Defence contracts have proved highly lucrative for the select few resellers lucky enough to land them. Martin Lynch examines the challenges in cracking this highly specialised government market and how to overcome them
The defence industry is inevitably shrouded in an air of secrecy, intimidation and inaccessibility. The very nature of what goes on in the defence sector makes security a top priority in all aspects of its running. This extends not only to those working for the Ministry of Defence (MoD) and related industries, but to those looking to supply the sector with IT and services.
For a VAR developing a new business opportunity, the defence sector presents a daunting challenge, but it’s not impossible. There are hurdles to be overcome, from the language of defence and the maze of procedures to the long slog of building contacts and protracted contract bids. But it is all worth it in the end, according to those that are already there.
The defence sector has many advantages over private sector companies, not least of which is that it has a massive budget every year that is rarely affected by trivial matters such as global economic conditions or recessions. To put it in perspective, public-sector spending will grow at three times the rate of private-sector spending in the next three years, bumping the market value up from an already healthy £6.7bn to £9.6bn by 2008. That’s almost 10 per cent a year, according to Ovum, compared with 3.9 per cent for the private sector.
That growth is being spurred on by a number of very large IT contracts, not least of which is the recently awarded £2.5bn Defence Information Infrastructure (DII) contract. Apart from the big contracts, Ovum believes that the market for software and IT services in the UK defence sector is worth just under £1bn. This makes it the third-largest public-sector IT market after central and local government.
“Defence is a great market but you have to patient as there is no government department that moves fast,” explained Ken Knotts, chief technologist for ClearCube, a supplier of PC blade and thin-client technology. “Defence is a good and stable, predictable market once you are in.”
Kevin Gladwin, solutions director at reseller and training company A Plus Services, added: “The defence sector is fantastic in many ways, including the work you do and the people you get to work with. It’s also a stable sector. Over the past 15 to 20 years, it has had big, billion-pound budgets, and it’s very well defined just how that money will be spent. Obviously, there are problems getting into the sector, but once you are in the word ‘loyalty’ comes into play.”
“It’s a good market for those with a degree of patience,” said John Buchan, government and defence sales manager at e-security and policy company, Clearswift. “Many defence procurements are very large and complex. They have big contract values attached but it takes a long time for these things to come to fruition. For instance, we won a deal to work on the Nato Messaging System with EADS Defence and Security Systems. We were working on that for three and half years, but the actual procurement took only a few months. Conversely, the wins are big too. However, resellers should not fool themselves into thinking that defence organisations are large, cash cows just waiting to be milked.”
And there’s the rub. The defence sector may be a gravy train in waiting, but hopping on board is not easy. There are a number of hurdles that need to be addressed, including cost, commitment and expertise – and those are just internal VAR issues that need to be ironed out before even considering tackling the defence market. On the defence side, the company and individuals have to be cleared by the MoD, there’s a huge paper mountain of rules, regulations and businesses processes to be absorbed, not to mention a whole new vocabulary to learn, and an approval process to get your solutions in the official Defence Communications Services Agency (DCSA) catalogue of preferred suppliers for IT and consultancy services.
Knotts said: “Getting in is hard from two perspectives: the first is finding all the right decision makers and really getting to understand the requirements that will dictate the purchasing decision. Products and solutions get far more rigorously tested than the company. The other hurdle is name recognition. Unless you are a Dell or Hewlett-Packard, it’s tough. Even if you do get in, you might make a big sale to some department but because it’s defence you cannot talk about it, or they shoot you. We have done deals that we’d love to brag about but it’s not an option”.
Eddy Alejos, technical director of Dynax Systems, added: “If you are trying to operate at the very top level of the defence sector then, yes, it is difficult to crack. Very few companies can afford to speak directly to the MoD because it’s so expensive. We were part of the CSC bid for the multi-billion DII contract and it was costing CSC £1m a week to stay in the running for that contract.”
So, where do you start? Essentially there are two routes in: getting your name into the Defence Communications Services Agency (DCSA) catalogue or partnering up with a player that already has the MoD’s blessing. Anyone with a bit of public sector work under their belt will know that their chances are always improved if they have managed to get listed in the two key government catalogues: GCAT for IT hardware and software and SCAT for IT services.
However, these tend to be populated by larger vendors and channel players, which is why many recommend finding a partner in advance. The defence sector version is the DCSA catalogue which lists vendors and solutions and systems integrators cleared to work in the defence sector. However, unlike their public-sector cousins, which can use the GCAT and SCAT catalogues to get an idea of solutions and prices before buying from a non-listed supplier, defence sector IT managers will only deal with DSCA-listed suppliers. Because the DSCA usually sticks to listing just three key suppliers for each product/ solution sector, these tend to be big players. So where does this leave the smaller channel player?
According to Gladwin, you must do your homework first. “You need to have a specific understanding of the terminology used and the processes defence uses for procurement,” he advised. “There are two main routes: one is choosing small-scale stuff from the DCSA catalogue; and the other is getting in on major tenders. To get a listing in the DCSA catalogue you have to go through a tender process. It’s very fair and straightforward but it’s not really suitable for small companies. You have to have to have a certain level of turnover before you will be considered.”
Alejos added: “If you latch onto someone else with defence contacts there is no reason why not you cannot succeed, as long as you have the relevant skills.”
Buchan agreed. “Getting in depends on where you are targeting. In the DCSA catalogue, those approved are restricted to a smaller number of players, usually just the big ones. As a new supplier, you need to form relationships with the system integrators already in there. You also need to learn the language. While working on the Nato contract, we were given a glossary of acronyms that ran to seven pages,” he said.
Knotts added: “It’s tough to just decide to enter this market cold. Invest in someone that has some experience in the defence sector. It makes sense to have a salesperson with defence contacts. As a chief executive you also have to be ‘defence-aware’. Government sales take longer than any other sale – they get stuck in a black-hole waiting cycle. Chief executives have to have the patience not to pull the plug too soon and should be looking at yearly, not monthly, sales targets. There are VARs with a long history in the defence industry and that know the ins-and-outs.”
Gladwin thinks resellers have to be prepared to spend on buying in or renting some defence skills.
“I think it’s far better to buy in experience, either someone familiar with t he defence procurement process or ex-military personnel,” he said. “There are also some specific defence consultancies that offer introductions to the MoD. They tend to be very well connected, know what projects are coming up and who’s in charge. It’s a shortcut to gaining entry.”
At the same time, you need to get your face and company known to those that count. This is especially true after you have secured a partner working in the defence sector. You might have a way in but as far as those in defence procurement are concerned, you are a nonentity with no track record. The closed shop mentality exists until you hit the bricks and make an effort to meet as many defence IT managers as you have access to.
“Face-to-face contact is extremely important in this sector,” Knotts said. “You really have to have buy-in and support for your solution. The quickest way to poison your barrel here is to ignore those IT managers that don’t really like you. There is still an element of the ‘good old-boy network’ but now the emphasis is changing to how good your product is. To sell well here, you have to be both a charismatic salesman and have extensive technical skills. You need to know what you are talking about”.
Buchan agreed: “It’s critical. Having a product that does the job is one thing, but they really need to have confidence in you, as much as in your company.”
Patience and loyalty are two words that kept cropping up in discussions with those involved in the defence sector. Patience is needed to crack the sector and keep your nerve when contract negotiations drag on for months and years. What you get in return is loyalty and a chance to make a name in a marketplace that always has money to spend. Lots of money.
Knotts said: “The big benefit is that they are stable customers and they pay on time. Although you cannot talk to anyone about the work you have done, they do a pretty good job of promoting you internally.”
Alejos added: “One of the good things is that the people who work in there in IT are there for a long time. They tend to be lifers, a lot like the military. One of the IT people we work with has been there for years and we have been referred onto others within the sector because of him.
Gladwin said: “Once you get your face known, use the right language and establish credibility there’s a greater willingness to engage. People in defence tend to take a while to accept newcomers but once they do, they will support you and recommend you to others. It’s a sector where loyalty counts for a lot.”
Infrastructure provider says international sales now make up 51 per cent of its revenue
Suzanne Chappell of TMS plans sailing venture after selling Oxfordshire-based TMS to acquisitive Chess
Withdrawal of credit insurance by some providers a 'reflection' of current challenge facing IT sector, according to MD Steve Soper
SMART's UK managing director joins Lenovo to boost SMB business