1. May 31, 2012
United States: Driving Growth and
Innovation in Challenging Markets
By Jon Barney
Partner, Avascent
Prepared for:
Aerospace Forum

2. Avascent is the leading strategy and management consulting firm advising clients
globally in government-driven markets
Avascent Client Industries & Sectors
Aviation &
Defense Systems Global Development Healthcare Intelligence
Aerospace
Logistics, Engineering Security & Public Information
Space Outsourced Services
& Operations Safety Technology
Representative corporate and financial clients
• Offices: Washington, Paris
• 25 years experience and
over 3000 assignments
• Core Capabilities:
 Strategy and growth
 M&A
 Avascent International
 050 Data Product
 Organizational
 Capture Support
• Global network in
Asia, MENA, LatAm
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3. A new reality…broader fiscal challenges, political gridlock, and drawdown of forces in Iraq
and Afghanistan lead to a declining defense budget going forward
U.S. Defense Budget Forecast through 2017
$800
$700
$600
$500
Actual
$400 FY11 President's Budget
Source: Avascent Analysis
FY12 President's Budget
$300 FY13 President's Budget
BCA Sequestration Reductions
$200
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Avascent Analysis
Conclusions:
 New period of uncertainty caused by: 2012
elections, sequestration, political
gridlock, geopolitical events
 Budget declines, but is above early 2000s levels
 There will be segments of growth
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4. In response to this changing environment, five key drivers of the U.S. defense market
have emerged with important implications for future investments and technologies
U.S. Defense Market Drivers
Cost Focus
• Due to budget, under-performing and/or high cost programs cancelled, delayed, reduced
• Implication: Focus on effeciencies, cost savings, and low cost solutions
Asia Pivot
• As Iraq and Afghanistan wind down, shift of resources from Middle East & Europe to Asia
• Implication: Shift $$$ away from ground forces to maritime, bombers, missiles, and ISR
(Intelligence, Surveillance, Reconaissance)
Changing Force Structure
• Terrorist and irregular threats remain – but will be addressed by a smaller and more agile
force with reduction in Army and Marine Corps - Force 2020
• Implication: Investment in Special Operations, unmanned systems, and ISR
Cyber Priorities
• Elevation of cyber by White House, Defense, Space, and Intelligence community
• Implication: a significant area of growth, commercial/govt approaches, big data analysis
Globalization
• U.S. companies seeking more growth abroad; new competitors from outside U.S.
• Implication: More complex operating environment presents large opportunities but risks
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5. Innovation case study #1 – Cyber: U.S. spending on cyber will reach about $25B by
2015, growing at nearly 10 percent annually with some sub-segments growing much
faster Cyber Market Overview
Federal
Cyber Market Budget Overview Analysis
25 • Includes: Internet, telecom
$ Billions
networks, computer systems, and embedded
20
controllers in critical industries
15
• DoD: 15K networks; 7M computing devices
10
5 • Commercial market > $200B in 2010
0
• White House , DoD and Intel: cyber is priority
2010 2011 2012 2013 2014 2015
Source: Avascent Analysis • Large area for M&A – 70 deals in 5 years
Large Systems COTS Providers that Pure-play Security
Company Type Services Firms IT Service Providers
Integrators Offer Services Product Companies
Focus on high volume
Thought leaders with Leverage broader IT focused trying to
Market Commercial and IT security products;
trusted brands – relationships with expand into
Approach government leaders prefer sales through
analytical services government government
primes
Leading Firms
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6. Innovation case study #2 – Unmanned Vehicles and ISR: Due to operational
effectiveness, cost savings, and Asia pivot, investment in UAV/UAS and ISR capabilities will
continue Systems and ISR Market Overview
Unmanned
Market Trends Service Trends
• Has been dominated by platform manufacturers… • Army – #1 small UAV user; Op-tempo impact
• …but new opportunities in multiple mission areas: • Navy – expanding requirements; larger ISR
cargo, longer endurance, ISR, training, payloads, civil missions and Broad Area Maritime Surveillance
• Growth despite cancellation of Global Hawk Block 30 • Air Force – largest UAV customer and will
continue to drive broad innovation
• 50% lifecycle cost savings for unmanned airborne ISR
missions (aircraft, personnel, training) - CSBA study • Marines – modest users of UAV; Army model
Flight Control Ground Control
Market Segment Air Platforms Payloads Communications
Systems Systems
High altitude/long
Strong platform Push for Crowded market with
endurance DoD demand for
presence; important standardization sophisticated
Trends (HALE), cargo, comba more capable ISR
if migration to civil across platforms and technology and high
t are areas of systems
space services barriers
innovation
Small UAV - Raven
Tactical- Shadow
Leading Firms
Tactical - Predator
HALE – Global Hawk
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7. How to move forward – a rapidly changing landscape requires a new approach
2001 - 2011 2012 and going forward
Operating Environment Operating Environment
 Heavy ground footprint with emphasis  Lighter ground footprint with more
on Army and Marine Corps emphasis on maritime and unmanned
 Middle East – Iraq, Afghanistan, GWOT  Asia pivot
 Buy new, don’t re-use  Extend service life where possible
 Deliver whatever the customer wants  Identify the most efficient solution to
strategy the customer’s needs
Strategic Implications Strategic Implications
 A&D Sector – everyone is a winner  A&D sector – winners but also losers
 No underperforming markets – limited  Underperforming markets but also
need to identify new growth markets as growth markets –
growth was universal cyber, ISR, missiles, missile defense, low
cost solutions
 Follow the herd as most companies
succeed  Differentiate and innovate in a more
competitive market
 Company portfolios expand beyond core
 Company portfolios evaluated for best fit
The era we are leaving: “The last ten percent performance generates one third of the cost and two thirds of the
problems.” – Norm Augustine, former CEO, Lockheed
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8. Jon Barney Avascent
Partner 1615 L Street, NW
jbarney@avascent.com Twelfth Floor
Washington, DC 20036
1 (202) 280-6812 (office) tel: (202) 452-6990
1 (202) 615-2497 (mobile) www.avascent.com
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