This article, written by John Knowles, was published in May 2012, in the The Journal of Electronic Defense.
Defense electronics companies, like ITT Exelis, are facing a variety of challenges in terms of constrained defense budgets in traditional markets, gaining access to emerging overseas markets, and developing the technologies needed for competitive EW, radar and communications solutions to meet tomorrow’s requirements.
JED recently interviewed Chris Bernhardt, Exelis Executive Vice President and President of the Exelis Electronic Systems division, to get his perspective on the trends and developments in the defense electronics market. When Bernhardt joined ITT Exelis in 2001 as President of its Avionics Systems Division, the Clifton, NJ, business unit was doing about $100 million in sales annually. Leading the business unit through a decade of organic growth, acquisition, new product development and reorganization, Bernhardt now oversees a transformed Electronic Systems business that is a multi-billion dollar enterprise.
JED: How much has the transition to ITT Exelis reshaped the Electronic Systems business of the company?
Our business shape itself has not changed as a result of the spinoff. Through acquisitions and internal restructuring during the past few years, Electronic Systems was already well positioned and aligned with customer priorities at the time of the spin. For example, to address the need for multi-functional capabilities and networked solutions, we combined our Communications and Force Protection Systems businesses and divided one of our business areas to create a standalone Airborne Electronic Attack business. Now, we have five business areas: integrated electronic warfare systems, radar, reconnaissance and acoustic systems, integrated structures, communications and force protection systems, and our airborne electronic attack business.
What the spin has enabled us to do is increase our agility and strategically focus our resources on the defense and aerospace market. We can be even more responsive to the needs of our customers, which include all military services, key large primes, and international customers in 60 countries. At Exelis we have a unified and highly focused approach to winning and investing in the marketplace, driven by an operating culture that values one team, with one mission and one shared future.
JED: Being a relatively small, $100 million business a decade ago, how does the transformation to a much larger, global organization influence your thinking and your approach to the market?
We tailor our strategy as global market, customer, political, and competitive dynamics dictate. Agility, open teambased collaboration and speed are critical to addressing these dynamics. As we have grown, we have taken a disciplined approach to reshaping and transforming our portfolio of solutions, customers, platforms and countries, both organically and through acquisition. We have a few fundamental strategies that guide us in reshaping our portfolio. The first is to not lose focus on our core business areas and our core customers. Second, we expand our portfolio of platforms, customers and solutions based on our core competency model. That is where we leverage resources generated from nurturing our core, and focus our IR&D on solutions that will be enablers for our customers. To give you a few examples, five years ago we were not in synthetic aperture radar, and we were not in AESA-type technology. We had only started thinking about pods as another option to our internal EW system. Today, we have customers in all of these areas. I believe that when we understand where the capability gaps are for our customers, we are able to focus our IR&D very effectively in providing affordable best-value solutions. Finally, Exelis Electronic Systems now has an extremely large installed base that can serve as an engine for upgrades and growth across the product portfolio.
JED: The DOD wants to move toward modular open system architecture (MOSA) standards. What does that mean for you and your customers?
You hear the term “open architecture” everywhere these days, yet there are many layers to it. From a customer standpoint, the concept involves a desire for rapid technology upgrades at reduced costs, which mitigates diminishing manufacturing sources. The DOD sees MOSA as a way to ensure affordable, functional upgrades (technology refreshes) over time. Open architecture provides the opportunity for the Government not to be locked into unique supplier solutions, where cost concerns, if not properly mitigated, could arise. In addition, it can help offset potential vertical integration trends by sole source primes with unique “non open” solutions. All of these factors should provide more affordable solutions for our customers.
For Exelis Electronic Systems, we are working with our customers to incorporate open architecture concepts where they make sense. The JCREW I1B1 system we’re developing is a MOSA design, as is our IRCM solution and several others in our classified business.
From the 50,000-foot strategic level, we will continue to embrace open system architectures where they add value for the customers we serve. We’ve been doing it, and we’re going to continue doing it. I don’t see that changing. At the same time, profitability is highly regulated in our industry, and that impacts internal research and development decisions. MOSA-driven requirements and procurements will impact the payoff calculation and business model for industry. At the end of the day, the core of any MOSA system revolves around standard interfaces and the operating system. The US Government wants to own that. They want to own the software, and they want to own the hardware, too. On JTRS, for example, the business model originally intended for the Government to own the waveform software rights, but provided for competition and innovation on the hardware side. As time has progressed, most of the original form factors have been eliminated due to poor cost and technical performance. The Government has the opportunity to exploit commercially derived technologies and contractor investments in low cost, high performance radios, but must overcome the “build-to-print” approach which is not well suited to modern communication systems. The current approach is highly regulated, and that can hinder industry innovation and impact the capabilities we provide our fighting forces.
Better technical and affordable alternative solutions exist, but they are not on a level playing field versus a Program of Record. So how should the DOD acquisition and requirements process change in tandem to rapidly support more affordable, innovative solutions from the Defense industry? This is where I think the struggle is going to be for industry, in general.
A key challenge to gaining traction with the open architecture model is the limited number of new starts projected during the next decade. With the proposed decreases in RD&E and procurement spending, new starts are going to be rare events. Programs that are already in process are going to be around for the next decade assuming they are performing well.
Between the lack of new starts and the tradeoffs not yet fully understood between open and unique systems, I believe progress will be slow in this area and that we will be challenged to create a uniform open architecture standard within the next several years. However, I do think we will make progress on a platform basis, and I believe the concepts inherent in open architecture – best of breed technologies, collaboration and affordability – will continue to serve industry well as we develop and adapt solutions for the warfighters of today and tomorrow.
JED: In addition to MOSA, the DOD is also becoming more interested in multi-function systems. What work is ITT Exelis doing in this area?
Multi-functional systems are very complex from a systems design and software perspective and yield more sophisticated solutions. One example is our JCREW I1B1 system of systems which uses a MOSA architecture and is truly multi-functional. This system has data exchange capability, and it can perform over-the-air networked monitoring, control and reprogramming. It does more than radio frequency counter IED in terms of its architecture. It can perform direction finding, and it can actually get into a network in an unconventional sense. It is a network enabler, because all in-view situational awareness and situation updates can now be shared through that system. On the IR side, our IRCM solution was designed as a multi-function system, as well. In addition to IR jamming, if you wanted to do optical communications, obstacle avoidance or respond to hostile fire, it was architected to enable those functions.
But the larger question for industry is how will the customer value this additional functionality? The customer knows the recurring cost profile of legacy, fielded single-function systems very well. These single-function legacy systems have been bought in high quantities to support OEF/OIF campaigns over the last five or so years. These high volume rates have a dramatic impact on lowering costs through large learning curve reductions and supply chain leverage. I do not believe we will see these high unit volume rates in the near future.
So, for sake of discussion, let’s just say it costs $1 for that legacy highvolume system. And now our customers want a multi-function system, which is designed to provide many times the functionality of predecessor legacy system, in addition to enabling new, more effective CONOPS and simplifying reprogramming. There is a non-recurring development cost to multi-functionality that usually has to be borne by the Program of Record, and there is a clear compelling warfighter and network situational awareness/update advantage. Plus, there is efficiency in going multifunctional… but at what cost? Perhaps $1.30 or higher?
I believe those of us in industry and our customers need to jointly understand the total holistic value proposition that multi-function provides, and not compare it with the single, stovepiped solutions of several years ago. Then we can decide if multi-functional is what we need. There is neither a simple nor single right answer to the question of whether/when you need a multifunctional system. Understanding this, we will continue collaborating with our customers to ensure we have the right solution for the mission at hand.