October 2012

Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Overcoming Challenges Creates Opportunities
Steven Webb, Vice President, Aerospace & Defence Practice

We Accelerate Growth

Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Introduction
C4ISR is a term coined by the defence industry. Organisations develop state-of-the-art technology, systems
and processes to help defence forces communicate safely, follow well-planned operational procedures and gain
near-perfect situational awareness to deal with a multitude of eventualities. The best technologists and planners
have worked with government agencies for years to help collect, interpret, and disseminate sensitive intelligence
data. Peoples lives are dependent on the systems. If were going to pin the tag intelligence experts to any
industry, then its the defence and security community.
Given that defence organisations are at the cutting edge of intelligence technologies and solutions, it might
surprise industry outsiders that they are not as efficient at collating intelligence on their competitors,
customers and the business environment as one might expect. Poor use of market intelligence can have a
negative impact on both the top and bottom lines. This Market Insight will consider some of the key uses of
market intelligence in the Defence and Security market, why organisations get it wrong, and what they can
do to maximise both internal and external investment on market intelligence.
The Hunt for New Regions, Markets and Adjacencies
The Aerospace, Defence and Security market is evolving rapidly. Defence organisations are seeking
opportunities outside of traditional Western markets, developing new business models to satisfy the
cost-conscious customer, whilst also assessing adjacent market opportunities such as security. The need
to understand where to focus time and resource has never been more critical. With global defence
budgets only set to grow by 1.27 per cent from 2011 to 2020, system integrators and suppliers need to
be sure that they focus time and resource on the right opportunities.

HIGH
Security spending
outstrips defence
expenditure

Emerging markets
becoming the key
target for
US and EU industry

New market entrants

(other industry)

INDUSTRY IMPACT

Investment in
new market
segments
Economic and Political
Stability in APAC and LATAM

Strong markets
becoming opportunity
hubs for smaller markets
(indirect access to
extended footprint)

COTS products
increasingly become a
cost-effective option/increase
power of lower tier suppliers

Incentive to local IndustryDemand for technology know

how through partnerships
(JV, Industrialisation, M&A)

LOW

CERTAINTY

Technology
Convergence

Dealing with a
cost conscious
customer

Cost effective
solutions

Merger and
Acquisitions

Smart, multi-purpose,
Upgradable Platforms
Green/Efficient
Platforms

Industry forces to
share R & D Investment
with other players
The rise of
open innovation

2012-2021 perspective

Importance of TLCM
Modernisation
Requirements

Competition
with a
new face

HIGH

Source: Frost & Sullivan

2012 Frost & Sullivan

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Whilst defence budgets are under pressure and the hunt for business in adjacent markets intensifies,
organisations will continue to focus on understanding which aspects of the global security industry will offer a
strong return on investment. Cities will continue to grow and local government will invest in new or upgraded
technology solutions. Oil & Gas infrastructure protection and securing critical assets, often linked to a city,
such as airports, water and energy, will also see strong investment. Organisations need to look at global trends
and markets. Whilst China and Russia offer limited or no defence opportunities for Western suppliers, providing
critical asset protection is a potential source of revenue. There is precedence with a number of Western firms
already selling security solutions into these markets.
Organisations also need to consider safety. Natural disasters will continue to be a theme of the 21st century,
and governments and cities will invest in protecting their infrastructure from flooding, earthquakes and other
natural hazards. Providing solutions that can predict, warn and organise a response will be in demand. Beyond
security, integrators must look at how their capabilities can be applied to other industry segments, such as
transportation and logistics.
Security Growth Markets
Global

NA

EU

ME

LA

SEA

China

India

Airports
Mass Transit
Oil & Gas
First Responder
Border & Maritime
Border Control
Energy & Utilities
<1%

0-5%

5-10%

10-15%

15%+
Source: Frost & Sullivan

Related to commercial aviation, passenger travel will continue to grow and commercial aviation order books
will remain strong. Systems and technology providers need to continue to focus on improving the passenger
experience, which also applies to airports. No longer are airports reliant solely on aeronautical revenue.
Increasingly, sophisticated IT systems and communications will help deliver a smoother passenger experience and
higher margins through driving more efficient processes and encouraging higher spend within the airport.
The question for organisations is where to spend time and resource from a country, technology and application
perspective? Mitigating risk and ensuring a successful new venture is a key challenge for all. Do we acquire the
technology and expertise, or invest in building our own competency and proposition? How do we differentiate
solutions and create stand-out bids? With whom should we be partnering in new regions or industries?
These are but a few of the critical questions the industry is asking itself, and gaining the right market, competitive
and customer insights will enable organisations to build a successful plan, or at least minimise the risk of it failing.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Market Intelligence Challenges Finding a Voice

In 2012, Frost & Sullivan conducted a survey with the Market Intelligence function of 168 leading global
organisations to understand the day-to-day challenges they face and how they currently leverage different market
intelligence tools. The leading challenge for most Market Intelligence units was how to ensure that key internal
stakeholders integrate research insights into their decision-making process. This resonates strongly in the
Aerospace and Defence industry, where Market Intelligence executives often lack an internal voice, are unable to
influence business groups, or drive market-focused strategic planning processes. Too often communication is one
way with the Market Intelligence department struggling to pinpoint the needs of the internal customer. Whether
the issue is one perceived only by the Market Intelligence executive or a view shared across the organisation,
the result is the same. Market intelligence can struggle to be taken seriously and is often relegated to the status
of nice to have.
One of the main reasons for an indifference to market research is that most organisations in this market are still
stuck in the slow lane of government decision-making. However, the environment is changing and this requires
organisations to adapt to the faster lane of commercial decision-making. Shorter development and deployment
cycles require a continuous flow of real-time market intelligence to make informed decisions in what is now a
rapidly evolving business environment. To meet this need, Market Intelligence executives need to reposition both
internally and externally, such that they are well-equipped to collate and analyse critical data, almost in real-time.
Given that the Market Intelligence community can play an active role in mitigating costly R&D failures or providing
competitive insights that make the difference to a successful bid, these internal issues must be overcome. However,
it is not always the fault of the organisational structure or senior management indifference to market intelligence
that results in the ineffective use of insights. The Market Intelligence community can often improve its value
through stronger communication, better promotion of its services, and understanding the key issues and needs of
its internal customer. These needs should drive the market intelligence strategy and objectives.
From a regional perspective, Aerospace and Defence organisations in the U.S. tend to have far more
sophisticated Market Intelligence departments compared to Western Europe, with the rest of the world
trailing further behind. Whilst Market Intelligence is a clearly defined function in the U.S. with significant
resource and influence, in Europe the function is not always clearly defined, roles are hybrid, and processes
not always clear.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

5 Key Market Intelligence Department Challenges and the Root Causes

Problem

Root Cause

Ensuring internal clients/stakeholders integrate

research insights with their decision-making

Strategic Alignment:
Insufficient senior management support

Engaging internal clients/stakeholders to

pinpoint their research needs

Process: Ineffective process

Integrating global, regional and local

customer/market information to generate insights

Staff: Limited resources

Demonstrating the ROI of market

research Process

Lack of process

Maintaining a portal for centralized

knowledge management

Process: Inadequate communication

Staff: Limited resources

Source: Frost & Sullivan

Cast the Net Wider - Delivering Value Across the Organisation

In a Business-to-Business (B2B) context, both Market Intelligence and Competitive Intelligence cite the three
functions they serve as marketing, sales/business development and strategy/planning. This is expected and, to a
large extent, mirrors the Aerospace and Defence industry.
However, what is surprising is that the involvement of Market Intelligence in new product development and
R&D is often so weak. A rigorous approach to understanding the potential customer needs and requirements
is often lacking and frequently validation comes after years of product development cost. Without a systematic
approach to establishing the market need and driver, R&D teams risk investment in projects that offer no
long-term business opportunities. From an unwanted technology to an overdeveloped product that delivers
more than the market needs and everything in between, this is a challenge that permeates throughout the
industry. The role of Market Intelligence can often be seen as stifling creative thinking but, whilst R&D certainly
needs to be left to drive innovation, taking a market-driven approach can aid the idea generation process rather
than suppressing the next big idea.
It is interesting to note that in Business-to-Consumer (B2C) organizations, R&D often puts a higher value on
Market Intelligence. In a B2C environment, Market Intelligence still reports frequently to Marketing but can equally
report into Corporate Planning and sometimes both. B2C Market Intelligence is also frequently accountable
to R&D and Product Innovation, which is virtually unheard of in Aerospace & Defence. Whilst B2B and B2C
industries are extremely different, with B2C product lifecycles short and new breakthrough technologies from
new competitors emerging frequently, the close connection between Market Intelligence and R&D provides
Aerospace and Defence organisations with a blueprint into how market intelligence can be maximized.
Perhaps the business function where market intelligence is most under-utilised is Procurement or, more specifically,
Strategic Sourcing. The Oil & Gas industry provides a good case study and benchmark for illustrating how a good
understanding of the market environment for key commodities, and the impact on your suppliers, can support

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

procurement decisions and mitigate risk. Consider the financial consequences of a delay in gas turbines to a
new oil field or a lack of replacement pumps for a gas pipeline. The downtime in production can have a huge
impact on the production revenues for Oil & Gas organisations. Making sourcing decisions based on a solid
understanding of your suppliers market dynamics, capacities, pricing pressures and sourcing challenges can help
alleviate potential supply bottlenecks and provide a stronger negotiating position on long-term contracts.
In Frost & Sullivans view, the Aerospace and Defence industry rarely takes a similar approach, and certainly
examples of a rigorous intelligence process to support sourcing decision-making are few and far between.
In recent years, Aerospace and Defence organisations have more closely aligned their service and product
offering to end-user requirements. The end-user environment is often complex, and decision-making
processes lengthy and politically influenced. To that extent, challenges are not always clear, and investing
in real-time market intelligence will enable a better understanding of the customer and help create a
responsive and efficient supply chain.
Where is the Data?
As stated earlier, one of the key challenges that Market Intelligence departments face is gathering intelligence
from within their own organisation. It is not a challenge that is specific to Aerospace & Defence, but is perhaps a
more significant issue due to complex organisational structures, ITAR restrictions and issues related to security
clearance. However, these issues aside, the Aerospace & Defence community can do better and should engage
in more effective intelligence sharing. It is not uncommon for large organisations to have similar requirements
in different offices, but the lack of communication between departments or regions, poor processes and the
low-level visibility of Market Intelligence means they work on requirements in silos. Market Intelligence needs
to develop a network of key stakeholders across the business, communicate regularly and market itself strongly.
Developing an internal brand, communicating activities in newsletters and encouraging two-way communication
needs to be a core part of the Market Intelligence departments activities.
Aside from collating intelligence from internal networks, a further tried-and-tested technique is gathering insights
from industry peers through conferences and tradeshows. Increasingly, social media is playing a role in connecting
people, making networks easier to maintain and enhancing information sharing. Open-source intelligence from
the Internet is a vital input and can provide insights that can confirm assumptions or beliefs about a competitor.
However, it requires a sophisticated data capture process to collate the information and turn it into actionable
intelligence for supporting bid processes or business planning.
In the survey mentioned earlier, B2B organizations reported that they spent 61 per cent of their market
intelligence budget on services from market research and strategy vendors. The bulk of this was on customised
market research. The Aerospace and Defence industry relies heavily on syndicated research. Interestingly, in
Frost & Sullivans experience, consulting work rarely comes through the market intelligence department; its
often the strategic planning, business development or operating business that generates the need without
involving Market Intelligence. It indicates that the internal links and processes between departments are not
strong, and this results in inefficiencies and poor information sharing across the group.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Structuring and Building an Effective Market Intelligence Community

The market intelligence process need not be complicated, providing it is aligned with corporate objectives and
strong communication is fostered between departments.

5 Key Steps to Developing a Market Intelligence Strategy

1. Define
Intelligence
Requirement

2. Collate
Data

5. Action
3. Analysis

4. Disseminate

Source: Frost & Sullivan

Market Intelligence needs a clearly defined role and objectives to help identify the return on investment.
Most market intelligence tends to be reactive rather than proactive, indicating that organisations are responding
to ad hoc requirements rather than applying market intelligence to a long-term business strategy. The role of
market intelligence needs to serve the larger business objective, the growth engines (or operating business
units) and the supporting functions.
If we take the example of defence markets, it is clear that system integrators need to look beyond traditional
markets currently characterised by defence cuts, and into developing markets. India, Brazil, Middle East and some
South East Asian markets tend to get the most focus.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Emerging Market: 2011-2020 Cumulative Defence Budget Forecast/

Estimated % of Foreign Presence in Defence Procurement in 2020
Emerging Markets: Defence
Budget Forecast, 2011 ($billion)

37

India
Middle East
Latin America
APAC

$429 bn
46%

$1,069 bn

97
58

Emerging Markets: Defence

Budget Forecast, 2020 ($billion)

49
119
72

58%

260

$657 bn

328

63%

$2,907 bn

68%

Source: Frost & Sullivan

If the stated corporate objective is to increase revenues in these regions, then it is important to understand
the customer and competitor landscape prior to making sizable investments. However, this is rarely executed
and results in different divisions taking vastly different approaches. There is significant risk in this approach.
Information is weak and not shared, local offices are set up with unrealistic expectations, technology requirements
of the new markets are not fed back to R&D, local nuances are not understood and the opportunity is wasted.
A strategic approach to a new market leveraging a strong market intelligence function and involving all key
stakeholders can lead to a far more effective market entry strategy. Stakeholders are aligned, knowledge and
best practice is shared, customer needs are indentified and the long-term business opportunity is understood.
Decisions about offices, local partners and technology investment are the result of an approach supported by solid
market intelligence.
Collation and analysis of data are the core skill sets of every Market Intelligence professional. Whilst there
is best practice around collating and analysing data, at Frost & Sullivan we believe a core challenge in the
Aerospace & Defence industry is the dissemination of information. Referring to the earlier survey, most
market intelligence professionals get stuck with trying to design a state-of-the-art knowledge repository that
has all the data the organisation needs. However, what use is a library if nobody knows where it is, has no
time to visit, cant find the book or looses their library card. Market Intelligence relies too heavily on creating
databases to pull users to the data rather than focussing on push. If Market Intelligence is plugged into the
strategic framework of organisations, then dissemination of data becomes easier. Requirements are known,
stakeholders are identified, and both strategic and tactical intelligence becomes easier to distribute.
Market Intelligence managers needs to be proactive and provide a valuable service rather than waiting for
the business to find them. This can be accomplished by regular reports on the state of the market, including
competitive, customer and geographic reports. The frequency of reports will depend on the business, but
a monthly report on competitors will, for example, equip the sales team with up-to-date information on
competitive threats and help them build an effective proposition. Its important that Market Intelligence knows
their internal customer and gets the right information to them in a structured and timely fashion.
Although it is essential to push the information to relevant stakeholders, the intelligence database does need to
be usable and accessible. Creating a process and function that allows employees to deposit their insights in the
database helps capture internal intelligence and gains employee buy-in to the system.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Strategic vs.Tactical
Customer retention, customer acquisition and brand building or awareness are considered the key marketing
aims for both the defence contractor and other service providers over the next 12 months. The most significant
strategy that suppliers plan to employ in 2012 is to focus sales efforts on generating new business, to focus sales
efforts on existing markets and to trial new and innovative products in the market as identified by 53 per cent,
44 per cent and 38 per cent of respondents, respectively. The focus on tactical information to help retain existing
customers and identify new ones is top of mind for most organisations.
The provision of strategic and tactical information is the role of Market Intelligence, but whilst most programs
are designed to provide insights into future markets, few focus on delivering leads and opportunities to the
client-facing business.
Many defence and security contractors have or are in the process of establishing the long-term opportunity
provided by the Safe City trend: integrated city security solutions and multi-agency collaboration. The market
offers global opportunities for providers across the value chain from system integrators to technology providers,
from communication organisations to those with strong analytical and IT capabilities. The key questions are
where are these opportunities at a city level, who is the customer, and what technology is currently being used?
Who are the incumbent suppliers? There are close to 3,000 cities with a population of more than 100,000
that will all offer some level of opportunity. Whilst a filtration exercise (see Frost & Sullivan Market Insight on
Adopting a Risk-Averse Approach to Achieve Global Business Growth) can help filter out the top 200 cities, the
Business Development team needs more precise data. This tactical data can help turn market intelligence into
sales opportunities. Understanding macro and micro trends, building a view of perceptions and budgets along with
other relevant factors, will help filter opportunities and generate the total addressable market (see figure below).

STEP 1:
IDENTIFY PARAMETERS

STEP 2:
RESEARCH ANALYSIS

STEP 3:
DESIGN & IMPLEMENT
FORECAST MODEL

STEP 4:
FINALISE & VALIDATE OUTPUT

ECONOMIC
MACRO
AND
MICRO TRENDS
ANALYSIS
CROSS INDUSTRY

R&D/
Innovation

REGULATORY
SUPPLY &
DEMAND
PRODUCTS &
SERVICES
END-USER TRENDS

Sales
Leadership

Corporate
Strategy

GEO-POLITICAL

FORECAST MODEL
PERCEPTION
BUDGETS

Marketing

TECHNOLOGY
OBSOLESCENCE

MARKET
SIZE
FORECAST

Corporate
Development

Market
Research

Investors/
Finance
Competitive
Intelligence

GLOBAL ECONOMY
CONSUMPTION

CAPACITY

Source: Frost & Sullivan

Market Intelligence functions need to provide the strategic support for annual or quarterly planning processes and
support the actions from business plans that might include acquisition searches or a new market entry strategy.
Equally important, though, is providing the granular, opportunity-based opportunities. Striking a balance between
strategic support and tactical information is important for resource planning, but also building the credibility of the
Market Intelligence department within the organisation. Providing qualified leads, support on how best to tackle
those leads (proposition, local partners, key stakeholders, etc.) and supporting bid/no bid decisions will quickly
endear Market Intelligence to the Business Development function.

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Implementing an Effective Market Intelligence Strategy in Aerospace, Defence & Security

Market Insight

Conclusions & Recommendations

With decreasing defence budgets in traditional markets, fiercer competition in security markets and pressures on
the aviation supply chain, now more than ever Market Intelligence can provide a critical service to the business.
Supporting long-term strategy development and providing tactical opportunities to generate near-term sales will
make Market Intelligence a critical function within an organisation.
Frost & Sullivans key recommendations and considerations include:
1. Executive Support. Executive Management needs to empower Market Intelligence and ensure it is firmly
embedded in the strategic and business planning process.
2. Know Your Customer. Market Intelligence needs to provide a service across the business, encompassing both
traditional internal customers, but also embracing and supporting the needs of other departments such as
R&D and Procurement. Establish needs through questionnaires and face-to-face meetings.
3. Plan Your Resources. Market Intelligence needs to be flexible to accommodate planned and strategic
requirements, and to support unforeseen and ad hoc requests.
4. Promote Internally. Market Intelligence needs to market itself and develop an internal stakeholder network.
Branding, frequent market bulletins and regular competitor/customer and market snapshots will help raise
the profile of Market Intelligence.
5. Encourage Open Communication. A culture of information exchange needs to be encouraged. Creating
champions in the business that can relay internal knowledge, internal workshops and an interactive
intelligence tool can help promote open dialogue.
6. Get the Balance Right. Providing the right mix of strategic and tactical support will provide greater support
across the business, whilst tactical information is the best way of demonstrating a return on market
intelligence investment.
Frost & Sullivan has supported organisations with establishing effective Market Intelligence functions and
frequently assesses best-practice models. If you would like to discuss market intelligence best practice or how
best to develop a Market Intelligence function for your organisation, please contact steven.webb@frost.com or
andrew.thorndyke@frost.com.

About Frost & Sullivan

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