IT is by now widely accepted that by 1997 the United States
defense budget will be cut by $60 billion to $90 billion and that 1
million to 2 million jobs may be lost. These cuts will reduce the
procurement budget of the Department of Defense (DOD) by 29.4
percent - more than any other DOD spending category - and will
drastically effect defense contractors, including more than 9,000
primary suppliers and more than 2,000 industry segments.
But these contractors can exploit the new economic agenda and
adjust in other profitable ways. They are uniquely positioned to
shape the evolving economic policy of the new Clinton
administration to their own advantage. They can help define the
strategies that the US will take from guns to butter.
For example, they can call for a large investment in
infrastructure and bid on projects to build and upgrade roads,
bridges, sewer systems, and so on, or take the following strategic
measures to adjust to the declining US defense sector.
1. Downsize to meet demand - i.e., stick to areas of core
competence and shed everything else. General Dynamics is a company
using this strategy. Its chairman, William A. Andres, strongly
believes that, "If we have cash General Dynamics can't invest in
good, attractive core defense programs with decent return, rather
than add diversified volume just to look bigger, I believe we
should return excess cash to shareholders."
2. Diversify into related specialties. An example is that of
Science and Engineering Associates, Inc. (SEA), a small defense
consulting firm in Albuquerque, N.M. When, in the fall of 1989, SEA
realized that the defense business would be shrinking, its
management began looking for stable, profitable areas. As Gilbert
L. Ziegler, SEA's senior scientific engineer, explains, "We had two
choices. We could exhibit the desert spider syndrome, staying in
our hole and reacting to muffled changes coming to our hole, or
stick our head out, make sense of the changes we see, and take a
beneficial course of action."
Mr. Ziegler's group was successful in specializing in the
regulatory aspects of the same design services it previously
provided for DOD.
3. Commercialize. Raytheon's decision to continue to produce
guns and a lot more butter fits this strategy as described in the
five-year plan of Dennis J. Picard, Raytheon's chairman. Other
examples include ARO Corporation, which capitalized on its
technology to market a product that tests the strength of seals on
plastic packages for sterilized medical tools; the defense group of
Westinghouse Electric, which adapted its military aircraft sensor
for air traffic control and for speed-sorting of mail; and the
electronic systems sector of Harris Corporation, which drew on its
military high-frequency radio equipment to sell air-traffic control
systems to the Federal Aviation Administration. …