For proof that investment in research and development pays off, look no further than Raytheon, which has twice overturned entrenched competitors to win major contracts.
While other companies have been cutting R&D, veteran Raytheon Chairman and CEO Bill Swanson has restored investment, including in core radar and electronic warfare technologies, to win key awards as defense spending plunges.
Last week, Raytheon beat both long-time incumbent Lockheed Martin and fellow challenger Northrop Grumman to provide the future radars for the Navy’s Aegis combat system, ending a decades-long Lockheed monopoly. With the Advanced Missile Defense Radar win, Raytheon will replace Lockheed’s SPY-1 radar system that has been a global air defense standard for four decades.
That victory follows another in July, when Raytheon defeated Exelis — the long-time supplier of the venerable ALQ-99 airborne electronic attack system — to develop the Navy’s Next Generation Jammer. Raytheon also beat BAE Systems and Northrop for that deal; BAE is protesting the decision.
These awards present a cautionary tale: Investment can win long-term business. While DoD has called for industry to invest in R&D, many firms favored stock buybacks and other financial moves over technology investment. DoD is increasingly open to those who can affordably address their needs, even if it unseats incumbents. Indeed, Elon Musk’s SpaceX has competed against the United Space Alliance, a union of incumbent rocket-makers Boeing and Lockheed, to win business that once looked untouchable by anyone but the Big Two.
Exelis CEO Dave Melcher says competition for defense contracts has gone from robust to relentless for pieces of a shrinking pie, pledging higher R&D.
Defense downturns historically have been periods of innovation, which have proven disruptive for established players. This downturn will be no different, and those who assume otherwise face unwelcome surprises.