1. ICT in the UK public sector defence market March 2007
Good afternoon and welcome to this presentation on the UK public defence sector.
My name is Chris Pennell and I am the Senior Analyst responsible for the Defence Vertical within Kable’s
public sector research .
Methodology – primary research with MoD and suppliers
secondary research through government, supplier documentation
Kable’s extensive knowledge of the public sector developed over 17 years of reporting on
the public sector ICT market

2. ICT within the UK Defence market
International View
UK public sector defence market
Structure
Key drivers
Key initiatives
Procurement
ICT market forecast
ICT outsourcing
Today I will be taking you through the latest defence overview and will begin with…

3. International view
The commitments being placed on many armed forces are significantly different to those of 60 years ago, leading to a
shift in armed force structures. This in turn has to be supported by a change in the way these forces are equipped.
The UK is not alone in transforming its armed forces, but this transformation is running at different speeds across
Europe.

4. European Defence market - total size
For 2007 the following European members of Nato are forecast to spend €224bn on defence.
Good news defence expenditure is set to continue to rise! But greater pressure for suppliers to show value for money.
Overall spend is set to increase across Europe with the average spend per population head rising from €442
in 05 to €457 in 06.
This spend is not set to be equal, it is not surprising to see the nuclear powers of France the UK leading
expenditure as you might expect. But this is slightly misleading, if we look at defence expenditure as a % of GDP
(better measure of effort to sustain defence capabilities) a different picture appears
What we actually see are those countries with a higher expenditure devoted to personnel spending more as a % of GDP
Next Slide

5. European Defence market – main drivers
Nato
Facing challenges of coalition warfare;
Implementing Allied Ground Surveillance Project to provide interoperable network centric system.
European Defence Agency
Trying to establish role, but conflicts with Nato, who will win?
The European Capability Action Plan is responsible for developing Istar capabilities
Secretary of state:Alan Jonhson
Ruth Kelly gone in May 2006
European Procurement Policy
Seeking mutual benefit from an enlarged and common procurement market;
Non binding approach makes this hard to enforce.
Suppliers
Looking to exploit markets outside of their domestic territory;
Weakness in mid tier market due to strength of Primes;

6. UK public sector defence market structure

7. UK Ministry of Defence objectives
The objectives of the Ministry of Defence (MoD) are to bring together maritime, ground and air components into coherent joint forces under a unified command fully capable of achieving the government’s strategic objectives.
It must deliver appropriately motivated, manned, trained and equipped force packages, at the required level of readiness, and with the necessary support, sustainability and deployability, to achieve the full range of agreed military tasks.
The military has a history of organising its armed services according to air, sea and land operations, but the current ethos is to work as an integrated unit.
This has obvious implications for organisation structure, and for the technologies used to communicate and share information.
Functions, such as equipment acquisition, policy definition, and planning and resource allocation are provided by the support functions across the three services

8. UK Ministry of Defence hierarchy
Ministers are supported by the top management of the MoD, headed jointly by the Chief of Defence Staff and the Permanent Secretary
The Defence Management Board acts as the executive board of the MoD, providing senior level leadership and strategic management of Defence. It is responsible for:
the role of Defence - providing strategic direction, vision and values;
objectives and targets - establishing the key priorities and defence capabilities necessary to deliver the MoD's Departmental objectives;
resource allocation and strategic balance of investment to match defence priorities and objectives; and
performance management - managing and driving corporate performance

9. UK Ministry of Defence top level budget holders structure
Commander in
Chief Strike
Chief of Joint Operations
Commander in
Chief Land
Fleet
(Includes Chief of
Naval Personnel)
Personnel &
Training Command
Central
Adjutant General
Defence Equipment
& Services*
Defence Estates
Science, Innovation
& Technology
GOC NI
Operations and Front Line
Personnel
Acquisition
Support
And
Most defence activity is managed through Top Level Budget (TLB) holders
The Permanent Secretary delegates power over financial, personnel and property resources to each TLB.

10. UK public sector defence key drivers

11. UK Ministry of Defence key drivers ICT investment drivers and inhibitors
Network Enabled Capability
The Comprehensive Spending Review 2007
Force modernisations / capability change
Strength of supplier base
Ongoing operational commitments in Iraq and Afghanistan
Expenditure
ICT
Internal focus on change
Inhibitors
Drivers
Technology developments
Increase in the number of overseas operations
Continuing integration of back office systems
Poor procurement across large programmes
Shared services programme
Ongoing recruitment shortage

12. UK public sector defence initiatives

13. UK Ministry of Defence - transformation
There are three main themes to the transformation program;
improving military effectiveness – the effect that armed forces and military systems can deliver;
efficiency improvements – spending money wisely, making savings and focusing funds on “front line” capabilities, and;
exploiting technology – to improve everything from communication to strike capability
Implications of the transformation program include;
new force structures and enhanced networking;
delivering efficiency savings;
delivering new capabilities to time and to cost;
planning effectively for the introduction of new capabilities;
Identifying changing needs for future skills and capacities;
improving the professionalism with which all aspects of activity are conducted, and;
research and development in new technologies that might be needed to meet future needs
The primary role of the Defence Management Board is to provide more flexible Armed Forces to
achieve greater effect and a more flexible, more efficient defence organisation.

14. UK Ministry of Defence - efficiency programme
Split between -
Corporate services – covering
military Human Resources;
civilian Human Resources;
finance;
estates;
information infrastructure, and;
Defence Logistic Organisation enabling infrastructure.
Logistics – covering
Defence Logistics Transformation Program, and;
Whole Fleet Management.
Examples of efficiency programs -
Procurement -
Procurement Reform, and;
Defence e-Commerce Service.
Organisation and relocation -
Further reductions in Head office;
The relocation of defence activity out of London.
Force structure -
A shift in emphasis from heavy to light and medium weight forces in the Army, and;
Reorganisation of Ground Based Air Defence.
Manpower -
Comprising reductions in manpower to reflect the improvement programmes, and;
Productivity comprising increases in the proportion of military personnel fit-for-task.

15. UK Ministry of Defence - change programme
The twelve most important change initiatives are included in the Defence Change Programme and cover -
Defence Logistics Transformation Programme;
Defence Information Infrastructure;
Estates Modernisation;
Defence Training Review Transformation;
Joint Personnel Administration;
Defence Health Change Programme;
Broadening Smart Acquisition;
Acquisition for Network Enabled Capability;
Whole Fleet Management;
Fully Serviced Infrastructure;
People Programme, and;
UK Military Flying Training System.
The Defence Change Programme is directed by the Change Delivery Group, reporting to the Defence Management Board and Ministers.

16. UK Ministry of Defence - shared services
Leads in the shared services agenda due to the size and scale of the back office systems and process required to support a staff level of 300,000 across more than 25 countries.
Shared services objectives;
focused on the realisation of cost savings and increasing effectiveness of current resources, and;
planned reductions in headcount of 15,000 staff to release £300m of savings annually
To date;
consolidation of transaction and infrastructure functions into shared services centres;
estate rationalisation;
improved strategic oversight, and;
improved business process.
Going forward the MoD will focus on –
human resource (Civilian) - a unified People Service Centre;
human resource (Military) – a comprehensive, triService personnel administration system;
finance – the simplification of financial processes along with a greater focus on collecting and analysing the costs that managers actually control and that inform better decision making;
estate – an estate of the right size and quality;
ICT – a secure and coherent Defence Information Infrastructure (DII), and;
commodity procurement – using a single set of procurement processes and a common set of en-enablers

17. UK public sector defence procurement

18. UK public sector defence procurement
In 2005/06 the MoD placed nearly 26,000 contracts with a collective value of approximately £18.2bn.
Of this an estimated 97% are for contracts worth less than £100k
The number of contracts placed decreased between 2004/05 and 2005/06, but the value increased by nearly £3.4bn (22.5%) over the same period.
Of the total MoD contracts placed, 60% were priced through an open competition process.

19. UK public sector defence procurement models and approaches
The MoD is adopting a more flexible approach to procurement.
Change has centred on creating a procurement system which has a greater focus on support, sustainability and incremental enhancement of existing capabilities.
The policy has opened up the number of procurement models for the MoD, which include;
commercial off-the-shelf offerings, including the competitive purchase of proprietary products;
competitive development/production/in-service support;
non-competitive procurement (with or without development);
collaboration/international collaboration;
cooperative development with Industry in a jointly funded programme;
incremental acquisition;
partnering and alliancing;
public/private partnering and private finance initiative;
hiring/leasing;
enabling arrangements, and;
contracting with MoD agencies.

20. UK public sector defence procurement defence acquisition change programme
The MoD has embarked on a change programme in the way in which it organises its internal procurement procedure, developed from the Defence Acquisition Change Programme;
Fundamental to this change has been the creation of a unified customer model, and from April 2007, this will be supported by a single procurement and support organisation, the Defence Equipment and Support (DE&S).
The new organisation will structured around three “pillars”, or sections –
the capability pillar;
the customer-facing pillar, and;
the corporate pillar.
All of this is set within a central framework covering policy, financial and planning.
The key participants in the new unified customer model are expected to be;
the sponsor, who leads the capability change programme to achieve policy goals within allocated resources;
the DE&S, to deliver equipment and support, and;
the end user.

21. UK public sector defence ICT market forecast

22. UK public sector defence ICT forecast
Total ICT expenditure will slow down from £2.04bn in 2005/06 to £1.98bn in 2009/10.
Expenditure is expected to level out due to;
completion of some major equipment programmes, but;
delay in taking some equipment programmes to main gate point is a concern;
there are areas of growth associated with software and communications and consolidation of back office systems.
Video Secondary- ICT spend it:
Where to spend it to 2.59

23. UK public sector defence product expenditure forecast
Spending likely to be erratic.
Highest growth in Communications (5.5%) expenditure reflects major investments in the underlying infrastructure to support NEC.
Slowdown expected in In-house staff (-3.6%) due to move to more outsourcing
Combined Total (£m)
2005/06
2006/07
2007/08
2008/09
2009/10
CAGR
Hardware
375.2
376.9
353.6
338.9
340.4
-2.4%
Year on year growth
0.5%
-6.2%
-4.2%
0.4%
Software
294.6
286.0
300.9
315.4
305.4
0.9%
-2.9%
5.2%
4.8%
-3.2%
Services
1083.3
997.4
1039.3
1061.6
1017.9
-1.5%
-7.9%
4.2%
2.1%
-4.1%
Communications
185.7
186.2
212.1
227.7
230.3
5.5%
0.3%
13.9%
7.4%
1.1%
In-house staff
101.5
106.6
88.9
68.4
87.8
-3.6%
5.0%
-16.6%
-23.1%
28.4%
Total
2,040.2
1,953.0
1,995.0
2,012.1
1,981.8
-0.7%
-4.3%
2.2%

24. UK public sector defence top level budget ICT expenditure forecast
Top Level Budget Holder
Total Spend 2006/07 (£m)
ICT Spend 2006/07 (£m)
Percentage of Total ICT Expenditure
ICT Spend over Total Expenditure
Strike Command
£3,729.7
£26.3
1.34%
0.08%
Land Command
£6,290.0
£45.9
2.35%
0.14%
Commander in Chief Fleet
£4,193.2
£23.3
1.19%
0.07%
Chief of Joint Operations
£518.5
£21.1
1.08%
Adjutant General
£1,807.1
£50.8
2.60%
0.16%
RAF Personnel & Training Command
£926.5
£9.6
0.49%
0.03%
Defence Logistics Organisation
£7,317.0
£456.7
23.38%
1.42%
Defence Procurement Agency
£2,460.0
£1,146.2
58.69%
3.55%
Central
£3,320.2
£107.7
5.51%
0.33%
Trading Funds
£1,436.0
£65.6
3.36%
0.20%
Departmental unallocated provision
£263.0
N/A
Total
£32,261.2
£1,953.1
100.00%
6.05%
IT spend will increase by 5% due to more and more specialise IT for simulations, pharmacy

25. UK public sector defence product opportunities
Hardware
Software
Services
Comms
Back Office
Off-the-shelf
Desktops
Support & training
Data services
Development tools
Laptops
Maintenance
Mobile
Database SW
Equipment Programmes
Desktops
Operating systems
BPO / MS
Data services
Servers
Off-the-shelf
Maintenance
Mobile data

26. UK public sector defence ICT outsourcing

27. UK public sector defence ICT forecast
In 2006/07 the annual value of ICT and Business Process Outsourcing (BPO) spend for defence is £753m, and this is forecast to grow to £785m in 2009/10, a CAGR of 1.3%.
IT represents the largest segment by expenditure within the outsourcing market place, due mainly to one contract, the Defence Information Infrastructure (Future) (DII(F)).
Future growth areas;
development of the managed services segment;
growth in the BPO segment;
communications, and;
estate consolidation and training.

28. UK public sector defence ICT suppliers
Supplier market share;
EDS is the biggest winner from the outsourcing trend, in 2006/07 EDS is estimated to account for 34% of the total ICT related outsourcing business;
the ICT and BPO sector is dominated by small number of contracts, and the MoD prefers to procure ICT and BPO outsourced equipment and services via prime contractors.

29. Since 1990, Kable has been helping ICT businesses to prosper in the public sector arena and assisting public servants to make informed decisions about their ICT-related business strategy. In a market which accounts for 30% of total UK ICT spend, Kable's public sector focus can help you navigate to success.We enable our clients to get the right message, to the right people, at the right time and place. Our expertise will help you to accelerate your business development, to focus on the right opportunities and to get the best return on your resources. Kable’s value is built on the range of its engagement with the public sector. Kable has longstanding working relationships with government, renowned analyst and consultant expertise, and an unrivalled exposure to public servants via thousands of interviews and the full range of media. Kable's end-to-end services range from consultancy, to in-depth market intelligence, to publishing, with the industry-leading GC magazine (formerly Government Computing), and events. Gain a competitive edge through working with the market leader. Kable's expertise and experience have made it the trusted advisor and route to market: 17 of the top 20 suppliers to government use Kable services. The company’s client list includes the likes of IBM, Microsoft, BT, Accenture and Dell, as well as top government organisations.
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