BAE Systems: A New Business Model Takes Flight

Like most organizations, BAE Systems once used analytics primarily for the basics – modeling costs and analyzing other financial information. However, when the global defense contractor moved into long-term “performance-based” contracts for its military and technical services it needed to strengthen its analytical capability. The new performance-based contracts shifted long-term risk of equipment availability from customers to BAE Systems. To make this business model work, BAE Systems needed analytics. So five years ago, Michael Peters, Head of Business and Solution Modeling for BAE Systems, was appointed to address this issue. The business challenge, he explained, was to answer the fundamental business questions posed by the new strategy. “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 key performance indicators in the contract, and, indeed, what should the KPIs be?” He needed to find an integrated and consistent approach to making those contract decisions so that BAE Systems understood the relationship between cost, performance, revenue and risk. Peters put together a methodology and a small team to support the new business model. His analytics champions from across the business units showed leaders in the major programs that a common methodology, which worked for the air sector, would also work for its land and sea divisions. Now, with mature capabilities in the air sector and growing capabilities elsewhere, the common methodology is used to embed analytical capability in projects, enabling leaders to make data-driven decisions for formulating contract commitments and optimizing through-life performance. How does a small core team, just four people and a network of subject matter experts in the business units, change the mindset within a global company to enable a shift in analytical thinking to support their major programs? From the beginning, Peters was fortunate to have two very senior sponsors. These connections bolstered credibility when his corporate team engaged business units on the relevance of business and solution modeling and ensured effective sponsorship through the allocation of resources to support the business’s priority programs. At the same time, Peters’ team began developing and demonstrating a whole suite of training courses.

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