Executive director of the Industry Capability Network NSW Peter Webster joins the Defence Connect Podcast to discuss the organisation’s service as “an industrial dating service”, its role in targeting big spend Defence projects and building up the capabilities of NSW businesses.
Webster takes us through the organisation’s ambitions to create more effective ways for primes and SMEs to communicate and capitalise on Defence spending, its supply chain development services and how NSW can target the lucrative through-life support contracts of major projects.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 73: PODCAST: Building long-term capability for defence and industry through LAND 400, Brian Gathright, vice president of business development, BAE Systems Australia
Episode 72: PODCAST: Shaping the conversation in defence industry, Kate Louis, head of defence and industry policy, Australian Industry Group
Episode 71: PODCAST: Technology transfer in naval shipbuilding, Sean Costello, director, Fincantieri Australia
Episode 70: PODCAST: Taking the reins of a defence prime, Gabby Costigan, BAE Systems Australia, CEO
Episode 69: PODCAST: A smooth transition to defence industry – Colin Thorne, partner, engineering and asset management, KPMG
Episode 68: PODCAST: Leading from the front in defence industry, Warren King, chairman, Navantia Australia
Episode 67: PODCAST: From the scullery to the Senate, Rex Patrick, senator for South Australia
Episode 66: PODCAST: Finding the right signal in Defence, Livia Brady, managing director, Rojone
Episode 65: PODCAST: Manufacturing the future for defence SMEs, Medhat Wassaf, Milspec Manufacturing & AIDN NSW
Episode 64: PODCAST: Unmanned surface vessels and the future of Navy, Robert Dane, OCIUS Technology
Announcer: Welcome to the Defence Connect Podcast, with your host Phil Tarrant.
Phil Tarrant: G'day everyone, it's Phil Tarrant here, thanks for joining us on the Defence Connect Podcast. Always a pleasure to have you with us. We're having a chat today with someone who is going to be able to highlight, maybe some of the more effective ways that businesses looking to capitalise on defence spending, increasing procurement opportunities for defence businesses. Peter Webster, who is the Executive Director of the Industry Capability Network, or ICN. Peter, thanks for joining us, mate.
Peter Webster: It's a pleasure, Phil.
Phil Tarrant: So we're in a very interesting environment in defence right now. Obviously, 2016 Defence White Paper, and associated documentation, reinvigorated approach by government to start equipping our war fighters with some new technology ... new equipment to support our wider strategic objectives. I don't want to really get into that, because we cover that quite considerably.
What I really want to have a chat with you today about, Peter, is how a lot of this investment in defence spending is translating into programs and projects. And the opportunities for businesses, both large and small, to capitalise into that. So winning procurement work. And this is somewhere where you have a lot of experience, and you've been with the Industry Capability Network now for, you said a couple of decades or so, before we come on here.
Peter Webster: 31 years.
Phil Tarrant: Good years. So before we get going with this, could you just explain to myself and our listeners, what the ... If they're not familiar with it, what the Industry Capability Network does?
Peter Webster: Yes. In a nutshell, if I was to tell you in the elevator what do we do? We're an industrial dating service.
Phil Tarrant: Okay.
Peter Webster: Actually, when you introduced me, I'm the Executive Director of ICN New South Wales.
Phil Tarrant: Okay.
Peter Webster: We're individual state-based organisations. We're in all states, bar Tasmania. And we have an organisation in Canberra, ICN, that does coordination work for us, and provides us with our IT infrastructure. But essentially, we're a group of not-for profit companies, some are government departments, as in South Australia. In Western Australia, it's a part of the Chamber of Commerce and Industry. But we're organisations that really go and chase opportunities.
And opportunities from big spends. We deliberately work on projects where there are big spends, and approach organisations that are big spenders, because when you've made any sort of difference, where you've introduced a new local supplier to those people, it makes a difference. There's a considerable amount of work then, can go to local suppliers. And it results in jobs. And that's really why we're here. It's all about providing a free sourcing service to those major buyers that has a result of introducing local companies, and when they're successful at winning that work, people get jobs.
Phil Tarrant: So you guys, you represent the New South Wales arm of the network. You mentioned that some of the other states are actually part of state government institutions. Whereas you sit outside government; however, you're funded by government-
Peter Webster: That's right.
Phil Tarrant: So they're what pays the bills. Okay. So this is the initiative of the state government to introduce New South Wales businesses into the wider national business opportunities. Is that pretty much how it works?
Peter Webster: That's right, yeah. We've been supported since day one by the New South Wales state government. Currently, we have a contract with the Department of Industry to provide the services that we do free of charge to industries, so they can access the opportunities.
Phil Tarrant: Okay, so how did you describe it? As "an industrial dating service?" Did I get that right?
Peter Webster: Yes.
Phil Tarrant: Commercial dating service-
Peter Webster: Yes. Yes.
Phil Tarrant: So you're connecting businesses with opportunities. So you identify large-scale work that's underway, which has procurement opportunities which would be going through tender cycles, and then you look to make sure that associated businesses have the capability to tender into that work.
Peter Webster: That's right. If you're into procurement or engineering within a large organisation, or a large project, good chance you're going to get a phone call or a knock on the door from myself or one of our consultants. And we'll be there to badger you, to offer you supply-chain development services. What does that mean? It means, simply, we want to introduce you to good local competitive suppliers.
And there can be a lot of resistance to that. You've got people that have been in their profession for quite a long time, and then you'll get a guy like me walk through the door and says, "I can help you find someone you don't know about." So that's a pretty tall ask. And it takes some convincing, at times, for people to accept that, and to give us an opportunity. But time and time again, we find that we are able to introduce them to good, competitive local suppliers that give them better supply options, and better outcomes for their projects.
And that's a really important point. We're not here to beat our patriotism, or to hold their hand on their heart and raise the flag while we sing "Advance Australia square." It's really about ... The people that we're working with are business people. They've got their own objectives. They have their own project objectives that they need to meet. And it's usually, "Do we get the project in on time, within budget, and to the best quality possible?" So we introduce people that can help them do that.
We do a lot of running around for them, in the meantime, of checking on the right sort of companies that they might want to talk with. So that that actually does save them time and money, while putting an opportunity in front of local industry. So basically, everyone wins, unless you're an importer that just got knocked out of a spot buying an Australian-made product.
Phil Tarrant: So let's just keep on this analogy of a dating service. You've got supply and demand, so people that want dates, and then people that need dates. On the supply-side, do you have a stronger ... Is the challenge for you is finding people to be part of this program? Or is it finding the work for them to participate in, getting them introduced to ... Where's the challenge for you?
Peter Webster: Ah! The challenge is always finding the person that has the big spend, and that is willing to open that up ... Open those opportunities up. I'll explain it later, but we've got an extensive database and web portal, and because that's a public face, a lot of people think we're an IT-driven industry. And that it's a web-based type service. Now that's a part of that, but it's really relationship-building.
We need to be able to develop a good, trusting relationship with buyers, so that they will trust us with their inquiries. Quite often, there are very confidential pieces of information relating to IP or project objectives, or it could be to strategy that someone has within a bid team, so we have to have their confidence to be able to work with them on that. And also, their confidence that we're not going to waste their time. So when we can develop that relationship, we then come up with a whole swag of opportunities. Of very attractive opportunities for local industry.
And once we've got that, it's very easy then to make that relationship with local suppliers, local manufacturers, contractors, particularly SMEs, because they're looking for that work, and they want to ... they then want to talk to us. But of course, the ultimate aim is to forge the relationship between those suppliers, those SMEs, and those large buyers. So we come in between, but we've got to have that trust and build that relationship, so we can get those opportunities and pass them on.
Phil Tarrant: I prefaced this conversation with talking about defence industry. At the moment, it's going through a surge in terms of investment, $195 billion committed to defence spending for the next 10 years. So within the Australian context, there are some big programs on the way. Shipbuilding in particular. We have the F-35. Some major defence programs on the way right now, so it's an area within Australia which is attracting considerable attention from the business community.
So organisations, SMEs in particular, are looking to enter the defence supply-chain, whether that's dealing directly with primes or even our export market. For the ICN, how much of your work is within the defence space right now. I imagine it's considerable, seeing that this is where a large amount of expense is going in, or do you work across other markets as well as defence?
Peter Webster: We work across other markets, and we work across markets where the demand is greatest at the time. We don't sit down and preempt and say, "We will allocate, say, 30% to defence, and 30% to infrastructure." It's where the opportunities are now. Earlier in this decade, we spent a lot of time and a lot of effort, and frankly a lot of miles, talking with the mining industry, and mining companies, mining equipment companies, mining service companies, that all have their own supply-chains they need to build. And we found a lot of opportunity there, and were able to introduce a lot of companies into that sector. Although that's starting to come back up now, and that's good news, that's died down for a considerable time now.
But in the meantime, and particularly in New South Wales, we've had a lot of infrastructure projects going on. So we've got projects going on, such as rail projects in Sydney, a lot of road projects, and we're working with those major contractors on their SME engagement. Also, a fair bit in helping them with Indigenous business engagement, which is often required with some of those projects.
We're now going on to ... We're also going into, regionally, into a lot of clean energy-type projects. There's any number of solar farms and wind farms going on across the state, and, indeed, across the country, which we're all collaborating on. So there are opportunities here, not only with major pieces of equipment, but good regional opportunities ... It doesn't sound too much, but if you've got to put a fence around a solar farm, well, it doesn't sound real sexy, but if you're the local contractor, and you pick up that job-
Phil Tarrant: Great job.
Peter Webster: That's pretty important, and that's pretty good for the local employment. As well, there's got to be a lot of maintenance and care-taking with these projects when they're up and running. What better than to have local people doing it? Particularly when the owners of the intellectual property, the main pieces of equipment, are overseas companies, and they don't really have a handle on what's available in Australia, let alone in regional New South Wales. So they've got a need. We've got local companies with a need for opportunities. We can step in and bridge that gap, make the introductions, then we get out of the way. And let the buyer and seller talk, and when things work, we get more local jobs.
Phil Tarrant: That's good. What do you think, having worked now for 30 years as an introducer between large businesses and SMEs, what do you think large organisations, or in the defence context, primes, can do to better, in terms of engaging the SME market? Because SMEs always illumine to me the challenges of cracking the defence supply-chain. It's a very difficult beast sometimes to navigate, and finally win work, which can take years for it to happen. So what do you think the large guys can do better to be easier to do business with?
Peter Webster: Probably just get out there more, and talk to local companies more. One of the real problems I see for SMEs is that, we'll have large projects in Australia, and we tend not to have resident primes in Australia. We have got a couple, but on the whole, they're not resident. So you'll have a large project, the overseas prime will come in and set up a base here, set up a platform from which to work the project, and that's not only through acquisition, but often through-life support stage.
And then, they'll often buy from the tier twos, the companies that provide the major platforms within these capital spends. So your major hydraulic system, say, for submarines. We tend not to have those sorts of companies in Australia. And it's quite often those that will be buying from the SMEs, rather than the primes direct. So it's a matter of helping them to slot into that supply-chain.
Nevertheless, in working with the primes, I often see that they are genuine when they say, "We want to work with local ... " Because they've got things they need to fulfil, and quite often that's better done on a local basis. But if they can work together, and work closer with their tier two suppliers to ensure that they're cascading opportunities down to local SMEs, which is usually the level where those opportunities fit, that would be a great help.
Phil Tarrant: So you think that's where the pressure point is, is making sure the tier two suppliers are actually connecting with the SME market. They might not have the understanding, if they're an external, or global, business working here, to know what's available here in the Australian marketplace. There's a big gap.
Peter Webster: That's right, and it's not only a gap of knowledge, but it's a gap of confidence. Defence projects are technically risky, usually, because you're looking for high-end capability. You need a lot of confidence of the people you're working with. That usually will come from working with them, in long relationships, but it's got to start somewhere. We can help them to find companies that they can have confidence with. But it's a matter of working with them.
And quite often, it's not on the big stuff, or it's not on the acquisition. An example of a really smart strategy that I've seen is one employed by a Sydney company, H. I. Fraser. Now, H. I. Fraser do a lot in pneumatics, in defence, and also in oil and gas. We've helped them in both areas. But in defence, instead of, say, trying to get on big projects as the supplier, that's not really a viable opportunity for them. And to do that, they might have to ramp up a lot of capability, run it for a short time, and run down that capability. That's very hard to manage.
But instead, they've gone to some of these tier two suppliers in Europe, and worked out agency agreements with them. So they might not be doing the initial supply, but they're doing the 30-year through life support. So instead of having to ramp up, run at a high level for a short time, and ramp down and into the Valley of Death, they've got a smooth path, and a smooth, steady path of working on their systems, developing their relationship with those tier two suppliers, so further opportunities can come down the track.
Phil Tarrant: I know Chris Williams there, he spends a lot of time on the plane, heading over to Europe to maintain those relationships with these tier two suppliers. Yeah, they've got a very deliberate and dedicated strategy to ... And they've carved out a niche as a result of it, so H. I. Fraser's one of those businesses, I think, who is an SME that a lot of other SMEs would look to emulate, but a lot of people often struggle to get that depth of understanding, or understanding the ... how they can have a point of difference. Which allows them to win defence work and sustain that defence work.
So flipping the case on its head of saying, "What can the primes, or what can the big companies do to better support SMEs?" We've got a case study in H. I. Fraser, and we did a podcast with Chris probably about three months ago, so go and check it out, listeners. But what can the SMEs do better to make themselves more attractive to these tier two or even prime suppliers who are going to be purchasing their services or their equipment?
Peter Webster: They've got to be realistic about whatever they're wanting to do. If you're wanting to just provide services on a defence base? Contracting services? You're a defence supplier. But you're not a high-end defence supplier that needs a lot of investment, and a lot of R & D, a lot of intellectual property. And your returns will show that. So you don't get the high-end profit margins that the high-technology does.
But, jeez, if you want to get into that high-technology end, if you want to be a first tier supplier, or supplying to a tier one on, say, a project such as, say, submarines, I think you're going to have to have a lot of time, and pretty deep pockets. Because that's a really hard ask. You won't develop that overnight. You'll develop it in stages.
And I think, going back to H. I. Fraser, they're in a stage there, where they've gone a long way to get where they are now, but I can see them coming further on into a designer of equipment, and that, later on. But it's a matter of building to that, getting the trust of the companies in the defence space. And working on that. But even to get to the point where they are now, if they tried to do it on defence alone? They probably wouldn't be here now.
So they've had a viable business going along side in machining work, in, again, highly technical pneumatics, such as diving systems and whatnot for commercial work. Also, high-end valve manufacture for oil and gas. Which sits along defence in terms of risk. So by being able to address the risk that you get in oil and gas, by using good quality systems, good management systems, these translate into defence. And so you can see a slow path building up. But it's just not done overnight.
Phil Tarrant: It's a bit of a tough one. I remember, I was in Canberra for the Defence and Industry Conference. Must be a couple of months ago now. Can't remember exactly when it was, but it was a packed house there at the amphitheatre at the convention centre. And someone who was behind me, I heard him speaking to someone else, and they made a remark of, "It wasn't like this two years ago. And I bet you it won't be like this in two years’ time." I. e., making reference that there was a lot of new people looking at the defence space as a potential area for business growth opportunities.
And there seemed to be a lot of fresh blood in the room. Businesses that weren't traditional defence companies, or have been in defence for a number of years, but from external areas looking into defence as a chance to potentially win defence work. What you've just painted there is a picture which means you can't jump in and out of defence. You've probably got to have a long-term plan, a long-term commitment to actually understand your value proposition within defence, and how you can go about leveraging unique capabilities or unique products to sell into defence. Is it a fair assessment to say that you can't just jump in and fly-by-night, and think you're going to win defence work? Do you actually need to make that commitment, and how that works with a more wider, more diversified business strategy?
Peter Webster: Oh, too right. It's no fly-by-night job. It's a big commitment, a long-term commitment. It's a long-term commitment in developing your own internal systems, your own management systems. Could be you're developing your own IP. You've got to take the risk and develop those people, knowing that you might develop people up to a certain level, and then they get poached going somewhere else. But that's just a normal part of business.
So it is a long-term commitment, but it's not all doom and gloom. Because there are a lot of organisations, and a lot of other bodies there to help, and listening to Peter Scott ... In the chat there, Peter was big on collaboration, and I think that's spot on. Because there are a lot of organisations out there that can help, both at a state level, and a Commonwealth level, and a regional level.
And again, I've heard Peter say this, I've heard John Harvey say this, and also Minister Niall Blair, New South Wales Industry Minister. And all say that we are keen on defence work for New South Wales, but it's not a matter of us vs. the states. It's a matter of working collaboratively with the other states, and getting the best outcomes that way. Otherwise, it's just madness. You're just cutting your chances, and isolating yourself.
So what we really like to do is go and visit SMEs that have good prospects. So if we were at a meeting like that, and we go to a lot of defence industry briefings here in New South Wales, and so we meet new companies, and we like to go and visit them and have a first-hand look at what they do. And by the way, this is the really interesting, good part of the job, that I like, rather than trolling over computers.
Because you get out there, and you can walk through a factory. You can see what people are doing. And mind you, they're doing some fantastic stuff behind roller-doors these days. You'll have the general manager who'll show you around, and we'll have a conversation with him. Why do they do things the way they do it? What do they see as their strengths? Where do they see their opportunities are?
So generally, we can walk out of there, and we've got a good idea of their capability. Not just what their product range is, but what they're capable of doing. So I might then, at another time, be walking through a factory, and see an opportunity for that previous company to supply, just make an off-the-cuff introduction, go back sometime later, and find that they're working together.
But through these visits, we can also identify, particularly when they're talking they want to be in defence and other high-demand areas, is we can have a talk to them about what they're doing about it. About, from our eyes, how prepared we see they are. If they've got good business systems, they're along the way, but if they haven't got good business systems, they've got to get that in-house even before they start talking to anyone else.
But once we've got this understanding, it could be a matter of introducing them to the CDIC for the programs that the Commonwealth has to help companies. It could be an instance of referring them to the Department of Industry in New South Wales, through the defence arm of that, to Peter's people, who can help them. It could be a matter of working with them in the regions, in referring them to their own regional defence industry organisation. That could be, say, HunterNet Defence, or the South Coast Defence Alliance. There's organisations all around the place, that are local, that can give local support to those people.
Then it could be they need a national coverage. They might want to talk to someone like AIDN. So there are all of these organisations that we work with, and we don't see ourselves as competing with any of those organisations. We all work together, and refer people backwards and forwards, to help place those SMEs, and particularly regional SMEs, in a good position where they can go forward.
Phil Tarrant: Yeah, it's interesting you said that. There seems to be, from my observations, quite a lot of collaboration between the different industry networks, who are all looking for the same things, right? To put more defence businesses, connect them with more opportunities, create more jobs. And you spoke very briefly about the competition between the states for defence programs, and we cover it quite extensively on Defenceconnect.com.au. We would try to paint the picture of collaboration, but there's still an undertow of competition between the major states to win these big-ticket programss.
And it's very visible programs that I'm talking about here. Your naval programs, which they're going to all be built down south. You've got, obviously, LAND 400 coming up, and the two competitors there have flagged Victoria and Queensland as their bases of operation. Then I look at New South Wales, and New South Wales is not really pinning itself to any of these major, high visible defence programs, but the defence industry in New South Wales, it's a lot going on, isn't it? Maybe a lot of our listeners aren't really aware of.
What's your take on where New South Wales sits within a wider national footprint of defence work. And we're recording here from New South Wales, are we punching well above our weight here? Or is it ... Are we winning a lot of work?
Peter Webster: I think we are winning ... I know we're winning a lot of work. We haven't got the headline jobs, where they're building the submarines. The Land Forces contracts. They're simply where they are being assembled. There's a lot of capability goes into those projects from New South Wales. So, for example, it's a lot easier to see the metal-bashing, to see submarine hull being built, than to put on the news a bit of code that someone in Sydney has developed. Yet that code is probably more valuable than some of that hull that's being built.
When defence is looking at local capability in major projects, they'll often highlight what they call a strategic local industry capability, or a priority local industry capability. And in the projects I've worked on, I've never really seen that to be a matter of fabrication and machining of metal. It's nine times out of ten about the integration of the C4 systems. The ability to make the highly-complex combat communications computer and control systems work together. Because they'll often come from different sources. And these systems have to work together to make the projects operate. We've got a lot of that in New South Wales. It's done in labs and offices, behind computers, rather than in big workshops where you get the nice big film shots for the news.
We're also, even though we're not doing a lot of that mechanical gear, in the acquisition, you get the through-life support phase. As Peter said, on the podcast recently, we've got a lot of bases in New South Wales, we've got the East Coast Sea Base. So there's a lot of work goes down around Garden Island, and in and around the state, feeding into that. And again, that's good, steady, ongoing work, rather than work where you have to ramp up, then run it for a short time, and then go back into the Valley of Death.
Hopefully, that Valley of Death is getting lessened, and shallower, because of the programs that the Commonwealth's putting on. But it's still there. We're not as subject to that risk as much as some of the other states, I think.
Phil Tarrant: And 30 years in this game, now. Today's defensive arm is really different than what it was 30 years ago, 20 years ago, even 10 years ago. Is it a good time to be in defence? You're very happy with the state of play? Is there anything that you think the ICN can be doing better than what you're doing right now, or anything that you've got planned to better support SMEs tapping into the defense-supply chain?
Peter Webster: We'd just like to be able to penetrate more in further projects. Some of the projects we really can. Now if I take, for example, the submarines, and again, this is a national collaboration. We're all different state organisations. The submarines will be built in Adelaide. So the project office will be in Adelaide. As an ICN in New South Wales, I'm not running down to Adelaide and going to the Naval Group and knocking on their door. Because we've got ICN South Australia doing that.
And if I'm to do that, and my colleagues from Victoria, and Queensland, and Northern Territory, and Western Australia do that, all we'll do is put them off, and they'll shut the door to us. So we collaborate. And our people in South Australia ... and it's taken them quite a while, but they've built a good relationship with them. But the relationship is such that our person down there, David Land, he will be working with those groups very closely.
I'm not sure if David will end up being embedded, but quite often with those projects ... It might be someone else in South Australian ICN. But quite often with those projects, we'll have someone embedded in the project. And that way, they work not only with their prime, but with the ... That gives them access to those tier two companies. And so by being able to access everything in that what I call ... It's not supply-chain, I think it's a supply pyramid, of these projects ... So you can find the right level by doing that of where the SMEs can come in. If we can do that more, I'll be very happy.
Phil Tarrant: We're going to have to wind up, because we've been chatting for half an hour now, which is quite a long time. So the government invests in this particular mechanism to support SMEs connecting with larger businesses. It is a nationwide effort, but each individual state has its own structure, and own funding chain. If you're master is, I guess, the New South Wales government, how are you guys measuring whether or not you're doing a good job? What's the benchmarks there?
Peter Webster: It's results. We need to demonstrate ... Our current contract says we need to demonstrate to the Commonwealth that we're delivering at least $120 million of business to New South Wales industry in a year. And we can't just say, "Well, we did that." We've got to prove that. We've got to have that backed up with evidence, being letters of support from either the buyers or the suppliers that have won that work. To verify that not only did they have that work, but we played a part in them getting that work. So we're-
Phil Tarrant: It's very tangible.
Peter Webster: Ah, it is very tangible. And we've been consistently able to make that target, and I know that we've gone well over that target. There are times where getting that feedback can be just very difficult. It could be someone was in the project team that you worked very closely with, when it comes to get that information, they're gone. So someone else come in and you might not be able to verify what you did there.
Phil Tarrant: It's often hard to determine where the work originated from. You might have been involved in a process, or it might have been an off-the-cuff remark that you might make on a factory floor somewhere that might generate to a relationship happening. But yep, keep up the good work. That's good.
I think SMEs are, from my experience, always looking for a leg up to secure more work, and I think a lot of them are very pragmatic in terms of understanding where their limitations or restrictions might be about tapping into the defence supply-chain. We've had a really good case study, someone that's doing really well in terms of H. I. Fraser.
But a lot of new to defence people like to tune into this podcast, because it gives them some insights, how to crack that defence supply-chain. But from our conversation, I would say, you need to really understand where your value lies, and understand what you need to do as a business to make sure that you're competitive, so you can win this type of work. But I appreciate your insights, Peter, that's really good.
Peter Webster: Thank you. We're very happy for SMEs to contact us, so we can go out and talk to them, and have that conversation. See where they want to be, and see if we can't help them get there.
Phil Tarrant: Sounds good. Thanks, Peter, and remember to check out Defenceconnect.com.au. We've got daily news and market intelligence around the defence industry. If you're not subscribing to the newsletter, I highly recommend you do so. Be the first to know. It comes out every morning at about 7:00. Defenceconnect.com.au/subscribe.