Examination of Witnesses (Questions 275-279)
LORD DRAYSON,
MR DAVID
GOULD CB AND
MR MARK
GIBSON CB
28 FEBRUARY 2006
Q275 Chairman: Minister, gentlemen,
welcome to the Committee to talk about the Defence Industrial
Strategy. The Defence Industrial Strategy was originally
expected on 20 December, and I think you produced it four days
earlier. Minister, I ruined your career, I suspect, by praising
you in the House of Commons and saying that it was the first procurement
project that I had heard of that actually came in early, yet it
was produced at quite a lick. Given that, do you feel that there
were any areas which, perhaps because of the quick time scale,
were insufficiently covered within the Defence Industrial Strategy?
I ought to say in context that it has been generally well received,
but, having put that in context, are there any areas which were
not as well covered as you would have liked them to have been?
Lord Drayson: Thank you, Chairman.
Before answering your question, may I just say that it is with
deep regret that I confirm the death of two British soldiers killed
by terrorist bombs as they carried out their duties in Iraq this
morning. Our thoughts and our deepest sympathies are, of course,
with the families concerned.
Q276 Chairman: I am sorry. I was not
aware of that. Thank you for mentioning it.
Lord Drayson: Chairman, I appreciate
the comments which you have made about the DIS, and you are absolutely
right that we set about delivering the DIS to a very tight timescale.
The reason why we did that was because we had had clear feedback
from industry that they were going to be making decisions towards
the end of the year, into the early part of this year, where there
really did need to be a clear framework as a good basis to take
those decisions. We also knew that we had some important decisions
to take on some of our key procurement projects, for example,
like Carrier, which were far better taken in the context of the
DIS. Therefore, it was important that we delivered it by Christmas.
In terms of which areas do I feel were not sufficiently covered,
I think we need to recognise that the DIS focused on the areas
which we regarded as being the most high-priority in terms of
the issues which we were faced with, and therefore there was a
difference in terms of the depth into which we went in the different
sectors reflecting the relative market conditions and the issues
which we faced. Answering your question directly, we do see that
there is further work which we need to do to build on what is
in the Defence Industrial Strategy around areas such as
research and technologyI am happy to go into the detail
of what we are doing on thatin terms of areas related to
small and medium-sized enterprises and the relationship between
the Ministry of Defence and SMEs. These are areas which are covered
within the DIS, but we certainly feel that they are areas which
we need to further build on quickly this year, and we are doing
so.
Q277 Mr Havard: Can I pick up the whole
area of SMEs. It seems that the Strategy is an overview strategy
in a sense. Within it there are other strategies presaged, like
the Marine Industrial Strategy, and so on. One of the things
that interested us was which sort of sectors were involved or
not involved. What you are saying is some are more heavily involved
than others, but this question of how small and medium enterprises
were involved is of particular importance. It has been suggested
to us, for example, that some of the small to medium enterprises
might look to gravitate to other sectors because they find it
too difficult participate in the long term in the defence industry.
What is your view of how SMEs are going to be given proper visibility
and avoid that problem?
Lord Drayson: I believe that it
is vitally important that we do everything that we can to improve
the way in which we work with SMEs. I have 20 years' experience
of growing and building technology companies from start-up and
beyond, and I know how challenging it can be. In this particular
industry, because for my SMEs their route to market is through
the larger companies, the primes, I think there is a dual responsibility,
which is clearly set out in the DIS. There is a responsibility
on Government, on the Ministry of Defence, to actively work to
find ways to provide the clarity and transparency in an efficient
way that small companies, who do not have the resources of larger
companies, can digest and manage effectively, but there is an
equal responsibility on the part of the larger companies, who
are often their route to market, to provide that clarity too.
The way in which we are actively doing that is to switch our focus
from a specific focus around projects and about companies in terms
of looking at the supply chain, and so one of the ways practically
we are going to improve this is by assessing the larger companies
on the basis of how good they are at having real knowledge of
their own supply chains, how good they are at being able to explain
to us the technology trees that they have in certain capabilities
such that we can see the relative effectiveness of the larger
companies in having a real understanding of which SMEs are vital
to the production of the defence capability. Also within the Ministry
of Defenceit is not published within the DIS, but a lot
of underpinning work was done on the DIS in terms of fully understanding
these supply chainswe have gone into a lot of detail in
the individual sectors and asked ourselves the question: where
are the really important areas of skills and knowledge, which
companies are they located in and do we have proper visibility
of the health of those companies and how they fit into the bigger
picture? That is something which we have done in a considerable
amount of detail and that is something which we are going to continue
to build on. We also need to make the MoD easier for SMEs to deal
with, and we have done that by issuing on our website a sort of
"who's who" such that small companies can easily look
up, if they think they have a service or a product which may be
of interest to the MoD, who they need to contact. It is the first
time we have done that. That is another example of how we are
trying to make ourselves more user-friendly to the SME community.
Q278 Mr Havard: It was suggested to us
this morning that part of the difficulty that SMEs who would like
to participate in these areas, and do (and some people do not
understand that they do currently actually), is that they have
national reach, they do not have international reach. There is
a responsibility to involve them from that point of view. They
cannot really get involved in an international defence market
because they do not have the resources to do it.
Lord Drayson: I have spent some
considerable time looking at this, and I have been quite impressed
when I have gone to see small companies. There are some excellent
British small companies who successfully compete internationally
in specialist marketsthey are really good at itand
we need to make sure that we give them every support that we can.
I think we have a very effective organisation in derisking which
is pretty much unique within the international market, but when
you look at these supply chains it is very clear that in many
areas of defence capability there are some vitally important small
and medium-size enterprises, and we need to make sure that we
have got a clear focus on this, and I think we need to improve
the visibility. One of the interesting things for me, coming from
the pharmaceutical industry into this job and looking at the Defence
Industrial Strategy, was some of the feed-back which we got
from the stock market analysts about the defence industry and
the lack of clear visibility in the mind of investors of how smaller,
innovative, high-growth defence companies grow into larger ones
because of the nature of the complexity of the systems, and so
forth. I think we need to do more to help the industry have that
visibility.
Q279 Mr Havard: The accusation, if you
like, that has been made by people who have given evidence to
us is that the problem is that you have visibility to some degree
of the first level of the supply chain but you are not so good
at understanding the second, third levels. If your declaration
is that these people are going to help them deliver the key industrial
capabilities, you need to get underneath the first level and down
to the second and third level. As I understand it, you have made
speeches elsewhere and you talk about a commercial services group
being established, you talk about work with the trade associations,
and so on. Are these part of the mechanisms you are describing
to do this work and how is this work going on, apart from what
you have already described?
Lord Drayson: I have a personal
commitment to make it happen. I have some experience in helping
people at the other end in terms of running these sorts of companies.
I know some of the challenges from my own personal experience,
and what I am driving in the Department is a real emphasis on
looking at the way in which we do business, coming up with specific
actions to make it easierI have mentioned some already.
We also need to recognise what the Department is already doing.
If you look at government policy in terms of the proportion of
contracts which the Government would like to see placed with small,
medium-sized companies, the MoD spends way more than that, so
we are already spending a considerable amount of our defence contract
with the small, medium enterprises. We have got a range of initiatives
in place. The DIS sets out how to do this, if you like, for 2006
and all the things that we are doing, and it is my job, in terms
of being accountable for the implementation of the DIS, to see
that these things happen. What I am looking for is that next year
(2007) we are starting to see evidence that it is making a difference.
I am actively spending amounts of time talking to that community,
getting that feed-back to make sure it is making a difference.
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