Building a Sustainable MOD and Defence Industry: Challenges and Opportunities

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1 Building a Sustainable MOD and Defence Industry: s and Opportunities James Perry and Dr Anna Stork BMT Isis Ltd Abstract Sustainability can be defined as meeting the needs of the present generation without compromising the ability of future generations to meet their needs. Sustainability has enormous benefits but is incredibly difficult to achieve. The concept has recently gained prominence in the UK and the government has set its departments ambitious targets to become sustainability leaders in Europe. This means that appropriate policies, procedures, tools and skills must be developed to ensure that future resources and opportunities are not wasted within the constraints of affordability. To be sustainable an organisation, product or service must balance economic, environmental and social aspects. Although decision-making and management processes are well supported by tools and techniques for economic and environmental aspects they do not always encompass the social element. Similarly, the management of the interactions between these three aspects has yet to be fully appreciated or understood by many organisations. The main sustainability challenges faced by the Ministry of Defence (MOD) and its defence industry partners are outlined in this paper. The MOD must first define what sustainability means to the organisation and then move forward to address sustainability issues surrounding the supply chain, staff, finance, social issues, legal issues and organisational structure. In implementing such a programme, the MOD would challenge the whole defence industry to follow its lead and build a sustainable defence industry. The main benefits to be gained from a sustainable defence industry include supply chain security, controlled and reduced costs, improved innovation, improved capabilities and maximisation of social benefits. i

2 Introduction Aim Sustainability is a long established concept, but over the past decade the subject has gained prominence in the United Kingdom (UK). A sustainable society presents enormous benefits but can be incredibly difficult to achieve. The UK government has set itself and, consequently, government departments ambitious targets to become one of the sustainability leaders within Europe. This paper describes the challenges and opportunities associated with becoming sustainable, specifically in relation to the Ministry of Defence (MOD) and their suppliers in industry. What is Sustainability? There are a number of definitions of sustainability and differing opinions on the interpretation of the concept of sustainable development. For the purpose of this paper, we consider the following definition of sustainable development, as stated by the World Commission on Economic Development (Reference 1), as being appropriate: Meeting the needs of the present generation without compromising the ability of future generations to meet their needs. This definition is a simple statement that encompasses the essence of sustainability. But what does sustainability and becoming sustainable mean in practice? The principles of sustainability are usually described as comprising of three pillars (the three E s). These pillars are: a. Economic Development; b. Social Equity; c. Environmental Protection. Balancing the three pillars will help organisations move to a more sustainable standing. However, this is something although we to strive for it may never actually be fully attained. Interpreting what being sustainable means to a specific organisation will facilitate the identification and prioritisation of improvements aligned with the three pillars. Acknowledging any current imbalance of these pillars should be considered the first step by any organisation on the journey towards a sustainable future. This may require a fundamental shift in the traditional focus of projects and programmes from a single pillar - economic aspects. Social and environmental aspects have historically been regarded as limiting factors to businesses, and not having equal importance to economic considerations. Figure 1 shows the relationship and interaction between the aspects of the environmental, social and economic pillars. 1

3 Figure 1 - Illustration of the social, environmental and economic cycles and their interactions The illustration demonstrates that the environmental, social and economic cycles are interdependent. Maintaining and continually improving utility and quality of life has often been to the detriment of the environment. This cannot continue because, ultimately, a degraded environment will lower utility and quality of life. Therefore, the question the MOD and defence industry has to answer is: How can we continue to improve the quality of life for a growing and demanding population, whilst not failing in our responsibilities to future generations? Steps can be made to address this question by looking at the challenges industry will face in attaining sustainability. In practice, this means that appropriate policies, procedures, tools and skills must be developed to ensure that future resources and opportunities are realised. This paper looks to explore some of the methods of implementing sustainability within the MOD and the defence industry, including how these methods may be used to industry's advantage. 2

4 Existing Good Practice Although the implementation of sustainability is in its infancy, the MOD and the defence industry presently have a number of good practices and tools to implement the policies which are mandated by the MOD. It should be noted that relevant good practices exist in other guises that are not necessarily branded as sustainability. Such as, but not limited to: a. Financial, quality and environmental management systems; b. Efficiency targets; c. Apprenticeship schemes; d. Investors in people; e. Training and re-training; f. Industry bodies and forums. 3

5 s and Opportunities Defining Sustainability in the MOD and the Defence Industry Even though defined, sustainability means different things to different people in different organisations and departments within those organisations. The first and foremost sustainability challenge for the MOD and the defence industry is defining what the balance between the three pillars should be. This step is fundamental to be able to measure and monitor progress; and identify good practices. The challenge is compounded by the structure and nature of the MOD s activities. For example, different programmes, projects and business units may have a different balance of the three pillars compared to the organisational balance of the MOD. The MOD s corporate balance should focus primarily on social aspects of sustainability, with the environmental and economic aspects being mutually equal. This approach fits well with the MOD s Defence Vision (Reference 2), aiming to be a force for good in the world. The MOD states to achieve the vision by working together to produce battlewinning people and equipment which is: a. Fit for the challenge of today; b. Ready for the tasks of tomorrow; c. Capable of building for the future. The MOD primary concerns are capability and affordability. However, environmental performance can have an impact on capability. For example, warships not being able to operate or conduct exercises in waters because they do not meet the host nation s environmental legislation, this may impact on capability. Within the economic and environmental pillars, the MOD s focus is on capability to meet the Defence Vision and arguably social sustainability goals. It is also worth highlighting that in operational theatre social sustainability, arguably will always take precedence over the other two pillars. The emphasis of sustainability for the defence industry should be on economic aspects, with the environmental and social aspects being equal as a general starting point. In general, the main driver for industry is economic performance. For the majority of organisations economic performance is measured by its profit or loss and subsequently success or bankruptcy. Any industry cannot be economically sustainable if it makes continued losses which would eventually lead to the loss of an industry and/or competition. However, this does not mean that increasing profit margins should be the sole focus for organisations in the defence industry. Increasing margins at the detriment of social and environmental considerations, for example the loss of a long held reputation for short term gain, would be a false victory. 4

6 Opportunity To achieve the Defence Vision, the defence community must adapt to evolving and changing theatres of operation while maintaining capability that is affordable, and through embedding sustainable practices meet its vision in the short, medium and, in part, the long term. The challenge of defining sustainability for each MOD business area presents a good opportunity, to review and define how each area of the business can strive to meet the Defence Vision while being as sustainable as possible For industry this presents a tremendous opportunity to offer solutions to the MOD to meet sustainability requirements by incorporating greater capability, improved functionality, greater endurance, better through life affordability, and innovative into existing and new products and services. Both the MoD and defence industry require to identify and react to all opportunities to implement sustainability needs and these need to be actively looked for from the outset, in order to achieve the maximum benefit. Industry is experienced at delivering solutions, but there must be some economic reward or kudos in doing this in a sustainable manner, and the MOD must recognise the value of what is being offered. We will highlight later in this paper approaches in which industry can adopt to promote the sustainability credentials of their product or service. With this in mind, the defence industry and the MOD can build economic sustainability by developing and adopting innovative technologies and build environmental sustainability by making the best use of resources. Procurement and Supply Chain Engagement To ensure that acquisition of goods by the MOD and the defence industry as a whole becomes increasingly sustainable, the whole supply chain must be involved in the process of building a sustainable industry. This is challenging because the defence industry is a global entity. This can lead to problems such as communication difficulties and differences in legal requirements and social expectations. Within a supply chain, behaviours may not be driven by resulting impacts (negative or positive). Decisions made in the supply chain may not impact on the organisation making the decision, but may have an impact on other organisations in the supply chain. In developing a sustainable supply chain, the MOD must engage suppliers to be cognisant of the sustainability performance of their acquisitions. Therefore, the MOD should encourage suppliers of products and services to: a. Lead by example; b. Set clear priorities; c. Remove barriers to sustainable operation of the company. 5

7 An additional challenge is not to discriminate against small and medium-sized enterprises (SMEs) from supplying to MOD or the industry. This can be a particularly difficult for the MOD and defence industry due to the exacting standards and specific needs. The MOD has made initial steps to encourage a sustainable supply chain and it is current MOD commercial policy to apply sustainable procurement principles to all MOD contracts, regardless of size or scope (Reference 3). The MOD has recently published a Guide to Sustainability in Defence Acquisition (Reference 4) to provide guidance to MOD acquisition staff. However, the challenge still remains to educate MOD staff and to make suppliers aware of the sustainability issues to be considered in industry and highlight the associated benefits. Opportunity By effectively engaging with their suppliers, the MOD will gain supply chain security with reduced cost fluctuations. As a result, supply chain companies will gain enhanced corporate reputation and more stable market positions. Engaging and working with the whole supply chain can realise significant benefits. Open book arrangements between the MOD and suppliers have proved to work well because the MOD can demonstrate to external audit that they are receiving value for money whilst enabling industry to make a reasonable return. For prime suppliers there is an opportunity to work with SMEs to assist and highlight areas where efficiencies can be realised and eliminate compound risk provisioning within the supply chain, unnecessarily affecting overall product affordability. As well as economic and social opportunities, the measures outlined above can realise significant environmental benefits such as, but not limited to, reduced and efficient use of resources. Sustainability Skills and Military Capability The MOD is a large organisation with continuously changing roles and requirements. Therefore, staff in operational theatres must be able to adapt to different situations professionally and quickly. Additionally, support staff must understand the requirements of operational staff to provide the services needed in a timely manner. This places significant demands on the skills and flexibility of all MOD staff. The defence industry needs to align with the MOD. A good working relationship and excellent communication between the MOD and the supporting industries are therefore essential to enable and develop the necessary skills to provide the correct services and equipment. Effective management of the whole defence industry is required to identify training needs and gaps. To improve sustainability without affecting capability is challenging. The requirements for future theatres are unknown but sustainable equipment must be adaptable to a wide range of situations and terrain. 6

8 Opportunity A highly trained and efficient workforce obviously has benefits for any organisation. Knowledgeable, skilful and motivated staff tend to make fewer mistakes. In the operational theatre this may save lives. Staff with a broad range of skills allows an organisation to be flexible and provide services efficiently, thereby reducing costs. Additionally, companies or organisations will gain from an enhanced reputation. Sustainable practices have already improved capability. For example, fuel-efficient equipment or solar powered equipment operating in the field requires refuelling less often reducing the logistic burden on the supply chain. Therefore, personnel are placed at risk less often, saving lives and preventing injuries. In addition, there is an opportunity for industry to build sustainability into their service offerings giving them a competitive advantage by demonstrating market differentiators. Over time market forces will increasingly demand suppliers to the MOD incorporate sustainability into their service offerings. Budgetary Issues No matter which colour the UK Government is, there will always be a limit placed on the defence budget. There is limited funding available for sustainability, therefore additional resource are difficult to justify even though there may be an overall saving. Any savings realised will be returned to the Treasury for their re-allocation, in accordance with Treasury rules. There is a contradiction with the above when one considers the MOD's stated aim to consider affordability through life of projects and programmes. Industry has the challenge of providing innovation and more sustainable products while remaining financially competitive and making a profit. Opportunity The MOD has established tools and processes in areas such as safety, environment and finance. Integrating and expanding these systems into one sustainability management system can realise efficiencies in management and make effective use of the available funding. The MOD needs to challenge the Treasury and look to re-invest savings to improve capability and/or efficiency, enabling the MOD to expand the budgetary considerations beyond the short term. Sustainability management systems support a holistic review of each decision and a consolidated overarching decision can then be reached reflecting all of the three pillars. Taking all these considerations into account through a single system will eliminate duplication. 7

9 To progress the MOD and the defence industry need to make changes. The MOD must accept that in order to be sustainable, industry must make a reasonable profit and the defence industry must be prepared to share efficiency benefits with the MOD. Additionally, the MOD needs to be open to innovative approaches and industry has to seize upon opportunities to offer more sustainable solutions if progress to be achieved. Industry also has the opportunity to offer innovative solutions that result in affordable novel products for the short, medium and long term. There are some examples within the MOD already, such as private finance initiatives and flexible service level agreements. Offering novel solutions can establish market advantage as well as long term security in cash flow. This security combined with initiatives such as sharing efficiency savings with the customer would create a fertile environment for innovation and investment in research and development and new technologies. Endorsement The MOD faces a number of challenges in winning the endorsement of staff and the public for its activities. First, internal buy-in to the concept of sustainability is required by MOD personnel. MOD personnel face a number of day-to-day challenges, primarily and quite rightly, meeting the immediate needs of service personnel in theatre. Additional requirements are regularly placed on staff with fixed or reduced resources. The danger is that sustainability might be viewed as the flavour of the month and the challenge of implementing sustainability into business practices appears to be too difficult in addition to the day-to-day activities. Secondly, any success in increasing sustainability in the MOD is likely to be overshadowed by the public perception that the MOD and defence industry s activities will result in civilian and military injuries and deaths, despite the MOD Defence Vision. Opportunity Focussing on the social sustainability, the MOD must radically re-think the way it operates, to enable it to continue to deliver a high level of service with reduced resources. Case studies showing the tangible and intangible benefits of embedding sustainability are required prior to any restructuring of the MoD. This should help embed the concept of sustainability in the MOD. A sustainable operation or business process is a good operation; though the concept of sustainability may be relatively new, management of economic, social and environmental considerations is undertaken independently. Sustainability looks to integrate the three pillars to facilitate a holistic management of operations or processes. If sustainability is adopted and driven from the top down, the importance of implementing sustainability will be reinforced and it will present opportunities for staff to feel appreciated and empowered. This would lay the foundations for longer-term benefits to be realised such as reduced sick leave, better job satisfaction, better retention and better productivity. Although it will always be difficult to establish a positive public opinion for the MOD s and the defence industry s sustainability, there is an opportunity to inform the public and improve the public image of defence, reflecting the Defence Vision. The polar opposite would be to promote a wasteful and negligent defence sector. 8

10 Measuring and Monitoring As with any goal or ambition, to understand the sustainability route map and direction of attack, the organisation must: establish their current position; configure the means to attain the goals; and realise when the goals have been accomplished. The MOD has well established processes in place for measuring and monitoring elements of each of the three pillars of sustainability. However, the challenge is combining these methods into one measure of the sustainability of a product or service. Additionally, a method is required to compare products / services so the most sustainable can be selected. Opportunity There is an opportunity for the defence industry to make sustainability appraisals of their products, without it being a requirement of the MOD. By implementing measuring and monitoring process, producers may discover technology improvements and more efficient production methods. The MOD can then be provided with all the information it requires to actively manage the sustainable performance of equipment. Sustainability appraisals have a number tangible benefits, including but not limited to: 1. Base lining of the current product/project; 2. Identification of areas for improvement; 3. Capitalising on positives; 4. Informing development of next generation; 5. Aiding in the procurement process. Industry organisations incorporating sustainability into their product provides a competitive advantage as sustainability becomes a criteria in the procurement process. In addition, sustainability featuring as a component of specifications will encourage innovation and market forces will result in competition. Overtime this will ensure sustainability is embedded with the MOD and the defence industry. The winners will be those that take the lead and demonstrate a market differentiator. 9

11 Consistency Across any business or organisation it is difficult to build consistency of practice, particularly in a large organisation. Good and integrated management can help clarity in procedures and working practices. Staff should receive clear and concise communications to enable them to achieve their objectives efficiently. Opportunity In implementing sustainability, it is essential to communicate clearly and consistently. In achieving a clear understanding of sustainability throughout the organisation, supporting processes can be developed to realise the all the benefits discussed so far. 10

12 Conclusion Working towards a sustainable MOD and defence industry poses many challenges however striving towards it provides a range benefits and opportunities to all organisations involved. MOD business units will increasingly incorporate sustainability into all aspects of their business. Industry organisations that lead the way by embedding sustainability into their service offerings will gain a competitive advantage. The main challenges faced by the MOD and its defence industry partners are outlined in this paper. The MOD must first define what sustainability means to the organisation and then move forward to address sustainability issues surrounding the supply chain, staff, finance, social issues, legal issues and organisational structure. In implementing such a programme, the MOD lays down a challenge to the whole defence industry to follow its lead and build a sustainable defence industry. In summary, the benefits to be gained from a sustainable defence industry include: a. Industry alignment and achieving strategic objectives; b. Controlled and reduced costs through efficiencies and integrated management; c. Managed business risk and corporate reputation; d. Reduced casualties; e. Supply chain security; f. Promotes innovative thinking; g. Improved capabilities; h. Optimised efficiency of processes; i. Maximisation of social benefits. In aspiring to be sustainable, there are many challenges to overcome, but also a number of opportunities to capitalise on. Change has to happen to ensure we meet the needs of the present generation without compromising the ability of future generations to meet their needs. There's only one corner of the universe you can be certain of improving, and that's your own self. So you have to begin there, not outside, not on other people. That comes afterward, when you've worked on your own corner How are you going to change today to save tomorrow? Aldous Huxley, Time Must Have a Stop (1944) 11

13 References 1 World Commission on Environment and Development s (the Brundtland Commission) report Our Common Future (Oxford: Oxford University Press, 1987) 2 The Ministry of Defence, Defence Vision, n/ 3 The Sustainable Procurement Commercial Policy Statement (CPS), susproc_cps.pdf 4 Guide to Sustainability in Defence Acquisition, AOF_Guide_to_Sustainability-Issue_1-v0_7-U.pdf, September