David vs Goliath: Do We Even Need To Fight?

The battle between SMEs and multinational Prime Contractors is often seen through a David vs Goliath lens.

A cumbersome, slow yet powerful giant fighting a poorly armed, but agile, opponent. While this metaphor may be true in some respects, it over simplifies a very complex dynamic and does neither David nor Goliath any favours.

There are many great things about SMEs: the agility, the passion, the energy, the flexibility, and the entrepreneurial culture to name just a few. SMEs are truly fabulous training grounds for those wanting to learn about business because employees are immersed in every aspect of commerce on a daily basis: finance, bid writing, marketing, operations strategy, HR, the list goes on. It is impossible not to learn very quickly and it is extremely invigorating. This environment tends to suit many former military people (who, in my experience, are brilliant generalists). Perhaps this is why they really thrive at Inzpire, where around 80% of our employees formerly served in HM Armed Forces. I’ve learned that they can turn their hand to just about anything. Improvise, adapt, overcome; it’s our mantra!

So many new ideas come out of SMEs because they are an engine room of innovation and growth. They are highly entrepreneurial workplaces – because they have to be – and they can also be truly outstanding employers. At Inzpire, for example, we have been selected as one of the Sunday Times Top 100 Best SMEs to work for in UK, for 4 years running. This year we won the Employee Wellbeing award.

Inzpire’s Sunday Times Top 100 and Employee Wellbeing awards. Image Steve Smailes Photography

SMEs are key to the UK Export and Prosperity agendas. Did you know that there were 5.7 million businesses in the UK at the start of 2017, and 99.9% of them were SMEs! 60% of all private sector employment is with SMEs and the combined annual turnover of SMEs was £1.9 trillion (information sourced from the Federation of Small Businesses). So clearly SMEs matter, a lot.

The Government realises this. That is why it has set itself the laudable target of ensuring that 1 pound in every 3 of government spending goes to SMEs (directly or indirectly) by 2022. It has set up a Cabinet Office/Crown Commercial SME Panel of 24 companies to advise Government on how best to achieve this aim. Inzpire is one of the SMEs who sit on that panel (which cover all UK sectors). We meet every 2 months, in the Cabinet Office. Often the Minister attends.

Now let’s turn to the Prime Contractors. The Primes are very important and add a great deal to Defence that SMEs simply cannot. The Russian military used to have a saying (and perhaps still do) that “quantity has a quality all of its own”. Just as its true that agility sometimes wins the day, it’s also entirely true that size and sheer power are sometimes decisive. There are things that only a Prime can do and there are risks that only a Prime can take. In order to conduct the level of R&D necessary for some defence projects, deep pockets and a long time horizon are sometimes needed (which can be beyond most SMEs). Certain programmes are so big that they need a Prime at the centre of them. But mega projects aside, in order to build a truly international footprint in defence, it is also often necessary have a permanent footprint in many countries simultaneously. What SME is able to afford that?

And what about the human dimension? Not everyone wants to work for an SME. Often SMEs can’t pay the salaries that the Primes pay (though they offer other freedoms instead). Life in an SME can be all consuming and it does not suit everyone. Some people feel more comfortable working for a Prime, some feel more comfortable working for an SME: it’s a case of different strokes for different folks. Life is short and people will work where they are happiest. The point is this: if we want to capture the full diversity of defence industry talent, then both Primes and SMEs are needed.

There are huge numbers of immensely talented people that work for the large Primes (many of my friends do) and the Primes can undeniably achieve great things. Moreover, it is a fact that Defence is an environment where much of the work habitually goes to large prime contractors. A recent MoD Finance and Business Statistical Bulletin demonstrates this. Page 9 of the report highlights where the MoD spends its money. It is almost all with Prime contractors. 15% of total procurement expenditure is with BAES alone, followed by 7% with Babcock and around 3.5% with Airbus. The Government is clearly very comfortable dealing with Primes!

There are probably reasons for this, including the fact that direct contracting with Defence SMEs is a relatively new phenomena (though Inzpire wins most of its work this way). Whichever way you look at it, though, it’s obvious that Defence Primes are here to stay and are important for the security of this country. I would only question where the incentive is to be entrepreneurial and innovative if a large proportion of your work comes to you without competition – see Page 11 of the above link which shows quite how much work goes to the Primes completely uncompeted. BAES, for example, appears to only compete for 6% of its work, and other companies compete for even less, according to these Government’s figures. SMEs, on the other hand, have to compete for just about everything.

Surely it is possible, in the public interest, to develop a new model of cooperation in which the entrepreneurial and agile nature of SMEs is combined with the many outstanding capabilities of the Primes. Does the David vs Goliath battle have to be a zero sum game? Does it even have to be a battle at all? What if David and Goliath put down the spear and slingshot and properly helped each other to grow and succeed? By that I don’t mean Primes giving the SMEs the crumbs as subcontractors, I mean a mutually respectful and enduring relationship. Is there a new model which moves us beyond the ‘you lose/I win’ status quo? Is there a way for primes and SMEs to work more together for their mutual good, and for the good of the country and taxpayer? I think there is. It involves fundamentally different thinking.

Defence Primes need to stop viewing Defence SMEs simply as subcontractors to be squeezed on margin, exploited and manipulated, and more as real partners, actively supported and invested in – partners that offer a freshness of outlook, a diversity of approach and agility. Defence SMEs, on the other hand, need to stop seeing Defence Primes as the Great Satan and embrace their mass, their power, their distribution channels, their international footprints and their economies of scale and scope.

If both these things happened it would be a true revelation. A kind of fertile garden would be created – born out of a genuine mutual respect and an honest acceptance of where each is strongest – in which both types of organisation could flourish. Working more closely together, the end result could be ground breaking.

So, David and Goliath, Defence SMEs and Defence Primes, shall we put down the spears and slingshots and see if we can work out a better relationship, for the benefit of the people who really matter: the military customers.

Wouldn’t that be good?