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It is as a result of this, that Governments globally recognise Small and Medium-Sized Enterprises (SMEs) as a catalyst to fuel economic growth and aid economic recovery. While many industries across the world are known for their engagement of SMEs, the defence and security markets are often not associated with this type of business, a belief which is far from true. So, speaking with our colleagues around the world and leading industry bodies, we ask, what really are the benefits of working with SMEs and how do they make an impact in the markets we operate within?

What traits make Small and Medium-Sized Enterprises (SMEs) so unique?

Innovative and agile are often words used to describe SMEs. These aren’t necessarily traits that are unique to smaller companies, but their strong association most likely stems from their ability to work at pace. Smaller organisations can make decisions rapidly and are not afraid to fail hard and fast in order to benefit in the long run. Within our corporate family, we have seen this ring true time and time again. For example: “QinetiQ Target Systems (QTS) owes a lot of its success to finding small and medium companies, who are interested in establishing win-win scenarios. Small and Medium business are willing to work with us to meet our unique demands and aggressive timescales and are a key component of the QTS supply chain,” David Sabados, Director of Operations, QinetiQ Target Systems (Canada).

SMEs can provide a range of niche and specialist capabilities to leverage any customer requirements. They may not produce a product or service in its entirety, as many traditional primes or larger companies would, but can offer in-depth knowledge and specialist services to deliver bespoke elements that make a wider offering much more valuable or efficient. “SMEs are often subject matter experts in their field, offering bespoke solutions or expertise to niche challenges, states Fred Sugden, Head of Defence Programmes at techUK. “Frequently, they are able to deliver superior products or services, which are better value for money and suit the customer’s needs better”.

It is not only the technical development, within SMEs, that can accelerate quickly, but also wealth creation in SMEs. The power of growth can see SMEs develop by 50-100% year-on-year; scaling at pace and allowing them to flex up or down with the change in supply and demand. “SMEs often find it easier to respond quickly because there is generally less bureaucracy,” says Tim Martin, Head of Defence Commercial at ADS. “You are often talking to the decision-maker and operations are streamlined to be as efficient as possible.”

As they scale-up, SMEs often provide significant benefit to local communities, through jobs, accessible goods, services and materials. As they continue to grow quickly, many employees are encouraged to learn how to diversify to support the company’s needs. Andrew Kinniburgh, Director General at trade body NDI explained how “In SMEs most employees take on a number of roles to develop the company. This not only benefits the organisation, but also the economy of their home nations, as these individuals become multi-skilled workforces for the future.” This approach to business encourages diversity and inclusion, supporting owners, leaders and employees from all backgrounds. It is for this reason that we see governments globally setting targets, introducing legislation or introducing key performance indicators to promote the engagement, involvement and spend with SMEs.

“Diversity within supply chains can not only bring new ideas and solutions to your organisation, but it also brings competitiveness, and boosts market growth. Beyond these commercial benefits, there is the BIG social value supplier diversity brings, reducing socio-economic inequality and creating stronger, more stable communities” - Minority Supply Chain Development UK (MSDUK)

What value do Small and Medium-Sized Enterprises (SMEs) bring to the defence and security industries worldwide?

Here at QinetiQ, we recognise the value of SMEs and work with our customers to drive success with SMEs across all of our home countries, aligning with the United Nations Sustainability Development Goals (SDG8 and SDG9). But beyond these global goals, what does SME engagement look like in nations across the globe?

In the United Kingdom, the Government is working hard to ensure that any programmes receiving public funding commission a measurable level of SMEs to deliver their goals. This is true even within the defence industry, where new quotas are being introduced and monitored with consequences to future funding if they are not met.

“Small and Medium-sized Enterprises (SMEs) are vital to UK prosperity, fuelling economic growth and providing over 16 million jobs across the country,” explains Andrew Forzani, Chief Commercial Officer and SME Champion at UK Ministry of Defence. “As the MOD’s SME champion, I am committed to attracting SMEs to all levels of the Defence supply chain. SMEs play a vital role in helping to deliver efficient, effective and affordable equipment, services and support for the Armed Forces. They are fundamental in maintaining our military advantage by providing innovative solutions to the threats and challenges faced by the MOD, both in the UK and abroad.”

Australia is a nation built on small businesses; they account for over 90% of all companies within the country and bring in a significant proportion of GDP.

“With a record $200 billion being invested in Australia’s defence capabilities this decade and the Australian Federal Government’s focus on building national sovereign industrial capacity, which includes ensuring Australian SMEs are well positioned to deliver operationally critical capability for Defence, the growth of SMEs in Australia has been strong,” depicts Clare Little, GM Commercial, QinetiQ Pty Ltd, Australia. “As an integral component of Australia's economic fabric, SMEs contribute significantly to innovation and employment in the Defence sector. Complementary collaborations and partnerships with SMEs are therefore a crucial business enabler for companies such as ours.” 

According to the Office of the United States Trade Representative, there are over 30 million SMEs in the US, accounting for nearly two-thirds of net new private sector jobs in recent decades. This surge is supporting, not just the US itself, but has fuelled a higher rate of exports globally too.

“In 2019, the United States Army adopted a new modernisation strategy aimed at transforming the Army in order to conduct Multi-Domain Operations (MDO),” says Dave Scott, VP Business Development, QinetiQ Inc. “This is intended to address the current and future actions of near-peer competitors. SMEs are an essential part of the Army’s effort to meet its modernisation priorities, by supporting research, development, and test efforts that are designed to make significant capabilities improvements which are required to effectively execute MDO. Utilising our Mission-Led Innovation paradigm, QinetiQ and its SME partners are leading the effort to make the environment a safer workplace for future generations.”

How can larger organisations leverage the benefits of SMEs?

The decision for large organisations is not if or when will SMEs be better integrated into their capability offering (that should be a given in today’s workplace). The real question is how can frictionless integration be achieved?

The defence market is extremely unique because of its fluidity. One day an organisation can be the prime of a multi-million pound programme and the next could be providing a small component of a much bigger programme. Suppliers can move up and down the chain but the collaboration as whole is what brings unique value.  SMEs are perfectly conditioned to flex in size and delivery as highlighted above, but they need to be given the right opportunities to do so.

Andy Johnston, the Defence Policy Advisor at ADS explains: “SMEs don’t want opportunities to be handed to them on a plate or special dispensation; they are simply looking for equal opportunities to engage in large-scale programmes and to be able to stand shoulder-to-shoulder with well-known primes.”

At QinetiQ, we seek to remove barriers of entry for SMEs, we use systems and tools from pre-qualification to e-souring, all to increase speed to contract. We collaborate with SMEs and those that represent SMEs, such as all those who have contributed to this article, to continue to improve our ways of working, whilst applying proportionately to our commercial deals. We look to support SMEs by providing orientation and guidance through the procurement process.

For all those in the defence industry, and beyond, which would benefit from engagement with SMEs, there is a need for more openness and ways to even the playing field so that companies of all sizes can bring their unique offering to the table.

What more needs to be done to support Small and Medium-Sized Enterprises (SMEs)?

While SMEs may appear to be the underdogs right now, many will grow to become million or even billion pound companies, and will be important players in our industries in future. There is a real need to support them and help them develop, for the benefit of all. “If larger companies help new SMEs through nurture and collaboration, then it is likely to pay dividends for both businesses further down the line,” Andrew Kinniburgh, Director General, NDI. It is imperative for our industries as a whole, to provide access to technology, access to contacts and share general know-how with smaller companies in order for them to grow.

As with many organisations, QinetiQ has come a long way in its approach to engagement with SMEs. Simon Tomlinson, our Group Supply Chain & Procurement Director concludes: “As an industry, we have made significant progress in the way that we work with SMEs. However, there is more to do in order to increase the diversity of our supply chains, to unlock the true potential of what can be achieved and to open up the opportunity for even greater collaboration with SME’s. We must continue to challenge ourselves to remove barriers to entry and provide equal opportunities for all enterprises, regardless of size or geography. This is only achievable through true collaboration; sharing our successes, nurturing talent and working together to reach a common goal.”

QinetiQ is a company that prides itself on creating collaborative ecosystems, solving real-world problems and creating tangible outcomes. Working with our customers, partners, and suppliers we look to create unrivalled capability through the best of industry.

This is the first in our series about working with SMEs. Check back for our future pieces, which will cover tips and tricks for working with SMEs, how to get the most out of supply chain ecosystems and frameworks, Q&As with some of our SME partners and a look at the future of SMEs within our core industries.