What role can accountants play during Australia’s huge A$195 billion defence spend, amid demands for innovation, transparency and a nation’s security?
Shifting geopolitical tensions, pressure on alliances and changing strategic priorities are all contributing to a dynamic defence landscape and a spike in military spending by governments across the Asia-Pacific.
A briefing from the Pacific 2017 International Maritime Exposition, held in Sydney in October 2017, revealed that Indonesia grew its naval defence spending by 16 per cent in 2016, as did Vietnam by 7.6 per cent, the Philippines by 25 per cent, and China by 7 per cent (in 2017).
Australia has not bucked this trend, with the 2016 Defence White Paper announcing a 10-year Australian Defence Force (ADF) budget that grows from A$32.4 billion in 2016-2017 to A$58.7 billion in 2025-2026. It adds up to an approximate spend of A$195 billion by 2026.
The document emphasises innovation and the importance of strong partnerships and investment alignments between the ADF and industry, particularly Australian industry.
One of the greatest challenges, also pointed out in the paper, is ensuring Australian industry has a workforce that is up to the task of designing, developing and maintaining major weapons platforms and systems that will make a meaningful difference to the nation’s security.
Accountancy’s role in defence spending
Defence spending always comes under close scrutiny in the media because of the huge numbers involved. It’s a familiar story that by the time the latest submarine or aircraft has been built, the budget has blown out and the technology is becoming obsolete.
The challenge is how to ensure the funds are spent wisely and in a manner that encourages innovation as well as measurable results.
This is a role that the accounting profession is well and truly ready to accept, says Graeme Reid. The former KPMG partner has spent a good part of his 30 years in professional service working with and observing the balance between government and the private sector, and the role played by accounting and finance professionals.
“In this situation, a lot of people think you should leave it to the defence industry experts, that accountants couldn’t possibly have anything to add,” Reid says.
“Actually, accountants are in the perfect position to be inquisitive and to challenge what the options are for that spend. Their role is about being rigorous in that challenge and helping to bring together a range of possible options for the decision-makers.”
“We’re constantly having to innovate.” Andy Cornfield, BAE Systems Australia
Accountants, he adds, are also very good at helping to manage risk. They can mark out options in terms of levels of risk involved and how obsolete the equipment is going to be in five years. They can compare past experience and add real value at the planning table.
“Accountants may not be weapons experts, but they can say, ‘This is the financial picture. Are we achieving the most effective spend?’,” he says.
“Our profession should be saying, ‘I hear where you’re coming from, but what are the other options? Where are the risks? How else could we do it? Is there a cheaper way of doing it? Is there a more effective way of doing it?’
“This is where accountants shine because they are in a position to offer that challenge and not just accept what the experts say. They are ideally placed to add a different perspective,” says Reid.
Much of the response to claims by politicians or the media of wasteful spending by the ADF has been along the lines of ‘You don’t understand what we’re doing’, says Reid. Skilled accountants can help here too, he adds.
If transparency is a problem, experienced accountants have the skills and knowledge to report financial implications to a wider audience to ensure the value in the spend is clearly understood.
Creating a defence industry ecosystem
Engineer and accountant Andy Cornfield, finance director for BAE Systems Australia, is at the sharp end of the defence-finance wedge. In the defence world, a prime is a major player that designs, manufactures and supports military products for use in the air and on land or sea. BAE Systems is regarded as a prime.
Increasingly, the organisation is also tasked with the development of cybersecurity and intelligence capabilities, as well as other advanced technologies for commercial and military markets.
The 2016 Defence White Paper was a very useful document for BAE Systems.
“What you’re seeing is the complete recapitalisation of all three arms of the Australian Defence Force,” says Cornfield. “It is a very significant undertaking and it’s never been done on a scale like this. It is a significant step up in demand.”
The primes in the defence world provide a steady flow of work for thousands of small to medium enterprises (SMEs).
BAE Systems, for example, spent A$360 million with about 1600 Australian businesses in the 2015-2016 financial year. This means that when defence spending is increased, the pressure on the primes and the SMEs for greater effort, output and quality is also increased. The entire defence ecosystem shares the challenge of improving the nation’s defence capabilities.
“A good amount of technology is developed by smaller companies, but this sort of work takes time,” he says. “Typically, the SMEs need support, so we look to partner with them and bring them into an integrated system,” says Cornfield.
“We have developed the Global Access Program, where we help local SMEs get access to global supply chains for knowledge and support. That means the SMEs might also discover opportunities to export equipment or services to other markets. Everybody learns and everybody benefits, and the sharing of knowledge encourages innovation along the way.”
Making innovation happen
Innovation might be a worthwhile ambition, but how does an industry make it happen? Cost pressure is a great motivator in the defence sector, says Cornfield.
“We’re constantly having to innovate because if we’re not producing the product that the Australian Government needs, we’re not going to have any revenue,” he says.
One of the biggest drivers of innovation is academic research. Of course, businesses within the field of defence conduct their own research and development, but this is often done by engineers and scientists who also have other responsibilities. Much of the long-term, full-time research is conducted within universities. Additionally, universities are in a position to conduct base-level research where the risk is high and the outcomes are potentially not as useful commercially or practically.
In Australia, the relationship between industry and academia has not been as strong as it is elsewhere in the world. In a 2014 study by the Organisation for Economic Co-operation and Development (OECD) on business collaborating on innovation with higher education or research institutions, Australia finished last out of the 28 countries studied. Australia’s defence spend on innovation should help to change this statistic, says Len Sciacca, enterprise professor of defence technologies at the University of Melbourne.
The ADF’s new innovation focus gave businesses greater permission to approach universities and workshop new ideas, says Sciacca. His role at the University of Melbourne is to help shape and define the research capabilities that exist within the university, then to engage industry in those capabilities.
“At a practical level, it’s all about networks,” he says. “For example, I recently ran a workshop with a major defence contractor. We had a room full of academics and company engineers. We asked them to tell us what they were interested in and we told them what we could do. But, mostly, we wanted them to tell us what they needed, meaning our work would always have a practical focus. Then we made a list and prioritised that list in terms of what we would be prepared to work on. That’s the process in terms of narrowing down the research priorities.
“We want partnerships with big companies and we want good working relationships with small companies.”
Collaborating to save time and money
A partnership between the Royal Australian Air Force (RAAF) and the University of Technology, Sydney (UTS) illustrates the huge success such an initiative can have. The collaboration run by RAAF wing commander Jerome Reid and Sam Bucolo, a professor of design and innovation at the university, was established to reshape the way Australia’s defence forces approach everything from education and training to acquisition and technological development.
“We want partnerships with big companies and we want good working relationships with small companies.” Len Sciacca, University of Melbourne
It’s under the auspices of Plan Jericho, a far-reaching program at the RAAF that’s designed to change its thinking. The team at UTS taught the RAAF about design thinking – which draws on the practices of designers to unlock creativity and solve problems. Plan Jericho came about when the RAAF concluded that its multibillion-dollar investment in advanced technology needed to be supported by a new style of strategic thinking.
“It’s all about breaking down walls and setting free our thinking,” Jerome Reid told INTHEBLACK in 2017, adding that Plan Jericho has been described as the most significant transformation program in the RAAF’s history.
Citing the example of retrofitting the Hawk 127 lead-in fighter jet with the automatic dependent surveillance broadcast (ADS-B) system, he said that the exhaustive consultation and thinking program cut the acquisition process from a projected six years to three, while reducing costs by a projected 30 to 50 per cent.
Defence is a team effort
The future success of the ADF spend will rely on a careful balance of relationships between government, big business, SMEs and academia. Along the way, the industry will also require more accountants, particularly project accountants, to help manage the long-term contracts, Cornfield says. What the industry really wants from accountants is passion for the product and for the cause of national security, he emphasises.
“Some of the happiest accountants we have in BAE Systems Australia are those that sit up at RAAF Base Williamtown (near Newcastle, NSW) because they get to see the jets taking off every day,” Cornfield says.
“Generally, people in defence love defence. They like that we provide the best equipment to our forces that help them protect the interests of Australia.
"That really helps because it’s complex and, if you’re not interested in it, it’s going to be pretty hard to get into the detail.”
Defending the numbers
An accountant’s role in defence industries is crucial, says Jacquetta Griggs FCPA. Governance, transparency and being able to defend your numbers is critical to protect your organisation.
Jacquetta Griggs FCPA speaks highly of her time working in the defence sector. She found great satisfaction in contributing to a critically important industry, and the value she could bring to her company.
“Working in defence, I absolutely loved it. We had a few teams working onsite at the barracks in Townsville [in Queensland]. When we were training them in a new system, I would go onsite and I just loved the different experience,” says Griggs.
Griggs is the chief financial officer at Australian Industry Standards (AIS) and CPA Australia’s deputy president of the Victorian Divisional Council. Before joining AIS, she spent two years at Elbit, an Israeli company that supplies products to the defence sector. Previously, she worked at Boeing for eight years.
Griggs says there are enormous opportunities for accounting and finance professionals in the defence sector, both to contribute to good business outcomes and personal job satisfaction.
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“In 2016, the government put out its Defence White Paper; that was looking at funding going into the billions. When you’re talking about that level of funding, you really need scrutiny of the numbers and transparency,” she says.
“When companies get the opportunity to pick up a defence contract, it’s so important they partner with their accountant because of that level of scrutiny.”
Griggs recalls the moment when she was able to contribute more than just the numbers at Boeing. She said the finance team she was part of was moved from the corner of the office to sitting closer to operations. This move allowed her to become entrenched in their business and pick up knowledge.
She adds that technology has played a huge role in enabling accountants to bring more value to their roles and better outcomes for their businesses. Griggs has been involved in several enterprise resource planning (ERP) implementations that allow the finance team to spend a few days reporting the numbers, and free up the rest of their time to add value.
“If you can put in the efficiencies in your reporting, then you can really partner with the management team, or the operations team. You can talk through what it is they are looking for, how it is they want to forecast the next few months, and what is the new business on the horizon,” she says.
Griggs believes CPAs are perfectly positioned for a career in defence industries.
“We [CPAs] are really great at what we do, and it’s important that we add value to the businesses that we work in,” she says. “The opportunity for accountants is not going away ... there’s a real longevity there.”
Creating a skilled defence workforce
One of the greatest issues for Australian Defence Force-related organisations is creating a skilled, sustainable workforce. BAE Systems Australia is looking to increase its workforce by up to 5000 people. We spoke to Andy Cornfield, the organisation’s finance director, about the staffing challenge.
Q. Defence spending appears to have gone from bust to boom. Does this create special challenges in finding a skilled workforce to deal with the boom?
A. Yes, and I think the key word is “skill”. Defence, by its nature, is very tactical, and so the type of people we need are at the top end of the skill set. They can range from scientists to engineers to project managers and, of course, skilled technicians. Those types of skills can’t be generated overnight. It requires significant investment to get people into a position where they can add value on complex projects.
Q. What is the solution?
A. There are a few things. You have to start at the beginning, which is the demand profile for the product. One of the things that the Defence White Paper and the Defence Integrated Investment Program have done is offer us a clearer view of what’s required. The biggest challenge related to defence projects is the fact that they are typically complex, but they’re also long. [As complex projects take a long time to complete, retaining the right talent over that period can be an issue.]
Q. Are you working on your own or in tandem with government?
A. We require an integrated approach. We need a combined effort including provision of funding, industry defining exactly what it needs and academia providing the right courses with input from industry to give people the right skills. Then, we all need to communicate effectively to let people know that there’s a long and meaningful career for them in this space.
Q. Considering the futuristic nature of defence systems, are there some skills and careers needing to be developed that don’t even exist today?
A. Yes, things are always changing. For example, we’re submitting a tender for the Future Frigate [program]. The vessel we’re submitting is called the Global Combat Ship. It’s the first fully digital ship.
In the past, a lot of shipbuilding plans have not been digital. This is the first fully digital ship and it allows us to build the ship in a virtual reality environment. This is a completely different skill to the old “spanner bashing”.
Q. Is it difficult to attract and retain young people to defence-related careers?
A. Some people have a problem of principle [with working in defence] and we can’t do anything about that. Our challenge is to show people that … the opportunities we offer are cutting edge. We can explain that there’s a long-term career and it’s very appealing.
However, there are lots of companies offering the same thing so, together with universities, we need to increase the pool of people who see defence as a good industry to operate in.
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