DMTC Annual Conference | BAE Systems

Thank you to Mark Hodge for giving me the chance to address this audience on a topic I have always been, and continue to be, passionate about.

In my 30 years’ experience in the Defence industry, I have had the great fortune to be involved in many international programmes and the opportunity to work in a number of different countries, including two years in the UK as the Global Head of Engineering for BAE Systems. One of the main things I have taken away from these international experiences is that Australian engineers are equal with the best from anywhere in the world.

The thing that holds Australian Engineering back is not our capability; it is quite simply, the lack of opportunity.

One example and one of the things that both frustrates me, and makes me very proud, is that in a time when the world is waking up to the benefits of Autonomous Technologies, and we see the advances being made by companies such as Google and e-bay in this field, some of the leading engineers working in the Google and e-bay teams are Australian Engineers – engineers that we developed within my team in BAE Systems here in Australia, or with Professor Hugh Durrant-Whyte’s Team at the University of Sydney. These are technologists who are leaders in their field, educated, trained and developed in Australia, but need to head overseas to progress. How can we make sure that these engineers are retained in Australia to the benefit of Australia? Or, like me, where they do head overseas, they come back to share their diverse and rich learning and knowledge for the benefit of Australia.

My talk today focuses on the need to work together to ensure our Defence Force has what they need to provide security to our Nation and our people, and to deliver on our responsibilities in our geopolitical region and with our allies. This underlines the need to work together, as a Defence Enterprise, to ensure we have a strong defence industry.

I’d like to start by expressing BAE Systems’ support of the Defence Industry Policy released last year in conjunction with the White Paper and Integrated Investment Plan, and to the ever expanding set of initiatives being put in place by Kate Louis, Andrew Garth and others in Defence and Government that underpin this policy.
Defence is a long term game. The development lifecycle for new capability and product is rarely shorter than a decade and often much longer.

We saw JSF for the first time on Australian shores earlier this month. JSF represents the pinnacle of state of the art combat aircraft technology, so it’s hard to believe that the JSF program started before there was such a thing as Google or e-Bay or Smart Phones, which today are an automatic part of our everyday life.

Nulka, which is today state of the art in defending ships against Anti-ship missiles, was started before there were personal computers and just at the dawn of digital computing.

I spent the first 12 years of my working life on Nulka and it was only just entering the production phase at the end of that time, and yet the work on the technologies that underpin the Nulka system were started 5 years before I joined the team.

We are starting to focus on a number of Maritime programs that will not enter into service until the next decade at the earliest.

The recently announced Defence Next Generation Technology Fund is focusing on advanced technologies, some of which will not likely be present in the service of our Defence Forces until the late 2020s or later.

How many changes in leadership will our companies and organisations have in this period?

How will our workforce change?

How many changes to Defence plans and budgets will we see in this period?

How can we be sure when we start investing in new technologies that there will be a market for them on completion?

There are risks associated with the de-stabilising effects of the long timescales associated with Defence Technologies over and above the risks normally associated with advanced technology or trying to do something that no-one has done before. It is this that makes it difficult for industry and research organisations to develop reasonable businesses cases for investment in technology if they are forced to go it alone. Add to that the fact that Australia is a small market and exporting is almost impossible in the Defence Sector if your home customer doesn’t want your product or technology and the task becomes more difficult.

It’s hard enough for a global company like BAE Systems, let alone for the SMEs whose financial resilience is significantly less.

All this points to the need to approach this as an Australian Enterprise if we are to achieve the aspirations of the Defence Industry Policy and create a strong Australian Defence Industry – Government, Defence, Industry Primes, SMEs, Academia all working together for a common goal.

That is why initiatives like the DMTC and now the CDIC and Innovation Hub are important.

But even then it is paramount that we understand and enable a clear route to market for our technology and product development activities. This is something that has not been done well before, and yet it is crucial for attracting the type of investment and support required from industry.

Despite having successfully completed countless numbers of Capability & Technology Demonstrations since the start of the CTD program, and despite the CTD program being set up as a route to market for innovative ideas, only one of our successful CTDs has resulted in the associated technology or products getting into the hands of our Defence Force.

Through the DMTC model however, we have achieved significant success in a number of programs;

The DMTC support to setting up the Titanium Machining capability for JSF has resulted in opportunities being realised and significant exports for Australian Industry – not just for BAE Systems
The DMTC support to the Corrosion Prognostic Health Management technology has facilitated successful integration of this technology into the JSF Global Fleet

In both of these cases, the end customer was identified and engaged prior to initiating the activities, and so there was a clear route to market. All we had to do was to achieve the objectives of the technology development activity.

Having a clear route to market, having a customer who sees benefit in looking first to Australian Industry for their solutions, and having an environment where industry is engaged and kept informed of customer needs early enough to be able to plan, is what is needed to ensure a viable and strong Australian Defence Industry.

Why is it important to have a strong Defence Industry in Australia?

The Defence Industry Policy clearly identifies the defence need to have a strong Indigenous Defence Industry, characterised by identifying Defence Industry as a Fundamental Input to Capability (FIC).

This signals that over time Defence will trend towards acquiring capability rather than the supply of material or equipment. In theory this results in a change to the traditional boundary between Defence and Industry as Industry take on more responsibility to deliver capability outcomes.

But there are other reasons to focus on strengthening the Australian Defence Industry. The new approach to Defence innovation by the Commonwealth Government is absolutely vital, not just because it is critical to maintaining Australia’s ability to continue providing leading edge defence capabilities, and for ensuring sovereign control over those technologies and capabilities, but it is also vital for economic purposes, as Australia seeks to transition from a resource-led to a technology-led economy.

Having a strong engineering and manufacturing industry is good for any economy, particularly if that industry creates exports as well as servicing national needs. But for developed countries like Australia, competing in the high volume production markets against developing countries is difficult.

Having a high standard of living is something we enjoy, but we pay for it with our lack of price competitiveness in some areas.

One way to combat this lack of price competitiveness is through leveraging our high skill base. It is therefore important that we, Australia, focus on industries that demand a highly skilled workforce. That is where we get the competitive advantage.

The need for innovation drives a need for highly skilled personnel.

Nothing drives the need for innovation like competition or survival. And since both of these characteristics underpin Defence requirements, it is no surprise that the Defence Industry has one of the highest skill levels.

BAE Systems recently commissioned an independent analysis of the contribution that BAE Systems Australia makes to the Australian economy. And while this analysis focused on BAE Systems Australia, it is likely that the conclusions could equally be relevant to other Australian Defence companies.

The analysis showed that while BAE Systems Australia:

Employs over 3,300 people directly and sustains over 7,500 jobs in total through supply chain activity and consumer spend
We have a direct economic contribution of $700m - this relates in a total GDP contribution of $1.3bn (nearly double)
Since 2011 BAE Systems Australia has invested over $250m in R&D - the intensity of this investment is clear when you consider that it is more than two times higher per employee than the manufacturing sector average and more than 4 times higher than the Australian-wide economy average
69% of our procurements are from Australian suppliers, supporting 1,600 Australian suppliers in all
Our labour productivity is 40% higher than the national average, with a skilled to non-skilled workforce ration of 2:1
We also create close over $80m per year in exports.

Its figures like these that show why investment in the Australian Defence Industry gives the Australian Tax Payer more bang for their buck than simply ensuring an enduring Indigenous Defence Capability.

In my opinion, it is a great step forward that the value the Australian Defence Industry brings to our Defence capability has been recognised through establishing Defence Industry as a FIC. But if we assess the importance of the Australian Defence Industry only on the benefits it provides to Defence we are seriously under valuing the industry in terms of its value to the health of our Nation.

To ensure a healthy Defence Industry we need to support the development of indigenous technologies and products and support the continued development of our skilled workforce.

To achieve this we – Government, Defence, Industry and Academia - need to work as an enterprise to ensure that our country receives full benefit from a healthy Defence Industry.

Initiatives like DMTC are a good example of how this can be done, so I look forward to the continued success of DMTC and in particular to hear throughout the rest of the day, about the successes of the DMTC and plans for the future.

Thank you.