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[Music]
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well I'm currently Executive Vice
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President of the Information Systems and
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Technology Group in General Dynamics uh
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it's one of four groups it's about $12
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billion in Revenue primarily uh selling
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defense uh and military equipment around
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the world world to uh not only us but
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International customers and about 10% of
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the business is
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commercial well the topic of the
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conference is strategic agility and what
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I intend to speak about is take uh the
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basic components of strategic agility
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which I think boil down to really three
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three concepts having a keen sense of
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one's Market competition the environment
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the trends Technologies uh and portfolio
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position couple that with having the
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fluidity of resources both financial and
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human capital to take action and then
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thirdly with organizational alignment so
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that whatever action you want to take uh
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or whatever uh management philosophies
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you have or are implemented fully at all
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echelons put them together and see how
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those have been applied uh over the last
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50 to 60 years in the defense industry
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and no surprise uh being a member of the
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industry for 30 plus plus years now
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that's what I've chosen secondly uh I
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will use some examples primarily from
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General Dynamics and try and illustrate
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in up cycles and down
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Cycles how those uh concepts of
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strategic agility have been used to
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success and some have not been so
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successful and maybe examine why uh
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we'll use some other examples of other
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corporations as well but in particular
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um we chose the last 60 years of the
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defense industry because it has some
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very defined Cycles uh at least three or
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four major upturns and downturns so I
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think it provides a good laboratory to
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examine corporate behavior and and what
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works and what
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doesn't first you see different players
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take a different position uh depending
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on whether or not they determine it's a
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structural change or it's simply a
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cyclical change and let me illustrate uh
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an example of both in the late 40s after
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World War II uh up until the time of uh
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World War II this nation pulled together
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an army and a force to protect its
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natural interest or project its uh
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forces around the world when it felt
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threatened or when it had in action uh
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in the Philippines wherever after that
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war basically that Arsenal was and the
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forces were uh drawn down and defense
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budget and defense spending went down
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tremendously this even occurred all the
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way way through World War II uh World
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War I rather where after World War I we
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geared up then there was a huge draw
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down in forces a reduction in spending
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and we went into kind of an isolationist
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policy post World War II with the Cold
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War Mutual
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deterrence uh Russia as the uh the other
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pending superpower uh there was a
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structural change and we now kept a
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standing defense industry later became
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uh referred to as the defense industrial
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complex some see that as a positive some
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see that as a negative it's not for us
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to examine that but it existed so
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there's a structural change now there's
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a new threshold in that Market at that
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point um electric boat which had been
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supplying submarines Patrol boats Marine
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Engines uh since maybe 1899 to the
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defense uh firm saw an opportunity to
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create additional value by expanding in
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that market because there was going to
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be a new threshold and so they grew the
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business and they expanded into other
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lines that was have application to that
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mission so there was an opportunity to
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create value and grow uh in the defense
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Market because there was a structural
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change there have been other Cycles post
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World War II there was less spending but
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it wasn't going to go down as far then
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there's an upcycle when we had the
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threat in Korea similarly Vietnam Bay of
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Pigs uh the Reagan buildup um and then
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more recently with Iraq and Afghanistan
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so some of these uh Cycles teach us uh
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definitive lessons some of them are as
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what happens in a down cycle well
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applying the Strategic agility if you
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don't have all three components it's
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difficult to be a success what do I mean
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by that um for instance in the uh in the
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late 50s with the down cycle of the 50s
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General Dynamics said well the Cycle's
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going down how do I continue to grow and
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build shareholder value they took their
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ability to build uh fighter aircraft and
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bombers and said we're going to go into
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the commercial business and build two
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commercial Jets originally it was the
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880 and then there was a version called
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the 990 well they had the money they
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certainly had the technological
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capability and they had alignment in the
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organization up and down about what they
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wanted to do about the strategy what
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they lacked was the first component a
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true
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sense of what the market conditions were
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over there and they're markedly
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different in the defense industry the
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way customers come to Market to buy
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products and service and the way you go
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to market to sell products and services
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are vastly different they misjudge that
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now was it a good idea poorly executed
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or was it doomed from the start because
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it didn't have the right marketing
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foundations I think probably more the
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latter than the former but there's two
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examples one where it was seen as a
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structural change an opportunity to make
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money one where there was a clearly
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defined cycle maybe not unlike where
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we're headed today and what seemed like
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a very reasonable approach we have the
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technology we have the the resources we
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got the corporate alignment seemed like
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a very reasonable approach it didn't
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work well and I think it was Norm
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Augustine that uh had the famous line
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about the uh the record of success of
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defense companies getting into the
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commercial space is almost unblemished
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or the record is almost unblemished by
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success something like that so there are
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lessons in both directions and that's
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really the essence of of the U the
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discussion we're going to have this
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afternoon that you need all three
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components to be successful
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well let's go back to your original
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question what kind of situation do we
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see ourselves in now
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inherently this industry uh provides one
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critical problem any business plan has
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to have a demand model and then
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everything is built off of that demand
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model history has shown that we're very
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good at seeing these Cycles after the
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fact very difficult to predict that that
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people like Saddam Hussein was going to
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invade Kuwait uh you may it's kind of
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like an earthquake what's happening in
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Egypt now you saw the tension building
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you know something's got to happen
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eventually but when how where and at
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what magnitude almost impossible to
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predict so that level of uncertainty in
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our industry um I think will continue
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for a while I think it's fair to say
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with the economic environment the
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political rhetoric we're clearly at an
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apex of spending in the longest runup
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that we've seen uh in my mind that does
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not mean that we are without opportunity
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as an industry uh to continue to have U
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create shareholder value uh you ask how
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I think we'll follow the traditional uh
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rules of making sure uh what a good
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cyclical does and it makes sure that it
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can execute on its backlog we'll do the
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right things to size the business
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appropriately shed excess capacity and
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assets but we will also look both
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organically
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and through deployment of capital
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Acquisitions as you say to grow the
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business we'll grow it in our core and
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we'll grow it into uh some some near
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adjacencies we leverage their talents
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skills Technologies and Innovation and
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in some cases we've even acquired some
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of those unique talents skills uh and
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and brought them inhouse uh because we
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wanted to apply them more broadly and
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the key is if you have that kind of
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innovative model
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in a large
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Enterprise how do you preserve what's
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created value for them and that that
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engine of innovation and it just doesn't
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get sucked into the you know the broader
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operating uh practices of a big platform
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company few years back we acquired a
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company uh that was actually started by
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two cognitive psychologists at CMU one
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may not see the direct correlation of of
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these gentlemen to uh the defense
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industry but they were dealing
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eventually in their business with what
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they called uh making the complex simple
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and a particular problem that they had
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lit upon was this information flow as we
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move an internet likee capacity to the
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battle space you have a commander like
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any other business manager who is
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getting information about competitors
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and in the case of the military about
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the enemy where your assets are what
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strategies you want to deploy or develop
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and how you want to deploy your ass
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Assets Now to counter competition or the
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threat so they took a commercial model
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and they said we're getting this
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information how do I how does a human
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being want to process it and they were
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looking at particular problems in the
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military battle space and they were also
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applying it to other problems like
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energy management and buildings to
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Transportation Solutions uh for big
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transport companies around the world
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think of big Logistics firms I won't
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mention the names but that were clients
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and it was how to simplify and man AG
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the complex and they were looking at
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this information problem we thought it
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had great applications to some things
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that we knew were a problem in the
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domain we had some expertise with our
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customers the military customer we put
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the two together and we did it in such a
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fashion that we left a kernel
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development kernel here we put the
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business around it a business wrapper
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preserve them from the usual vagaries of
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reporting out on a monthly basis we left
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that to our traditional business guys
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and then we used that kernel to uh
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Foster innovation and development in in
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some other areas uh it's been very very
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productive for us it's a company called
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Maya Vis um out of Pittsburgh
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Pennsylvania I think we talked a little
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bit about the business environment uh
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we've had the opportunity over the last
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20 years to um go through some pretty
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large Cycles we had the procurement
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holidays of of the 9s where this company
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shed a lot of excess asset asss and an
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opportunity we thought to create some
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value for our
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shareholders um and then from the late
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90s through the present day we've uh
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built the organization organically and
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through about o over 50 Acquisitions so
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we see opportunity on both the down
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cycle and the Up Cycle to create value
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for um not only our shareholders but the
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other two stakeholders that we have
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employees and our customers and continue
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to do that so we think that fence will
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be uh a good Market uh to stay in for a
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while we've Diversified the portfolio uh
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tremendously in the last 15 years I
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think that puts us in as good a position
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as everyone all portfolios have
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strengths and weaknesses uh no doubt
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ours does as well but we've also got
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significant exposure to commercial
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Aerospace which I think puts us in in
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good stead to balance that portfolio a
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little
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bit well uh we are always opportunistic
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as I said uh uh last 15 years or so
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we've done 50 plus acquisition so we're
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going to continue to be opportunistic
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where we think we can create value uh
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for our Enterprise um it it's
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interesting there's a little bit of a
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discontinuity right now between private
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valuations and public valuations uh we
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see private Equity entering the market
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again uh to a large extent so that'll
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sort itself out over time and uh you
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know you look back to the the '90s there
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were consolidators and and and there
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were Liquidators and I I think
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eventually uh as the market trims down
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it's a law of supply and demand if
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there's excess capacity the market will
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eventually sort itself
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out
