In this episode of the Defence Connect Podcast, the Electrotech managing director joins host Phil Tarrant to share his tips with SMEs on how they can identify opportunities within the defence space, better engage with primes and make themselves more attractive prospects to secure major defence contracts.
You’ll also hear Renkert’s own success story about how over the course of his three-decade-long career, he led the navigation and communication equipment business through the highs and lows of the defence industry to achieve Electrotech's long-standing reputation and success.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 138: PODCAST: Gaining operational advantage through the use of multi-static technology, David Eyles, Thales
Episode 137: PODCAST: On site at the Avalon Airshow 2019
Episode 136: PODCAST: Avalon Airshow 2019 – The future of Australian air power special
Episode 135: PODCAST: Sustainment driving the development of Australia’s future aerospace workforce
Episode 134: PODCAST: The challenges and opportunities facing the Australian defence sector, Dr Malcolm Davis, Australian Strategic Policy Institute
Episode 133: PODCAST: Creating AI technology that supports human operators in transport vehicle efficiency, Patrick Nolan and Alexander Robinson, Seeing Machines
Episode 132: PODCAST: Revolutionising the business models and outputs of Australian defence industry, Gary Hogan, Australian Mathematical Sciences Institute
Episode 131: PODCAST: How a condition-based maintenance approach is aiding sustainment in the F-35 program
Episode 130: PODCAST: The shift from consulting business to specialised engineering leader, Greg Barsby, QinetiQ
Episode 129: Guiding Defence’s R&D and innovation agenda: On Point with Dr Alex Zelinsky
Phil Tarrant: G'day everyone, it's Phil Tarrant here. I'm the host of the Defence Connect podcast. Thanks for joining us today. We like to share stories here on Defence Connect, and particularly from the SME space. The government, as most of our listeners will know, have really embraced the opportunity, I feel, we feel, to harness some of the capabilities of our SME sector. And we've had some very talented SMEs on the show over the last six months or so, all at varying, different levels of maturity in their business.
We've had some people who are developing some really nice new kit they're trying to sell into the army, all the way through to more established businesses who have seen many cycles in defence, and have seen the highs and lows of new budget announcements, increasing budgets and decreasing of budgets, and people who've been there in the trenches for quite some time. And I often chat with a lot of the SMEs who have been in the game for quite some time and they often lament about some of the challenges of being an SME in defence, but by and large, or essentially to the man or woman, they always hold up their passion around delivering what they deliver for defence and the upsides in doing so, over and above just profit.
And on that basis, I've asked one of the stalwarts of the SME sector to come onto the show today, Stephen Renkert, who's the MD of Electrotech to have a chat with me. Stephen, how are you going?
Stephen: Good morning. I'm well.
Phil Tarrant: So just before we came on air we had a bit of a chat, and you gave me a bit of a background on the way you see the world and your experience with Electrotech over two decades plus in defence, and one thing that really resonated with me – and I think it's quite reflective of quite a lot of SMEs, particularly those who've been in the game for a little while – you talked about having feet on the ground with dirty boots. And to me that really resonated, because it says that there's a lot of glamorous noise in defence at the moment around the next big shiny thing, the game-changer, which if it makes it through a research and development process can really enhance our capabilities in two decades’ time.
My take on your business, and I think it was exceptional, is that you're actually out there doing stuff. You're engaged in programmes, you've been engaged in programmes for many years, delivering some service capabilities for defence. So I want to have a bit of chat about just the background of Electrotech and how you've gone from external to defence, and commercial spaces in to defence now being a big part of your business. Can you just give us a backstory?
Stephen: We started essentially in about 1990, with a … I'd like to say a business plan, but it was more a opportunity emerged in the commercial shipping space, on the bridge, navigation and communications equipment, where there was a marketplace that wasn't being adequately serviced. A business was established called Electrotech, where we employed a number of very experienced electronics technicians and electronics engineers with a focus on commercial shipping, with a focus on comms and navigation equipment: radios, gyros, radar. At the time GMDSS was coming in, which is the global safety system, and we rode that wave by procuring and installing and maintaining equipment on commercial ships.
As we developed, and the business grew through an expansion into the more significant ports around Australia- because we developed a feeling that you have to have your own established network, so that you can control the quality, you can control the parts, you can control the training, and all of the other issues that emerge.
As we developed it became pretty clear that there were a number of opportunities within navy, and we had a number of navy staff come to us and say "Look, how can we work together, because what you are doing, we need to be doing in such areas as … Some of the COTS areas of radar, navigation radar, and radio, autopilot, gyro, et cetera."
And we, with one toe in the water to start with, but we fairly quickly moved to develop relationships with defence in those particular areas, and that has developed since, in very focused areas, where we focus our attention on service and performance. And if we're fortunate, and we have a customer who really understands the value of those things when it comes to procurement time, then our actual support in the marketplace, with muddy boots, will counts heaps towards giving a tick to a proposal for, for example, an equipment upgrade, or equipment replacement. And I think we've been quite successful in that area.
Since then we have done a range of military undertakings, along with our principal OEM partners. The one that's probably most relevant here is that we've had a very long and a very close technical and commercial relationship with Northrop Grumman in the United States, and more recently with Northrop Grumman Australia, operating in Canberra. We have, for example, and I'd use it as an example, the Anzac frigates have an inertial navigation system, ITAR system, that is ringloaded gyro, and it is installed with a navigation data distribution system, so that the information is fed to all the sensors around the vessel.
Over many years we have developed a relationship with the Anzac Group. We have a full test bed in our West Australian facility, so that we can test defective product. We can repair, to an extent that it is possible. We can arrange for these parts, if they can't be repaired in-country, to be returned to the States. We groom the systems on vessels. We maintain all of the navy stock items, as GFE. We track everything by serial number. We have OEM factory-trained people in this equipment, and I think that has been extraordinarily successful.
We adopt that philosophy to other areas of defence involvement. For example, some years ago we developed a relationship, and it's on the comms side, and Cobham, or company which is now Cobham, and to some it sounds a bit silly – but we have a contract with defence for the supply and maintenance of satellite television systems on all navy platforms. And that means when a ship sails to the Middle East, we will be managing the content, we'll manage the spares, we'll optimise the performance of those systems. When they're in the Australian region, we manage the Foxtel relationship so that they've got quality of life in terms of television and entertainment on board.
Sounds simple, but it isn't necessarily because you've got ships that are moving, so you have stabilised platforms to receive satellite TV, and we offer help-desk, we have technical training, we have technical support. Once again, it's an example of dirty boots resulting in happy sailors, resulting in a good piece of business.
Phil Tarrant: That's good. So you're nearing now, having commenced in 1990, three decades as a business. The longevity of that, I imagine you've seen substantial changes, both within the economic landscape that you operate within, but mainly within the defence space. How would you describe the shift? If you had to say 1990 versus 2017, what would be the biggest change, you think, in defence and defence mindset during that period?
Stephen: I think a lot of it is to do with the equipment. Everything is integrated. Networks, and every sensor that was traditionally on a vessel as a separate sensor, is now essentially part of a network. So the type of skills that you need to maintain equipment not only relates to the maintenance of a sensor, but it relates to the maintenance of the network. That comes from maintaining, diagnosing problems, et cetera. That's been a significant change. There have also been a number of changes with regard to defence administration. The bar is set pretty high with regard to- and it is in commercial shipping as well- with regard to job planning, safety, sign off, documentation such that a job is a project that is thoroughly done.
It is much more complete than it used to be. And I applaud that quite frankly. Some will complain about the level of paperwork, but if you do it properly, and you have people who are trained to do it, it's amazing how prepared you can be to undertake a job when you actually get to it.
Phil Tarrant: Is it easier today to win defence contracts than it was 20 plus years ago?
Stephen: It's never easy to win a defence contract. The gestation period is long. The contract negotiation period can be long, and unless you have a base-load business underlying what's going on, then there won't be enough flowing to actually pay the wages bills. So it's a balancing act. I think, and it's not criticism, but there's an area that I am a bit sensitive about, and that is when- A lot of our defence business will go through one of the primes, one of the mains, and the mains in many cases have a desire to pass down all of the Commonwealth T's & C's that they signed up to.
That can be a lot easier for a prime, than it is for an SME. I'm not saying it can't be done but what we- and it might relate to such things as liquidated damages, it might relate to such things as insurance levels and professional indemnity insurance levels and all this sort of stuff. It's not impossible because you have to sit down with the prime and say "No, we're not going to do this. We'll give you cover at this level and if you want more than that then you're going to have to pay for it." And invariably they will say "We're happy with that."
But when you're dealing direct with defence, this area can be quite difficult. You can be kicked out of a tender evaluation on the basis that you said no to a professional indemnity insurance requirement of 10 million bucks, and you only carry five. That can be a bit frustrating, 'cause some of those requirements are not sustainable for an SME.
Phil Tarrant: I want to have a chat to you maybe little bit later on about how SMEs can be better nurtured through the development process, and look at that balance between defence work versus non-defense work, to allow for the cyclical nature of the defence industry, but what I'd like to touch on now is, you mentioned that you have a solid relationship with Northrop Grumman, which is strong in the US and now that's flowed through to the Australian market and obviously Northrop Grumman is very active in the Australian space right now.
What would be your two or three tips for SMEs who are really looking to better engage primes, and be an attraction business for them when they're considering the delivery of contract work to the SME sector.
Stephen: It's an interesting question. I think general observation, and perhaps the observation of an old bloke, there is no button under the desk that you press and everything happens. You can hang up a sign on the front of a building that's a wonderful sign, but it doesn't mean anything. What I really believe you have to do as an SME, you have to define very closely, and very rigidly, what it is that you're going to try and do, and then physically try and do that as quickly as you can, such that you are dealing with real things. I think a lot of SMEs define their businesses too broadly to start with, and almost end up in a situation where they're a jack of all trades and master of none.
The relationship we have with Northrop … And Northrop own companies around – they own a company called Sperry Marine in the UK which makes commercial radars and commercial gyros and so forth. We've worked with them for many years, and they have an international service network, and they work the space pretty well. It's all about having the right capabilities for what you say you can do. You can't just start tendering, or putting in tender responses, on the principle that if you win something, then you'll- Sort of like the dog chasing the bus, you know, you're "We've caught the bus, now we'll have to learn how to drive it." There's quite a few people go about their business that way.
Our relationship with Northrop Grumman has been built on many years of dirty boots experience. As Northrop has a declared intention of increasing its activities in Australia, and they're not talking about just hanging up more signs, they see Australia as a place where their technologies can be applied to the benefit of Australia, and to them. And we see ourselves being an important member of that way forward, in that we offer that sovereign sustainability capability, and they know that any equipment or capability that we get involved with, we will insist on full OEM training, direct contact with the product developers and the software developers, access to spares, whatever it is that we would need to do the job properly in Australia.
That's a roundabout way of answering the question.
Phil Tarrant: To put that a different spin then, nearing three decades of experience in defence space working with both government and primes, and we've spoken about Northrop Grumman but you do deal with other primes as well. As you've navigated that growth of your business through different market cycles, both economic and in terms of defence spending, is there anything that you think you could have done better? Is there a point in time when you've gone "Wow, we've really focused on the wrong thing here." Or "We've adopted the wrong strategy and we've caught it quickly enough to be able to shift or pivot."
Have you got any stories from the past of things that potentially have gone wrong?
Stephen: Oh, every business has stories of things that have gone wrong, but it's how you recover.
Phil Tarrant: Absolutely.
Stephen: I have a rather old fashioned approach to business in that I believe in loyal relationships. You see the relationship with Northrop is a loyal relationship, where it's loyal from both sides. Almost a corporate marriage if you like. Sometimes there are relationships with companies that you spend an awful lot of effort on, and that company will be absorbed by somebody else, and then the whole thing dissipates.
If I look back to lessons learnt, I wouldn't do that much that isn't different to what we did. I just like the benefit, a little bit, of some hindsight. Or some foresight. But I think the principle that we have of sustaining into the future is the right business model for us. When we talk about ourselves, we talk about ourselves being a service and sales company, not the other way round. We've always believed that sales, which every business likes to make, but sales follows from service performance. When you look at the current landscape, where you've got the peaks and valleys of defence spending but particularly in relation to naval, very difficult for an SME to navigate that. Unless they have another base-load of defence business, or they have a base-load of commercial business.
In our case we have a base-load of commercial shipping business, which will sustain our business through the hollows. And the hollows certainly come. There's a hollow now.
Phil Tarrant: There's a hollow right now, but there's a lot of noise around how-
Stephen: There's a lot of noise, but once again, dirty boots. There's not a lot of boots getting dirty on new products, new projects, at the moment.
Phil Tarrant: To pick up your point on the beauty of hindsight, I'd probably summarise that by saying, when there's trust in a relationship the terms become negotiable. So if you go about building those deep business relationships, and you sort of described it as a corporate marriage, it allows you to manage those relationships if and when they don't always go the right way, so it's a very, very important point.
But I want to pick up on sales, and I like sales, I like talking about sales. Defence is an interesting sector because sales is often seen as a bit of a dirty word, but let's be -
Stephen: Oh it is.
Phil Tarrant: Let's be honest, people are selling stuff to customers and -
Stephen: Everybody's selling whatever they do. And that goes from a doctor, through to a defence employer.
Phil Tarrant: Absolutely. So there's two things. One of the secrets of business is every job has two jobs. That is the job of doing what you do. In your case it's the provision and servicing of navigation equipment. The other part of that job is being able to sell that to the people that need it.
So I want to have just a quick chat, from an SME perspective about the sales cycle. What have you found over the years is the most effective way to actually be given the opportunity to put in a tender document, to actually look to transact? Is it a people business, and how do you do that?
Stephen: I think it is a people business. If I look at defence in particular- commercial is much more "The gyro has to be replaced, we'll replace it with Electrotech because they look after it and we'll never end up in trouble."
With defence, it's a bit different, and can be extraordinarily difficult given the turnover cycles in defence employees, or defence positions. You might create a wonderful reputation with a particular fellow or particular person, for performance and that person after 18 months or 2 years, off they go and you've got somebody else. It's difficult, but all we can do is try, and be on tender lists, and put as professional approach to a tender as we possibly can
But if I look into the future a little bit, a lot of the sales as we refer to them, will be via the successful bidder for the various projects that are on at the moment, be it C-1180, or C-5000, we will be bidding, I assume, to the successful design and there'll be a lot of work in trying to achieve success in some of those bids. Often in a case where we'll be arguing for reference ship equipment changes to equipment that should be installed because it can be fully supported in-country. That's not going to be an easy road, but that's the road we're-
And that to me is sales activity.
Phil Tarrant: It is, and as a business are you quite buoyed by the opportunities in naval spending in the period ahead? Are you seeing it as a generational opportunity to actually -
Stephen: Well I think it is a generational opportunity, and there's some big dollars involved. Our take on it is that the Department of Defence and the Australian government wants a serious navy, and that means they will end up with capabilities that are superb, be it submarines or off-shore patrol boats, frigates, situation awareness generally.
The excitement for us is that some of this kit is so sophisticated, that we have to gear up to maintain it in-country, to support it, otherwise it'll never be optimised. Selling equipment? Fantastic. But it's possible that a lot of the equipment would be procured for example through FMS and we would not see that line, but we'll be there for the sustainability. And that might be ten years out, but that's an important part of our business model.
Phil Tarrant: So in terms of resourcing your business to be most effective, and by resourcing I mean people, how do you strike a balance between how many technical specialists I need, versus within defence, ex-service people, and particularly the naval personnel? How do you strike the balance? Is there a ratio of you need this many people to apply the thought pattern so it's connected to the customer versus the technical people? Or is it quite a fluid-
Stephen: It's fluid. Let me answer it- When we identify that we need additional technical capabilities in a certain area, the issue is not that we're presented with thousands of people who are ideally suited to that job, and invariably we struggle finding the people with the right technical background, and the right approach to equipment service. There are a lot of people around these days that will say that they're electronics technicians, and what they are is basically board-swappers. And that's not what we're after. We need people with knowledge of systems, knowledge of networks. It's almost at the stage that if we see somebody who is superb, we'll find a job for them. That's the way we are.
And I'm not sure that some of the guys coming out of defence have the level of training anymore that is what it used to be. There are massive exceptions of course, but-
In terms of Electrotech's approach, pretty well everybody in the company- we employ about 50 people, 45 of those would be technical. There's probably, counting myself, then there's be five admin/sales people, but the sales people are all technically trained. And some of our sales guys, because of the nature of the people they are, will want to get their hands dirty. They don't want to be sitting with a coat and tie all the time. They'll do a bit of that, but the want to occasionally take on a project.
The Pacific Explorer came in this morning after a refit in Singapore which we had seven guys on for about ten days, they were redoing the steering systems. Pretty well all of our sales team were on board that vessel today, in Sydney Harbour, working up the issues and so forth. So we're unusual in that there's not that many people without technical background.
Phil Tarrant: For those sailors, I guess in your case, who are looking at whether or not they want to build a long term career in the navy, or potentially shift into a corporate environment- if you were one of those guys, how would you be equipping your skillset so you're the most attractive person you can be when you choose to potentially look for a job in the defence industry?
Stephen: I would be spending an awful lot of time on network technology. I would spend a lot of time on understanding issues to do with network security. And sensors, and knowledge of sensors can be taught pretty quickly, but it's the overall systems with which everything works, 'cause everything talks to everything else. It's the ability to mentally understand how that all works, is what we're after.
Phil Tarrant: And if you're a sailor and you're looking to pursue that career, there is a lot of attractive opportunities available to the right people coming out of it, because they're in high demand skillsets. How would you match that with EQ? You might be technically gifted and be able to wire-in the bridge of a naval vessel, but the people skills, the salesmanship or communication capabilities, verbal or written, are these pretty important skills do you think?
Stephen: They are, but I don't think a really good electronics technician is any less of a really good electronics technician because his ability to be a salesman or a lawyer- a lot of my technical guys really think very lowly of- they don't think of themselves as being salespeople, and if you said "Oh you're a salesperson" they'd be horrified, but the reality is that they are. And the better they do their job, the more they're a salesperson.
Phil Tarrant: Interesting.
We're gonna have to wind up, we're running out of time, but I just want to touch on something that we mentioned very briefly, and that is the fragility of SMEs as they embark on this process of pursuing a business career within defence space. I was at the D+I conference in Canberra recently, and I heard someone make a remark to a friend, saying "I wonder if there'll be this many people in the room in two years’ time." And I guess what they were hinting towards is that there's so much noise around the defence industry at the moment. The white paper obviously has outlined a government commitment to spending near on $195 billion dollars over the next decade, so there's lots of work coming on.
We've got the ship-building opportunities moving ahead, but there's a lot of people out there looking at defence and with your benefit of experience, and hindsight, do you think that the industry's able to sustain all these new entrants, these new SMEs coming in? Do you think there is a culture of collaboration and connectivity to actually buoy them as they go, embark on this process, where it might be five, ten years before they might see a paycheck? Or- Where are we?
Stephen: It's a very difficult issue. Let me tell you a story about when I started Electrotech. It was a convoluted story, but-
The first thing we had to do was try and organise- because I didn't have any money- I had to organise a relationship with a bank, and do all the cashflow models and so forth. And then finally took the dive into it, and the bank rang my wife and summoned her down there, and spent two hours I think it was, telling her what would happen to her and our children if my business endeavour were to fail. She still tells people about the fear and the trepidation she felt as a result of that.
Now the reason I mention that is that when you start a new business, and we're not talking about offshoots of big businesses. When you take the plunge and you resign from your job or whatever you're doing, and you decide "I'm going to do this", it's a very difficult time. On the assumption that people aren't loaded with cash, that you have to borrow money, you have to put in whatever you have, you've signed up your house, wife and kids as a security. You have to navigate people paying their bills on time. You have to navigate selling equipment and services. It's a crocodile infested pond. But it is a most rewarding pond, if you are equipped to go out there and do it properly.
My advice to people is: Line up your funds so that you can sustain yourself for quite a long period of time, because projects always move to the right, never to the left. Make sure you've got the technologies in your business definition that are consistent with what you see the future achieving, and man up to it.
A comment on defence and talking about SMEs, and I think defence and government in general is trying hard- they're establishing research funding and all sorts of things, but to help SMEs, there has to be an understanding that SMEs are a little fragile to start with. They might be brilliant ideas, and somehow defence and government needs to be able to accommodate some of that fragility. To help. I'm not saying give them money or anything, but just to help them get through, so that they get to the other side of the crocodile infested pond, dust themselves down, and get on with it from a slightly firmer base.
I don't know, once again, if that answers your question -
Phil Tarrant: Well it just sounds to me that a little bit more hand-holding would help -
Stephen: Yeah well, perhaps. Yeah. And it's not money. It's almost, you know, "I'm from the tax department. What can I do to help?" But if there are SMEs around, it would be rather nice if defence occasionally would say "How are you going? What can we do to help?"
It was interesting. We had an audit recently from an area of defence, and indeed, at the end of it that's what they- they made some observations and basically said "How can we help you to achieve this?" And I thought that was very encouraging.
Phil Tarrant: That's good.
So Stephen, look, I've really enjoyed the chat. There's always a number of ways we can take a conversation. I think that we've covered off quite a lot here, so I do -
Stephen: We have.
Phil Tarrant: I do appreciate you giving us the benefit of your experience in a SME, which is stood the test of time, and you guys have done more than get started and dust yourself off; you're sort of excelling in terms of other programmes and projects. I know that you're delivering right now, and I think that the upsides are particularly in your niche, and navy is probably not a bad place to be considering some of the investment going on in that space right now.
Stephen: Couldn't agree more.
Phil Tarrant: It's good. But let's get you back in Stephen, I think to touch base in a year or so's time and see how the world's changed for you guys. It'll be interesting and we'll make sure we do that.
Phil Tarrant: And if you'd like to come on to the podcast, happy to get you on. We are always looking for a very diverse audience of people who work within defence industry, and as defence and defence industry grows and evolves we're getting some very interesting companies coming on and sharing their stories. Remember to check out defenceconnect.com.au, daily news and market intelligence for the defence sector. We're on all the social stuff as well, Facebook, Twitter, LinkedIn. If you'd like to follow me on Twitter, @philliptarrant. If you'd like to know anything about Electrotech, what's your website? electrotech.net.au
Phil Tarrant: There you go. We'll be back again next week. Thanks for tuning in and we'll see you then. Bye bye.