Public Private Business Models for Defence Acquisition - A Multiple Case Study of Defence Acquisition Projects in the UK

Since the ending of the Cold War, the defence sector, particularly the areas of military logistics and defence acquisition, has been undergoing a comprehensive transformation. There are several factors that explain this transformation: changes in defence and security policies for nations and organisations; reductions in defence expenditure; participation in Peace Support Operations; Lessons Learned from these operations, especially in the area of logistics; revolutionary development in the area of Information and Communication Technology; emergence of novel Commercial Best Practises in the areas of business and business logistics; and changes in the legislation regarding the conduct of public procurement in Europe. In military logistics, the relatively easily described static supply and support chains of the Cold War Era, designed for military units that stood in preparedness, Just-in-Case, of full-scale military conflicts in Europe, are now being substituted for flexible, dynamic operational supply and support chains, designed for military units that are deployed on Peace Support Operations around the globe. Hence, new types of missions have to be provided for. As a consequence, new military concepts have to be considered; new technology is being implemented; and new Commercial Best Practises are being evaluated, adapted and adopted; in order to enhance performance and ensure Value-for-Money. In defence acquisition, the single Business Model of the Cold War Era, i.e. procurement of equipment, is being replaced by a spectrum of emerging Business Models, ranging from the traditional procurement of equipment, via acquisition of equipment and support, to acquisition of availability and capability, i.e. acquisition of performance. Consequently, new Commercial Best Practises are being evaluated, adapted and adopted; Commercial and Military-Off-The-Shelf products and services are being utilised; and Public Private Participation, Cooperation, and Partnerships are being investigated and initiated; in order to enhance performance and ensure Value-for-Money, while simultaneously mitigating operational risk in the supply and support chains. This licentiate thesis reports on a research project that was commissioned by FMV, the Swedish Defence Materiel Administration, and conducted in order to “study, analyse, and evaluate Business Models regarding how they can handle the new supply concept that a new logistical interface brings about, with a particular emphasis on the risk taking that is part of the business concept”. This research purpose was used to formulate three Research Questions: • Research Question 1: How can a generic Business Model for a non-profit, governmental, Defence Procurement Agency be described? • Research Question 2: Which strengths and weaknesses do different Business Models have in the context of defence acquisition? • Research Question 3: Which risks are associated with different Business Models in the context of defence acquisition? Using constructs from: Business Model theory, Public Private Participation theory, defence acquisition theory and practise, and military logistics theory and practise; a generic Public Private Business Model for defence acquisition was developed. The generic model consists of numerous variables, which enables an array of possible configurations. The model was used in a multiple case study to describe and analyse four defence acquisition projects in the UK. The multiple case study demonstrated that the generic Public Private Business Model is useful in order to describe defence acquisition projects. The model has also demonstrated that it is useful in order to analyse acquisition projects, including performance and risk. The Public Private Business Model has demonstrated its usefulness by discovering internal and external misalignments. The internal misalignments are Business Model configurations where the different building blocks are working against each other. The research has revealed examples where the mitigation of operational risk in the supply and support chains creates new risks in other building blocks. An external misalignment occurs when a Business Model configuration works against the deal for which it was designed, or the strategy that it is intended to realise. The research has revealed examples where there is a risk that the Business Model configuration is detrimental to the overarching strategy, e.g. transferring risk to the private sector or incentivising industry to enhance performance. Hence, the Public Private Business Model ought to be useful to identify and eradicate negative patterns and to identify and reinforce positive patterns. The research has revealed three potential generic problems for Performance Based Contracts: a “definition problem” (i.e. what to measure); a “measurement problem” (i.e. when, where and how to measure); and a “comparison problem” (i.e. with what to compare). The research results demonstrate that it must be made explicit which dimensions of performance; e.g. speed, quality, cost, flexibility and dependability; that should be measured, and why others should be omitted. The research suggests that performance must be explicitly specified for any Performance Based Contract in order to avoid any unnecessary problems with interpretations. Furthermore, the research indicates that performance metrics must be explicitly described. In addition, the results emphasise the importance of having an established baseline, against which to compare the measurements of Key Performance Indicators.