Published by:
Harvard Business Publishing
Length: 11 pages
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Abstract
As the Cold War ends and demand decreases, the defense industry faces its most profound shift since the end of World War II. Boom-bust patterns drive the industry, but in addition to a cyclical drop in procurement, reforms of the 1980s shaved contractors'' profits and greatly increased the risk of bidding on new programs. Furthermore, many contractors have crippling excesses of production and engineering capacity. Defense contractors can no longer seek to grow faster than their industry is growing. Instead, they must shrink faster than their industry is shrinking, and they must shrink smart to capture the large market that will remain for those who survive. Shrinking smart means investing only in those businesses in which the company can be preeminent and stripping down, shutting down, selling, or spinning off everything else.
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Abstract
As the Cold War ends and demand decreases, the defense industry faces its most profound shift since the end of World War II. Boom-bust patterns drive the industry, but in addition to a cyclical drop in procurement, reforms of the 1980s shaved contractors'' profits and greatly increased the risk of bidding on new programs. Furthermore, many contractors have crippling excesses of production and engineering capacity. Defense contractors can no longer seek to grow faster than their industry is growing. Instead, they must shrink faster than their industry is shrinking, and they must shrink smart to capture the large market that will remain for those who survive. Shrinking smart means investing only in those businesses in which the company can be preeminent and stripping down, shutting down, selling, or spinning off everything else.