SMEs: bridging the gap into defence supply

November 17, 2016

Tim Gibson, Fujitsu and Head of Defence at techUK, speaks exclusively with Head of Content, Victoria Maggiani. Representing and supporting companies involved in the technology industry, techUK is committed to helping its members grow and take advantage of an ever-evolving marketplace.

Tim Gibson, Executive Director, Defence and National Security, UK and Ireland, Fujitsu and Chairman of techUK’s Defence and Security board.

By developing a network of likeminded individuals and putting them in touch, techUK works with its members to identify and advance innovations, whilst helping them get to market, both domestic and internationally.

The technology industry is a key partner of the defence sector, with digital technology providing huge opportunities to the defence sector, but also presenting a number of challenges in security. The introduction of new technologies has fundamentally changed the way the UK Armed Forces works, both in combat and in business and it is crucial that key stakeholders from the tech industry, to government, MOD and Home Office communicate effectively to help safeguard our interests.

techUK’s Defence Programme has been developed with members to address the new challenges facing the sector, and make sure industry is engaged throughout the transformation process as more services and capabilities become digitised.

Chairman of techUK’s Defence and Security is Tim Gibson, who is also Fujitsu’s Executive Director of Defence and National Security, UK and Ireland.

Tim has a wealth of experience in the defence sector, having joined Fujitsu some 30 years ago. During our conversation it came across how pleased he was with techUK’s involvement with SMEs and the defence sector, helping to create a level playing field for all those involved in defence and security by improving its SME members’ understanding of how government policy and organisational changes will impact relevant markets.

Tim Gibson, Fujitsu and Head of Defence at techUK, speaks exclusively with Head of Content, Victoria Maggiani.

SMEs face a challenge going against larger competitors in the market, both at home and for export, yet Tim explains how they are crucial part of the market, bringing innovations and new ideas to the arena.

Upon his appointment as a Chairman, Tim commented: “The UK MOD is currently going through one of its most ambitious IT transformation programmes. It is a very dynamic time for the UK defence industry and I am excited to be involved at the heart of techUK’s efforts – forming the strategic plans for the next two years and seeing these come into effect to drive the UK’s defence and security industry forward.”

One of Tim’s motivations, was to take the Board from a talking platform to one that was actively involved and engaging with its members and the defence sector. His initiative to bring The Ministry of Defence’s Chief Digital and Information Officer Mike Stone, into the regular meetings has helped the sector to engage with the MOD and understand its needs, while showing the Ministry what SMEs can bring to the table.

We talked about the difficulties, SMEs can face when trying to get into the defence supply chain.

“At Fujitsu, we do work with a lot of SMEs approximately 30% of our suppliers are these smaller companies. There are a lot of very specialist small businesses that we work with on our defence projects. What we are finding more and more is that SME products are being embedded into our solutions then we export them. So we are taking quite a lot of the red tape pressure off the small companies, and becoming their channel to overseas markets.

“One of the biggest challenges for SMEs is to get their products exported internationally, due to the amount of red tape involved in getting into defence supply chain. Working with a larger multinational can help them get into markets, typically NATO, north America, japan and Australia.

“In the UK business here, which is Fujitsu’s second largest defence market after Japan, we are investing in R&D, building solutions and products. So we tend use the smaller companies as part of those solutions and embed SMEs at this stage. Fujitsu has an innovation centre, which allows us to demonstrate our solutions but also offers a capability for SMEs to come in and build their prototypes and develop demonstrations in an environment that can demonstrate those to potential customers both UK, European, overseas, and non-defence companies. In particular the cyber security sector of technology is taking off –banks and large financial institutions are extremely interested in this area.

“The centre gives the SME access to a capability they probably couldn’t afford to do.”

Tim Gibson, Fujitsu and Head of Defence at techUK, speaks exclusively with Head of Content, Victoria Maggiani. How are you engaging with SMEs and helping them overcome the challenges they face?

“The techUK defence board has three permanent SME members, the board is deliberately made up of small, medium and larger businesses, voted for by the partners. The SMEs might be small in size, but they have large networks – so we make sure SMEs know what is going on, we invite them to all the events, send out a lot of briefings.

“It is about trying to get things to happen. And this seems to be working very successfully, we have developed some long term relationships with these smaller companies.

“A lot of smaller businesses don’t want to be larger – they are owned by one person with 15/20 employees that are very specialist. It is not in their interests for larger companies to buy them as you’d probably destroy the company and innovation that is there.

“It works very well for us and it means that we are not limited by a specific vision and carefully controlled investment. These guys come up with all sorts of clever ideas, but they need a bigger infrastructure partner to make it happen – or to give them scale. That is one of the things SMEs really struggle with, particularly in terms of support – they are great at developing a product, but when you say ‘right, we now want to roll this out to 250,000 MOD users’ they just don’t have the scale of ability to deal with that.”

It does make sense when you look at it like that. Why do you think it has taken so long for it to be an integrated process?

“Fujitsu have always used a lot of SME companies, but if you look at the traditional defence suppliers, those really big companies in the defence sector, they would only typically deal with companies with a turnover of more than £5M. Whereas a lot of these small companies only turnover one to two million, so they never even get through on to the approved suppliers list. Also MOD terms and conditions could be passed down to the supplier from the prime- which is completely ridiculous, these small companies are no way able to meet those T&Cs.

“Fujitsu have had a lot of input into government policy and thinking over the way SMEs are handled. Simple things like – they need to be paid quickly or they go bust.

“Prime contractors have an obligation contractually with the MOD to pay suppliers within 30 days, but they also have a moral obligation, these small guys – it’s cash flow that kills them.

“They have a great idea and then they go bust with a full order book. It’s easy to do, if they just want to increase staff from say four to five, well that’s a 20% increase! A big step up in terms of regular income.

“SMEs need to be managed proactively and individually, particularly the smaller ones, as you don’t want to lose them midorder!

“This is also part of the defence industry maturing, and moving into the modern world, more traditional defence contractors are quite conservative about supply. And particularly as IT and networking becomes more centre stage to defence – as it is about information superiority- this is bringing all sorts of people into the defence arena.”

Skeeter Drone, developed by AnimalDynamics as part of the Defence Innovation Initiative.

So talking about the Defence Innovation Initiative, what are your thoughts?

“My thoughts – well part of what we’re doing with Mike Stone is to assess the innovation challenge – which will morph into the Defence Innovation Initiative. I think it’s a great thing – to get funding for proof of concepts & innovations has historically been quite difficult.

“There’s only a certain amount of money that industry can commit to speculative innovation taking it from idea to proof of concept.

“I think overall the general principle is a great idea – but it’s really early days. The challenge is going to be seeing how it actually works. It is going to be about the mechanism for deciding what areas need innovation and getting that innovation to actually happen- getting the funding to the companies to allow the innovation to be delivered and then deciding if they will take it further.”

Would you be worried about innovation for innovations sake?

“There will always be people with hobbies – with a great idea but not much application for it. This is where Defence will need a clear picture about what areas it will need to focus on innovation – whether that is wearables for soldiers on the ground, what they could do with 5G communications rather than army radios, and IOT for instance. I do think that they need to set an agenda to give it a direction so it strategically matches the solutions they need.”

Do you think Brexit will affect the defence industry- particularly with exporting to the continent?

“To be honest, it has been a bit of a non-event in terms of defence, because NATO is NATO and that supersedes anything that happens on the ground. It has not really had any real visible impact except for the change in exchange rate – so if you’re importing materials from US, well they’re going to be more expensive. From a business perspective – I have recently been discussing with colleagues that one set of equipment has increased by £3M in six months just because if the exchange rate.”

Do you think it will effect Britain’s defence standing as the second biggest exporter of defence equipment?

“No, not at all really as our exports now look cheaper. It will make exporting more competitive, particularly to the European market.

“techUK is encouraging more SMES to work with us, and to think about what we do in defence in broader terms– in terms of exporting. We are having success in taking them into new markets – which is something they would probably not be able to achieve on their own.

“It makes us a more rounded gives greater depth and capability, making them a more attractive supplier- able to meet challenges set them by their companies.”

What are the challenges of delivering this into the future?

“There is a lot going on at the moment as we move forward and it’s exciting to meet these future challenges. As we see the sector expand, bringing people into the supply chain itself is a challenge, from security clearance to getting more skilled workers into the arena, as well as changes to the way we are doing business.”

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Defence Innovation Initiative Fujitsu MOD SME supply chain techUK Tim Gibson