Strategic alliances by defense contractors in an era of industry consolidation

Abstract

In-depth interviews and case analyses were performed to classify and evaluate alliance formation in a major defense company. The industry associated with national defense has experienced dramatic change over the past decade in terms of reduced government spending levels and extensive consolidation. These events, combined with a rapid pace of technological advancement and innovation are reshaping the defense industry. Alliances with partner companies may play a distinctive role in defense company strategies to acquire new technologies, enter global markets and gain competitive advantage. To assess the role of alliances in a defense company, personal interviews were conducted with company program managers, vice presidents and a prior CEO of Detel Corporation (pseudonym), a firm with multi-billion dollar annual revenues. Evaluations of sixteen alliances determined the conditions for formation, management involvement, objectives, partner company size, current markets, and degrees of success or failure. The results highlighted the importance of CEO and senior level management involvement in initiating and implementing the alliance. In cases of fast paced technology companies, alliances with smaller firms were generally easier for this major defense company to establish and develop into strategic long-term relationships than with large technology firms. The large commercial technology firms are reluctant to form strong alliances with defense companies as manufacturing scale via defense market entry limits partner value. Smaller technology firm alliances are a superior source to obtain new technology quickly, often at less cost than internal developments. Careful selection of partners from the United States and foreign countries has potential of entry into new global defense and government markets. Alliances with competitors are possible but require significant levels of management attention. Alliances with firms whose dominant business is in commercial markets will become the norm for defense companies. They will provide access to innovative technologies and processes as well as continuing the movement towards a more homogenous commercial/defense marketplace.