By Ann Roosevelt
BAE Systems‘ Land & Armaments unit conducted a strategic review that resulted in realigning its businesses into four main product areas in a process that completed at the end of March, according to the unit president.
“We broke it into four businesses that have a clear focus and that are market driven; it’s oriented toward what the customer wants, where the customer wants it,” Linda Hudson, president of Land & Armaments, told Defense Daily. “It’s much cleaner. It’s easier to articulate what our companies are doing and we’re eliminating some duplicate capabilities so we don’t do the same thing in three or four locations. Now, we do the best of the best in one business focused on one market.”
The reorganization was announced at the end of January and consists of: U.S. Combat Systems, which is focused on high-end, ITAR-controlled U.S. business and foreign military sales. The other three businesses are globally focused: Global Combat Systems, Global Tactical Systems, and Security and Survivability.
“We haven’t missed a beat since we announced it,” she said.
Interestingly, restructures and realignments often come when business faces a crisis. However, Land & Armaments had a “phenomenal” year.
The senior team looked at the organization and found it was really a “loose confederation” of acquired business, she said, and hadn’t done much to assimilate them.
“We had the former United Defense businesses, the former Armor Holdings…and I got tired of hearing, ‘the former,” Hudson said. “As we were dealing with what was record orders and record sales in a business that was booming, we thought now is the best time to look at where we’re going and what we’re doing and either reaffirm the way we’re approaching the market or just readjust for what we see ahead of us.”
The senior team drew a host of subject matter experts, analysts and consultants into a nine-month effort assessing the global marketplace, emerging trends, demands, and funding played against various scenarios, she said. The analytic work was done in-house.
“It led us actually to a conclusion that was very different from what my expectation was,” she said. “Clearly, the U.S. market is the largest market in the world, and I think pretty universally people expect the defense market in the U.S. to decline. The issue is how much and how fast. So we wanted make sure we were well positioned to do whatever we can do in the U.S.”
Company analysis also indicated there was less commonality and less opportunity to export high-end U.S. systems to the rest of the world, not only because of ITAR technology- export restrictions, but also because the rest of the world can’t afford the kinds of systems the U.S. government buys.
Thus, Land & Armaments must ensure it’s properly focused on the U.S. customer, but that has limited applicability to the rest of the world, with some FMS customer exceptions, she said.
However, examining market data for the rest of the world, “the data led us to believe was there was a global market for combat systems, just not U.S. combat systems.”
So the Global Combat Systems business was created, based in the United Kingdom, combining the U.K. and Swedish businesses. This is to access the global market with more affordable and tailored products for the international marketplace.
The Global Tactical Systems business was created combining the Sealy, Texas, operation with the South African operation. Both are in the tactical vehicle business.
“That way we get to share the best practices from what we’ve done in the U.S. and what we’ve done in South Africa,” she said. “And trucks are not heavily restricted from an export point of view, not like a Bradley [also produced by BAE Land & Armaments] or something else.”
As the strategy review was wrapping up, the new Obama administration was coming into office.
“It is entirely possible, I would think, that these products we are now tailoring for the global marketplace may actually look attractive in the U.S. with the kind of budget cuts and kind of change of emphasis that may come,” Hudson said.
The Survivability and Security business draws together pockets of expertise scattered around the company in areas such as armor technology, advanced materials, ballistic analysis, individual soldier protection, body armor, helmets and some safety systems.
This business unit fits with BAE Chief Executive Ian King’s corporate strategy of moving into the security market.
“So it is the corporation’s view that the opportunity to grow in the marketplace is more in an emphasis swing into security, as opposed to a continued emphasis on defense,” Hudson said.
“We see applicability and perhaps adjacent market growth with our survivability capabilities into the security marketplace,” she said. “It’s not a market we’ve targeted in the past, but it’s a market that’s getting increasing interest here in the U.S. and in other countries around the world.”
Land & Armaments has the ability to make its own vehicles more survivable and also has products it can sell to other original equipment manufacturers, and adjacent markets, she said. “We had only peripherally paid attention to selling our survivability capabilities to other people.”
“Infrastructure protection is really a combination of expertise we have throughout the corporation,” Hudson said. “We do believe we’ve got a play in the infrastructure protection world, particularly with our advanced materials–even weapons can be a part of infrastructure protection and then there are clearly some opportunities for survivable vehicles when you look at dangerous borders.”
Both customers and employees have received the alignment well.
As an example, Hudson said, for the Army’s Future Combat System, Land & Armaments builds the Non-Line-of-Sight Cannon at its Minneapolis, Minn., business. Other FCS work is done in York, Pa., and Santa Clara, Calif.
“They [customers] like the idea much better that one person is in charge, one organization is in charge of delivering to them what they contracted for. It’s much easier for them administratively and interface, and across the board the customer will find we align much better with the customer’s structure, and, therefore, it should be much easier.”
“Success will be defined if once this organization is implemented our forecast of business is better than our forecast of business was before we created it–if we see more opportunity, if we’re able to access markets that perhaps were not in our plan before and even in a declining market,” Hudson said.
The business unit expects a decline, “but not a precipitous one,” from the high MRAP volume of last year.
“The real definition of success will be when we can turn that curve around and start to grow again in the marketplace. We see the opportunity to grow in the marketplace as being outside the United States, not in the United States.”
The U.S. market is and will always be the single largest defense market in the world, and that’s why there is the U.S. Combat Systems business. But the data indicates that the demand for things like trucks, light tactical vehicles, and soldier systems is growing in the international market. It is more difficult to access and requires a different set of skills from selling in the United States, which is why the company has separated those missions.
Defense spending has increased in some countries, she said. “It’s increasing in Australia. We see it increasing in India. BAE has a large footprint in Australia. We’re entering the Indian market. There’s still very strong demand in Saudi Arabia where BAE has an indigenous organization.”
There is a company infrastructure to build on. Land & Armaments has 55 locations around the world, five primary countries where it is based, two joint ventures, one in Turkey and one in France, and already a market footprint of 37 countries.
Parent company, the U.K.-based BAE Systems Plc has business development personnel around the world.
Of the corporation’s four operating groups, Land & Armaments is the largest of the operating groups, with $11.8 billion in sales last year. The U.S.-based businesses did 58 percent of the corporate sales. In 2008, BAE’s sales exceeded $34.4 billion.
The new CEO changed the corporation’s governance model and Hudson and her other operating group colleague, Mike Heffron president of Electronics, Intelligence & Support in the United States, now sit on the executive committee in London.
“We’re now part of the governance of the entire corporation, which has helped quite a bit in terms of making sure we don’t get lost across the ocean, and there’s a better understanding of what we do and how we do it.”
“I think we’re uniquely positioned to take advantage of the global marketplace, much more so than our competitors,” Hudson said.