Case Study:
Global Defense Contractor Gains Competitive Edge with Analytics
BAE Systems (baesystems.com) is a global defense and security company with approximately 100,000 employees worldwide. The company delivers a full range of products and services for air, land, and naval forces; and advanced electronics, security, IT solutions, and support services. BAE Systems had used business analytics for basic costs and financial analysis. When the contractor became involved in long-term performance-based contracts for its military and technical services, it needed more powerful analytical capability. With performance-based contracts, BAE Systems is responsible and liable for equipment availability. If the contract terms are not met, the company does not get paid. Business Challenge Michael Peters, Head of Business and Solution Modeling, explained that the business challenge was to answer:
• How do we know we can guarantee the availability of the particular system we’re offering?
• How do we know we will make revenue on this and can actually perform against the KPIs in the contract?
• What should the KPIs be? Deciding the terms of a contract requires that managers understood the relationship between cost, performance, revenue, and risk. With support from the company’s analytics team, managers now make data-driven decisions about contract terms and commitments. Peters estimates that the return on the investment in analytics is at least 20-to-1 or as high as 50-to-1. Much of the cost savings is passed on to customers. Using analytics to reduce performance risk and passing some of the cost savings to customers, gives BAE Systems a significant advantage over its competitors.
Q1. What change triggered BAE Systems’ interest in analytics?
Q2. Was reducing cost the primary driver of this investment? Explain why or why not.
Q3. What risk did the company face for poor performance?
Q4. Assuming that government contracts are awarded to a large extent on cost with the lowest bid the winner, how did BAE Systems gain a competitive edge on its competitors?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.