve some clearer answers; I also know that several companies are fundamentally reviewing their business strategies over the next few months. Industry's independent conclusions could, if we are not crystal clear, see some industrial capabilities disappearing, before we have specified whether or not MOD regards them as important. And if we do think they are, we will have to go at least some way to saying what the consequences are.
That means the work has to be prioritised. By December, we will not be able to cover all the sectors to the same depth, and there will be an element of ongoing work. But I am demanding gritty conclusions on shipbuilding and ship support; fixed wing aircraft (including Unmanned Aerial Vehicles (UAVs)); rotorcraft; guided weapons; general munitions; armoured fighting vehicles; and a number of other key areas.
Having said that we will, to some extent, respond to those who are telling us about potential changes to their UK businesses, those who are most keen for us to set out what we want to source uniquely from the UK may not get all the conclusions they would like. We are the most open arms market amongst the big spenders and competition remains an excellent way to incentivise value and innovation in many cases. That others' defence markets are less open is a problem which we continue to tackle. But ultimately, if foreign taxpayers end up subsidising the equipment we operate, so be it.
In an industry which is simultaneously concentrating and globalising, even with the distortions inherent in the global defence market, competition often means international competition. The list of industrial capabilities that must be sourced from the UK will, I expect, be a short one. And of course, we continue to include foreign-owned companies operating within the UK within this. The UK defence industry is defined in terms of where technology is created, where high value skills and intellectual property reside, and where the investment is made, not where the shareholders live.
Just as the Defence Industrial Policy is 'driven by the need to provide the Armed Forces with the equipment which they require, on time, and at best value for money for the taxpayer', so will the Strategy be. Not blanket protectionism for domestic industry, whether for initial procurement or through-life support. But a hard-headed assessment of what kind of industry – globally and nationally – we need to interact with, and how to promote it. Defence needs come first; the military challenges we face need effective and efficient responses, and the challenge to industry is to help us form such a response. When a non-competitive and/or national arrangement can be shown to be more effective and efficient than an open competition, we should pursue it; but only then. For example, we announced in March this year a Heads of Agreement with Agusta Westland to develop a long-term partnership for helicopter support. We expect significant efficiency and effectiveness improvements as a result. But any areas which merit more investment will inevitably and necessarily require hard choices to cut elsewhere.
So, as I said, I do not expect the list of capabilities that must be fostered and sustained in the UK to be a long one. But it does extend beyond those where we have long had an absolute requirement, for reasons of national security, to retain a full capability, from concept through delivery, support and regular upgrade, to disposal. Appropriate Sovereignty is a key principle we are using in our analysis.
What does that mean? It is not having a completely national industrial base in all areas. Nor is it just security of supply in the traditional sense. There will remain some areas, like aspects of the nuclear-powered submarine industry, which we cannot depend on another nation to develop or sell to the UK. But given that we rely on overseas supply for equipment as significant as the C-17, this is probably a very short list. The other areas we need to investigate include:
- where we need to retain, in the UK, effective through-life support, including upgrade and urgent operational requirements;
- where specific UK capabilities give us important strategic influence, in military, political or industrial terms;
- and in some cases, to maintain realistic global competition – in other words, so we are not dependent on an overseas monopoly.
This will generally be a question of the level of risk we can tolerate. Not being on the list does not mean that there is not an additional value to the greater assurance of availability that UK sourcing or participation can offer. But the degree to which we would value that risk needs in general to be indicated at the start of each procurement – and not in such a way that it simply becomes a 'UK premium' priced into bids – rather than being an absolute requirement. Nor would exclusion from the list mean that we are not interested in those industrial and technological capabilities. UK companies should still be able to win business on relevant programmes here, on their merits.
We also need to recognize, and emphasise even more, the general shift away from the traditional pattern of designing and manufacturing successive generations of platforms. We need a new paradigm centred on support, sustainability, and incrementally enhancing capability by inserting new technology. The emphasis will be on through life capability; developing open architectures that facilitate this; and maintaining – and enhancing – the systems integration know how that underpin it. The attractions for industry should include longer, more assured revenue streams based on long-term support and continuing development. Not a series of big 'must win' procurements. There will, of course, remain some exceptions, where disruptive technologies argue for a more significant change, but in general evolution should be the pattern. I know the announcements we make on particular projects – and media's focus on the big platforms - doesn't always look like this is where we are going, but it has to be the trend. We need to work together to change the public's perceptions of defence equipment and the defence industry away from this traditional platform focus towards systems and incremental acquisition.
This also implies that we have to have very clear roadmaps for developing potentially high impact, high value new technologies into applications within our equipment. That does not preclude investing in areas which seem of potential interest, but whose application we have yet to discover; but we need to be clear on where the balance lies in our research. If we think we are investing in a technology for a particular application, we need to be sure we actually have a strategy to insert that into frontline equipment. For instance, in the 1980s the UK harnessed its innovation and manufacturing expertise to lead the world with its first generation "Thermal Imaging Common Module". Applications included the gun sight on the Challenger tank. In the 1990s, we followed on, investing tens of millions of pounds in developing second generation detectors. This too led to world leading technology. But we were very slow to invest in development and manufacturing and lost potential exploitation and sales opportunities. We cannot keep doing this.
What we must do, though, is use our excellent research base to pull through technologies of real military potential – and ensure we can access as wide a pool of innovation as possible. We have world-class defence science and technology organisations with significant scale in the UK – dstl, the Met Office, the Atomic Weapons Establishment, and QinetiQ. But in the last few years, we have moved QinetiQ closer to our industrial supplier base, and introduced competition into the research programme. In three years time, the vast majority of work undertaken outside the remaining Government-owned laboratories will be competitively tendered. We have also introduced complementary initiatives, such as the Defence Technology Centres, which have been well supported by industry and academia. Overall, we are much better placed to ensure that useful innovation, wherever it arises, can be applied quickly in imaginative ways to improve frontline capability.
It is always difficult to distinguish between what is flavour of the month; what is frankly fascinating science but not susceptible to useful application; what can be left to the market; and where we should invest directly for real benefit. Governments, generally, do not have a good record of picking winners, or of exploiting the knowledge effectively when they do generate good ideas. But what we can see now, with the frenetic pace of change in the communications and IT industries (including design and knowledge management), the life sciences, and power sources, to name but a few, is a surge of innovation in both products and processes which has huge potential promise, as well as new threats. Applying some of these will involve novel ethical issues, both in civilian and military life, and we need to tread carefully. The challenge for industry and MOD is to exploit this overall flowering of development before our adversaries do, in potentially unforeseen ways; to keep a wide overview, but be agile enough to develop practically those areas where specific military design is needed; and to focus comparatively limited research funding on the areas of key military priorities, both for incremental improvements, and for paradigm shifts.
We also need to be clear on the relationship with other technologies and equipment, developed by our allies. I note, for instance, that the US Government, commenting on its defence industrial base and its future requirements, is in some areas calling for the US to be 'way ahead' of its potential adversaries. Frankly, given that no country in the world can keep up with American investment in defence at the moment, 'way ahead' of adversaries may well mean way ahead of at least most, and maybe all, its allies too. We – the MOD and industry – need to think carefully about where, and how, we match, complement, or disinvest in areas compared to key allies. I explicitly include continental Europe in that. Not least in these months while we are leading combined peacekeeping operations in Bosnia under the European Union flag, in the third and largest military operation conducted by the EU to date – as well as operating with European allies in Iraq and Afghanistan.
Our strategy also needs to address the challenge of maintaining key industrial capabilities and skills where reduced UK and export market opportunities cannot any longer provide a sustainable production profile. The answer is not going to be creating sudden new programmes to fill the gaps, as we are occasionally lobbied to do. Government revenues are not immune to the economic cycle and fluctuations over time must be expected. Nor, given that this Government has overseen a succession of sustained increases in Defence spending and launched a marked period of modernizing our capabilities, including with the largest shipbuilding programme for decades, am I altogether sympathetic to suggestions that business cannot survive without current or imminent peaks of production being sustained ad infinitum. But where we can sensibly smooth out the peaks and troughs, we should do so. Nevertheless, there will be areas where, following the end of one project, business activity may risk falling to unsustainable levels. We need to ensure this does not lead to the loss of vital long-term knowledge, whose recreation may be prohibitively expensive to recreate.
Often, I suspect this may be about sustaining and developing small pools of expertise or knowledge (including tacit knowledge) within and across the supply chain, rather than focused on particular facilities or existing technologies. This may require a significant effort by both ourselves and industry; to identify such industrial capabilities, and agree how to maintain them outside specific projects.
Such an agreement may be a challenge. It means not just designing the way to sustain such knowledge - not only how to promote the knowledge management techniques and values. It also presents practical challenges on how to contract for it, and keep industry valuing the areas we think are of long-term importance. We need to identify practical outputs for such activity, that are meaningful for those engaged and sufficiently attractive for companies to allocate good people.
I would like to come back to the challenge of systems integration. In many (though not all) sectors, the ability to understand and sometimes manage the complexities, challenges and costs associated with overall management of design and manufacture remains a general requirement. We need industry, and sometimes MOD, to have this, so we can make sensible decisions when a number of potential technologies to deliver a new capability are being considered. It is equally important for incremental acquisition and in-life upgrades.
Systems integration is a much used, but not well defined, phrase, and can be applied at levels from microchip integration to aircraft carriers to broader issues of interoperable coalitions. But although the emphasis varies across different sectors, it is crucial to our really being confident in the delivery of effective military capability. I do not need to tell this audience of the cases where failure to get this right has caused problems for both government and industry.
Looking more broadly: despite the savings we may be able to extract from an internationalised defence supply chain, we also need to remember the direct value to Defence derived from a healthy, competitive and dynamic national industry. This includes through export levies and avoiding monopolies emerging – which may or may not be a strategic issue in different areas, but will generally have a financial impact on our budget. For MOD, my primary concern will always be to maximise the fighting capabilities of defence – secondary benefits to the broader economy may or may not apply, and sometimes they are disputed. Keeping up with technological change, and rapid threat evolution, is challenge enough. But we should not ignore the actual and potential benefits to the broader economy, including the UK science & technology base, and we need to do more work in this area to understand properly its effect.
For instance, it is in MOD's, industry's and wider society's interests that, with obvious security exemptions, there is an exchange of technology and knowledge across the boundaries of civil and defence industry. We all can name anecdotal examples, from the Jet engine to radar as well as more recent spin-offs, in the medical field in particular, to help with the rapid detection of both MRSA and breast cancer. But I wonder whether the overall exchange is really optimised, and if not, whether we have adequately addressed the relative roles of both Government and the defence industry in this field.
We will also need to be clearer on the weight, if any, we give to things like the impact of defence exports on the balance of payments. Defence exports clearly have an important role in sustaining key knowledge and industrial capabilities, and profit generation, in areas where domestic demand alone is insufficient. Where we collect export levies, there is a direct and obvious feedback benefit to the MOD. And an eye to export can lead to industry independently developing equipment for a broader market which may also be of significant interest to us – a proactive model which may be increasingly useful, as we ourselves become more open about our future needs. DESO have an important role to play in supporting industry in this.
Finally, I am clear that a defence industrial strategy requires change for MOD and the wider government as well as the supply-side. Most obvious candidates for internal change are in our procurement strategies. This will include reassessing the effectiveness of competition at different stages and optimum contract durations to encourage investment. So we also need fresh approaches to demonstrating value for money. More broadly, we will consider the potential impact on our wider structures, policy and processes.
And – as I have already suggested – we need to consider the degree of transparency and clarity we are able to offer on our forward plans. We need to think through carefully what we can offer publicly, where operational and commercial considerations may apply, and what we can offer individual companies at different stages of a procurement, and under different procurement strategies. I am convinced this is an area where we can do more.
Having outlined what we intend to cover in the Defence Industrial Strategy, some of you may, I am sure, be trying to parse my remarks for whether I am advocating wholescale protection for UK industry, 'Fortress Europe', or 'Buy America'. I don't mean to convey any of those things. There will be areas where appropriate sovereignty requires on-shore supply. There will be some we can procure from the global market. And there will be a third category which can be procured in cooperation with partners – continental European, or American.
European and transatlantic purchases each have their own characteristics, and it is no secret that either situation can be frustrating at worst. We tend to forget they can also be extremely successful. For example, the Storm Shadow cruise missile within Europe, and the Combined Arms Tactical Trainer developed in conjunction with the US. In a typically pragmatic British way, I think the way ahead is to look at the specifics of each sector on its merits.
So let me close by emphasising some joint challenges for MOD and industry in equipping the military of today. Better agility to respond to changes in the strategic environment. Better at identifying and rapidly translating into military capability useful technologies, including from the civil sphere. Relationships which allow more information to be shared, to mutual advantage. Where sovereignty is an issue, working together to ensure it is delivered cost-effectively. Really making a shift to through-life capability, and making 'legacy platform' a redundant term. Finding ways of maintaining vital long-term knowledge when traditional programmes will not support those, whether in small areas of deep technical expertise or critical cross-cutting systems integration skills. Ensuring the value to Defence of a healthy, sustainable industry is maximised. Looking at cooperation and collaboration on their merits in particular contexts. Not easy, but important to tackle – hand in hand.
