Defense and Aerospace Firms: Size, Reputation and the New Disruptors

Key Finding:

For the first time since the survey began, three disruptors (tech firms) make and entrance into the top ten in Net Reputation Score in the DoD contractor reputation survey.

Introduction

Lone Star’s 2020 DoD contractor reputation survey generated interesting findings, reflecting the changes and challenges of the industry. This article is the second in a series on those findings, focusing on how changes among the largest contractors have shifted marketplace perceptions

For more than a decade, Lone Star Analysis has conducted reputation surveys as part of our data collection analytics work. We took over this work from a predecessor firm, so the work dates back to 2002. Surveys have been conducted every 2 – 4 years, with the goal of understanding long term trends. Generally, reputations change slowly.

The New Top Ten

For the first time, three tech firms are among the top ten. SpaceX, Amazon, and Microsoft are all among the highest rated firms in the survey. Among DoD’s top suppliers, only BAE is among them.

Reputation and Disruption

Amazon and Microsoft were finalists for the Pentagon’s Joint Enterprise Defense Infrastructure (JEDI) cloud computing contract.  This $10B competition brought them into the limelight as federal contractors. But it also brought commercial terms, like Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) into the DoD contracting conversation.

The rise of smaller firms and the rise of larger tech firms outside DOD’s mainstream is notable. Large firm reputations are slipping compared to smaller firms and these outsiders.

Of course, neither Amazon nor Microsoft is a new provider. Microsoft sells familiar desktop and server software through resellers under Blanket Purchase Agreements (BPAs) through firms like CDW and Dell. Amazon also has a history of federal sales and helped DoD craft cloud computing security requirements.

What is new is to see them listed among the most highly regarded firms selling to DoD.

How Important is Disruption?

The defense community has a well-known reputation for being conservative in the face of changes. The conversion to iron ships is sometimes given as an example. Iron hulled, steam-driven ships had been in commercial service about thirty years before the American Civil War, where ironclad ships proved fatal to wood ships. Yet, both Britain and the U.S. were slow to evolve their fleets.

There are some good reasons to be conservative when you expect to be shot at. For iron ships, it took a while to assess how battle worthy the new hulls could be. Until steel was widely available, the conversion was risky. Iron was fine for commercial vessels and military transports but tended to shatter when struck by projectiles.

So, warriors often want to understand innovation, but may choose not to adopt it. Among our respondents, “Innovation” is far down the list of important attributes.  “Agility” comes in last.  Importantly, there are no meaningful differences between respondents reflecting the government view, and other survey respondents.

Yet, it has been innovation and agility which propelled SpaceX, Amazon, and Microsoft into the top 10. Are the survey respondents exhibiting cognitive dissonance? Are they trying to hold conflicting views at the same time? Perhaps not. SpaceX proved it could get humans in orbit. Cloud adoption is happening within DoD’s infrastructure.

The high ratings for innovators and tech firms doesn’t mean the DoD’s struggle to become more agile has succeeded.

Summary

Innovators (disruptors) take three of the top ten positions in our reputation survey for the first time. SpaceX, Amazon, and Microsoft rank higher than all but one of the major, traditional prime contractors. But at the same time, respondents rank innovation and agility low on our list of desirable attributes in a prime contractor. DoD’s quest for agility still has a long way to go.